According to a report by Zoopla, the idea of meeting the government’s target to build 1.5m new homes in England in five years is unviable, because in half the country it’s not financially practical to build. According to the report:
- Building homes is not financially viable across 48 percent of England and considered challenging across almost two-thirds of England (64 percent)
- The viability challenge is down to the fact that the overall cost of delivering a new home (up 17 percent) has grown faster than sales prices (up one percent) since 2022
- Two-thirds (64 percent) of southern England have average sales prices at levels that can support the cost of delivering new homes, compared to just 13 percent in the Midlands and 10 percent in the North
In addition the analysis highlights a disconnect between viability to build and affordability for home buyers – this shows that where it is viable to build homes, it is unaffordable for people to buy, and where it is affordable to buy, it’s less viable for builders to build homes.
With the Government set on its ambition to build 1.5m homes over five years, Zoopla’s analysis highlights it is far from easy to build in the areas that need new homes the most at pricing levels that support more home building. The delivery of new homes has stalled, with the number of homes granted planning permission down by 23 percent since 20221 and seven per cent lower over the last year, casting serious doubt over the housing target.
Commenting on the report, Richard Donnell, Executive Director at Zoopla says: “While the Government says it wants to ‘build baby build’, our analysis shows that this can only be currently achieved across half the country, in areas that are typically more expensive for consumers to buy. It is much harder for builders to build homes where it’s affordable for home buyers to buy.”
Cost to deliver homes has risen significantly faster than sales values
Analysis of reports and accounts from large listed housebuilders reveals that the cost of building homes increased by an average of 17 percent between 2022 and 2024, while average selling prices rose by just one percent. Smaller-sized home builders, who account for 30 percent of new build developments in England, are likely to have experienced higher levels of cost inflation than larger, listed builders.
The cost of building new home developments has risen quickly in recent years as a result of higher borrowing costs, greater build costs, and increasing costs resulting from policy changes, as well as additional future costs from the Building Safety Levy and the proposed Future Homes Standard, with more in the pipeline.
Table 1: Build and sales costs changes for major listed builders 2022-2024
Demand for new homes has weakened since the ending of the Help to Buy equity loan scheme in Autumn 2022 and the recent increase in mortgage rates. It has also been weakening within the affordable housing market. Large developers rely on housing associations to buy up to a quarter of their new builds through Section 106 agreements. However, demand from these associations has dropped due to well-documented issues like building safety costs and higher borrowing rates.
North-South divide widens
The analysis also reveals a clear north-south divide in the viability of home building. Higher sales values of new homes in southern England are supportive of development viability, compared to the Midlands and northern England where sales values are lower relative to the costs of delivering new homes.
Table 2: Viability of building homes follows a north-south divide
Two-thirds (64 percent) of southern England have average sales prices at a level that can support the cost of delivering new homes, compared to 13 percent in the Midlands and 10 percent in Northern regions. It is important to acknowledge that builders are currently developing homes in areas where viability is poor for new schemes on land that was acquired in the past so these extra costs are typically being absorbed by lower margins. Making new land acquisition work is the growing challenge that hits future delivery, as 37 percent of the housing targets are located in areas rated as unviable for development.
However, while the viability to develop new homes is better in southern England, these areas have some of the most unaffordable markets for home buyers. This limits the pool of potential demand, creating sales risk and slow sales rates for new housing schemes.
The report recommends four key actions to address the problem:
- Planning Reform: Continue to simplify and unlock the planning process to make it easier to develop land
- Regulatory Review: Re-evaluate new policy burdens that increase development costs
- Targeted Funding: Deploy new funding for affordable housing quickly and strategically to enable housing associations to acquire new homes
- Demand Support: Consider a return of targeted support for first-time buyers to boost demand without inflating prices across the board
Richard Donnell continues: “The government can’t control the price of raw materials like bricks or concrete, but it can influence the rising costs of new regulations. While recent planning reforms and affordable housing funding are positive steps, they are not a complete solution to boosting new home building. Further reforms are needed to boost capacity and speed at the local planning level and new funding should be focused on immediate, not long-term, delivery. Direct support for homebuyers could help, but if deployed, requires careful targeting.
Builders also need to ensure they are marketing homes as efficiently as possible. Affordability pressures are making people look further for their next home, especially in the new homes market. Zoopla has boosted the visibility of new homes within property search and is helping builders target would be buyers from across wider catchment areas.”
“Building more homes is vital in helping to ease the pressures facing those in the housing market, but the viability of building is at risk from further cost increases and we can’t rely on higher house prices to fix it.”
See also: Ventilation – The Secret to Sustainability
