The UK Government’s much-touted target of building 1.5 million homes during its tenure is an ambitious but needed goal to address the problems brought about by lack of housing currently available in the country. The housing deficit is a multi-faceted problem with several root causes, but one which is having the most tangible impact on progress is the issue of viability.
The critical trigger of value in excess of cost with acceptable margin is what most residential clients are struggling with in order to get developments moving – and failing to overcome this challenge is ultimately at the expense of people of all ages and backgrounds who are unable to access the right housing for their needs and the creation of new communities. In this piece, I’ll be exploring why this is happening, and how the industry can work together to find solutions and get the market moving forward.
A strategic, and early approach is the central puzzle piece to unlocking viability
The cost of local infrastructure is a significant viability challenge to enabling land for effective residential usage – and by infrastructure here I’m referring to transportation, healthcare, education, utilities, drainage and other resources that keep communities running. Although house development contributions to fair planning agreement obligations are necessary, they’re a stumbling block in the proposed development of brownfield and greenfield sites when they are geared to provision that is beyond the reasonable needs of any development – i.e. strategic. The challenge is generally greater when these strategic costs are related to urban / town centres sites which can provide must better opportunities to create effective place and add reliance to our towns and cities.
The viability need and opportunity for residential clients often results into negotiations with local authorities on reduction in affordable housing provision which is at the very heart of the government’s housing objectives and as such the process could be argued to be self-defeating.
Will the expansion of unitary authorities improve viability?
In December 2024, the government stated as part of the English Devolution White Paper that it wants all remaining two-tier areas in England to be restructured into single-tier unitary authorities. Although 71% of the English population already lives within one of the 132 unitary local authorities , many areas of the south east where housing demand is high are still in a two-tier council system.
A common argument made in favour of unitarisation is the opportunity to deliver efficiency savings and improve public services, as well as removing red tape around infrastructure delivery at a local level. How this might impact housing delivery in the affected areas remains to be seen, but there should be optimism that this approach could spark a more holistic approach to the delivery of strategic infrastructure.
What other solutions are there?
Another obstacle to development viability is the requirement for long term infrastructure to be paid for upfront of development and not during the lifetime of its use and benefits. This burden is often too high at the outset of the life of housing projects, and the government should consider introducing a longer-term funding arrangement for infrastructure to ease the burden of cost of infrastructure through lower initial capital expenditure. This kind of funding could potentially be drawn from the reconfiguration of local authority pension funds, or alternative long term finance sources.
In an ideal world, land costs should also reflect the financial outlays of enabling it for use. Densification values need to address the cost of site infrastructure needs – there’s a general expectation that locations close to town centres will be consented and therefore are more valuable. However, the reality is not quite that simple as these assets are often not more valuable when infrastructure burden is fully assessed. There is an argument that land prices need to be pushed down to compensate more accurately for cost of development rather than around the likelihood of development consent. This would need a radical overhaul of the allocation of land for development within Local Plans, but could increase the potential land supply side counterbalancing scarcity and hence land prices.
Breaking down silos to improve viability
I’ve mentioned it previously, but the cost burden of infrastructure should not just be limited to those creating housing, but to a range of parties that benefit. Some providers of this infrastructure (e.g. utilities providers and transport companies) get payback through increased customers over a long period after the development, and it would be a more equitable process if this were better structured and factored into viability equations. This step alone would be enormously beneficial to unblocking financial obstacles in a whole range of residential developments.
Working together as an industry is also key – individual consultancies and developers can only do so much on their own, and there needs to be action and greater involvement from the government as viability issues are impacting housing deliverability across the country. These are wholesale changes that are needed – rather than just tweaking the planning system, there needs to be a partnership approach between developers, local authorities and the government to deliver the new communities that are so urgently needed.
Every development is different, and there’s no one-size-fits-all answer. Consultants can play a significant role in helping those building housing to understand what enables scheme to be viable, what challenges need to be overcome, how to create value opportunities and how to direct solutions through an affordable infrastructure or enabling works budget. Ultimately, developers will only deliver if they can deliver to a margin and as a consequence the viability alignment often results in reduced affordable housing provision. Getting the right team of advisors on board early in the process can make the difference in assuring the success of potential developments and avoid any delay in delivery.
All in all, reaching the government’s 1.5 million homes target requires a holistic approach – and it’s certainly not a quick fix situation as other issues such as the skills gap also come into play. But if the government galvanises the housing industry to collectively take steps that will address the obstacle of viability, and to take the right steps at the outset of each project, there’s a lot of potential to meet this target.
