5 ways the construction industry could change in 2025

After a challenging year where tradespeople saw lower profits and workloads than expected, we look ahead to 2025 to see what might change.

Can lofty government targets solve the complex challenges facing the industry? And what are productivity forecasts predicting for the industry in 2025? 

Here are our five predictions for the construction industry in 2025: 

1. Housing targets can create opportunities for SMEs
2. Planning reforms could cut red tape   
3. Productivity can recover in 2025 
4. Skills shortage could hold sector back 
5. Modular construction will continue to grow 

1. Housing targets can create opportunities for SMEs 

SMEs only build 10 per cent of new homes in the UK but we could see that number rise in 2025. 

“Get Britain building again” was a core part of the government’s manifesto during their general election campaign. The ambitious target of delivering 1.5 million new homes across the UK could create opportunities for small builders. 

The Housing Minister, Mathew Pennycook, said: “The UK is over-reliant on a handful of volume builders” which hints at a more prominent role for smaller construction companies in the government’s plans. And with a skills shortage stifling the industry since 2020, the hope is that small building firms can help fill the labour gap. 

The government also plans to introduce a “use it or lose it” policy for approved land that’s owned by large developers. So if the volume builders don’t work on land they own, it will be freed up for smaller firms to start working on right away. 

2. Planning reforms could cut red tape 

Longwinded and complex planning regulations have been a barrier for small builders for some time. Housing Secretary Angela Rayner has said she wants to ‘remove the chaos and subjectivity’ from the planning system.  

The plan to streamline the planning process should be good news for SMEs, with the main benefits being: 

• reduced bureaucracy – Labour’s main aim is to simplify starting a project by removing steps in the planning process
• greater local input – local authorities could receive greater powers to lead on construction projects and choose who does them, opening up the chance for local businesses to bid for government contracts in their area 
• financial incentives – plans to offer grants and subsidies to small firms that commit to building affordable homes could make jobs more accessible
• easier approvals – as well as streamlining the process, Labour wants to get more projects approved  

3. Productivity can recover in 2025

Productivity and overall workloads in construction have declined in the last 18 months. With labour shortages, lower demand, and rising costs all holding the sector back –  an improved economic outlook in 2025 could see productivity improve. 

A forecast from the Construction Products Association predicts that construction output will grow by 2.5 per cent in 2025 – and a further 3.6 per cent in 2026. For context, the overall output fell by 2.9 per cent in 2024, so there’s some cautious optimism in the industry for the upcoming year. 

Falling inflation and interest rates combined with broader economic growth could lead to increased investment. Both from the government and consumers who haven’t spent as much in the challenging economy the past 18 months.

4. Skills shortage could hold sector back 

The skills and labour shortage has no quick solution and will continue to be an issue for the industry in 2025. Research predicts a shortfall of 250,000 tradespeople by 2030 if things don’t improve.

But the government wants to improve the shortage of workers by investing in apprenticeships. The Growth and Skills levy replaced the apprenticeship levy, and offers more flexibility, control, and access for small business owners. 

Getting young people into construction apprenticeships should help them gain the skills to enter the industry and balance the aging workforce. But while these are positive steps, it will take some time for the industry to see the benefits.

5. Modular construction will continue to grow 

A rapidly growing part of the industry is modular construction, with it seen as a silver bullet for many of the industry’s issues. 

Modular construction is a form of offsite building where components of structures are made in a factory then delivered and assembled on site. It’s viewed as an efficient and cost effective way to get around the skills shortage as machines are used for complex jobs, freeing up workers for other tasks. 

It’s also making some jobs quicker with the modules being built simultaneously to the work on site, meaning there’s less time wasted waiting for materials. 

It’s no wonder the government is investing heavily in modular housing, with a £2.5 billion scheme aiming to deliver 25,000 new homes by 2026. And by the end of 2025, it’s suggested that the industry of modular construction could be worth £12 billion. 

What do you predict for the industry in 2025? Let us know in the comments below.  

More useful guides for small business owners 

• What is the CIS?
• What is a CSCS card? 
• How to write a late payment letter
• Insurance for construction businesses