What’s holding back housing delivery?
Industry figures cast serious doubt on the UK government’s ambition to build 1.5 million new homes. Annual private housing starts in England have plummeted by 40% since the start of 2022, with planning approvals down by a quarter over the same period. This is not a cyclical downturn but a structural crisis, defined by what Zoopla’s latest report terms the “viability gap”.
This gap represents the divergence between the soaring cost of delivering new homes and the static sales values achievable in the current market. Since 2022, the average cost of building a new home has jumped by 17%, while average selling prices have risen by just 1%. This squeeze on margins has stalled projects and is hindering future housing supply. Historically, the housebuilding model relied on house price inflation to absorb rising costs, but this is no longer the case. The Zoopla report warns that house price inflation “cannot be relied upon to resolve the viability challenge,” forcing a shift away from speculative building towards a more evidence-based, de-risked approach where every decision is underpinned by robust data.
The disparity between build costs and sales values
While material and labour costs are significant contributors to the pressures facing developers, a growing financial burden comes from policy and regulatory requirements, such as Biodiversity Net Gain (BNG) and the forthcoming Building Safety Levy. These national regulations impose a relatively fixed cost per unit, regardless of the final sales value. This has a disproportionate impact across the country, penalising development in lower-value regions and deepening the North-South viability divide.
The North-South divide
Geographical market variations have created an “affordability paradox”. In Southern England, where sales values are highest, development is considered viable across two-thirds (64%) of the region. This figure drops to just 13% in the Midlands and 10% in Northern regions. However, in the viable Southern markets, high house prices are often above what most local workers can afford to buy. Conversely, in the most affordable markets in the North and Midlands, a staggering 90% of these areas are unviable for new housing development due to low sales values relative to build costs. This creates a lose-lose scenario where housing delivery is constrained by affordability limits in the South and by economic unviability in the North.
The following table, using data from the Zoopla report, illustrates the above:
| Local authority |
Annual housing target |
Sales price relative to cost of development |
Viability status |
| St Albans |
1,660 |
+50% |
Viable |
| Buckinghamshire |
4,319 |
+30% |
Viable |
| Cornwall |
4,421 |
+5% |
Marginal |
| Cheshire East |
2,461 |
0% |
Marginal |
| Birmingham |
4,448 |
-6% |
Unviable |
| Manchester |
2,430 |
-7% |
Unviable |
| Kirklees |
1,840 |
-26% |
Unviable |
| County Durham |
2,011 |
-72% |
Unviable |
A challenging demand landscape
Compounding the cost pressures facing housebuilders is a tougher demand backdrop. The end of the Help to Buy scheme in 2022, combined with higher mortgage rates, has eroded the purchasing power of potential buyers. This crisis extends to the affordable housing sector, where housing associations (HAs) are also facing financial pressures. HAs have historically de-risked projects for developers by acquiring the affordable housing portion of a scheme (via Section 106 agreements), but their weakened capacity has created uncertainty. Analysis shows that more than 100,000 private homes and 17,000 affordable homes are currently stalled due to a lack of bids for these Section 106 units.
