The UK government’s target to deliver 1.5 million new homes before the next election appears increasingly unattainable as developers struggle with profitability challenges, according to industry analysis.
Adam Walker, a business sales broker with over 40 years in the property sector, has outlined the structural barriers preventing developers from building at scale. The constraints have implications beyond new build sales, affecting the wider residential market including downsizers and chain-dependent transactions.
Construction costs surge £76,000 per unit
The Home Builders Federation reports that building costs have increased by £76,000 per home since 2020. This figure encompasses multiple cost pressures including landfill tax, community infrastructure levy increases, rising building material prices, and labour cost inflation driven by minimum wage increases and higher employer National Insurance contributions.
Planning applications have become more complex and costly, whilst environmental compliance requirements add further expense. For high-rise developments, post-Grenfell fire regulations requiring second staircases have reduced unit density, with typical developments losing two flats per floor and significantly impacting gross development values.
Market conditions compound challenges
Developers face a combination of price falls in many areas whilst land costs remain elevated. Social housing requirements, reaching 50% on some developments, further reduce overall scheme profitability.
The impact extends to the resale market, where transaction volumes depend partly on new build availability. Estate agents typically derive limited direct income from new home sales, but second-hand transactions often rely on new build stock for downsizers and chain progression.
Potential policy interventions
Walker suggests several government measures could improve development viability: reducing or abolishing landfill tax, lowering community infrastructure levies, relaxing second staircase requirements where fire protection is robust, and adjusting social housing percentages to enable scheme delivery.
He argues that accepting 40-45% affordable housing in a 100-unit scheme would deliver more social housing than insisting on 50% if the latter renders developments financially unviable. The analysis notes that some cost pressures may ease naturally as economic conditions improve and market forces potentially reduce land values.
The assessment concludes that the severity of housing supply constraints may prompt earlier policy action than currently anticipated, though no official government response has been confirmed.
