Labour’s plan to require developers to build affordable housing on at least 50% of “grey belt” land could make 80% of small development sites unviable, according to research by technology firm Viability. The study suggests that reducing the requirement to 35% would significantly improve viability, making 30% of sites viable for small developers.
The researchers analysed small grey belt sites within London’s Green Belt, an area with some of the highest house prices in the UK, where developers can typically achieve strong returns. The research assumed a minimum profit margin of 20% for developers to maintain operations and secure bank financing, and that landowners would only sell if offered prices at least 10% above the current land value.
The study concluded that if the government imposed a 50% affordable housing target, 80% of sites would pose “significant financial risk” to developers and would likely not survive. Reducing the affordable housing target to 35% would increase the proportion of viable sites to 30%.
Labour’s broader reform of the planning system aims to build 1.5 million homes over the next four years, including on greybelt land – land that has been developed in the greenbelt and needs to be cleared and put back into use. Councils in England have been given mandatory housing targets, with Deputy Prime Minister Angela Rayner urging council leaders to see housing development as a professional responsibility and a moral obligation.
The ongoing consultation by the Ministry of Housing, Communities and Local Government on the reforms, which ends on 24 September, confirms that the 50% affordable housing target is “subject to the viability” of the site. If a developer proposes to build below the 50% target, they must submit a viability assessment, which local authorities can reject if they think the developer is paying too much for the land. The consultation is also seeking input on whether local planning authorities should be allowed to set lower targets in “low-value areas” to encourage more building in the north of England.
Henry Male, co-founder of Viability, supports the government’s efforts to increase housebuilding, but argues that greater flexibility is needed to reduce costs for small developers dealing with small sites. “It is essential to ensure that development is financially sustainable,” says Male. “The stopping point for any developer building housing is whether the site is financially viable.”
Small developers are responsible for about a quarter of the 200,000 new homes built each year. Male said small developers must consider a wide range of costs, including land clearing, biodiversity improvements, community infrastructure and housing mix.
According to Mayle, affordable housing typically costs between 85% and 90% of the cost of building a house in the private market, but is sold to housing associations and local authorities at between 50% and 70% of market rates. “Developers lose money by providing affordable housing, so the profits have to come from housing in the market,” Mayle said. “Developers need to earn their own profit margins to stay in business, and new regulations are making that increasingly difficult.”
The Ministry of Housing, Communities and Local Government has rejected Viability’s findings, saying: “We do not recognise these figures. Developers have some flexibility in exceptional circumstances, but they must provide robust evidence if they cannot meet our expectations for affordable housing.”
David O’Reilly, chief executive of the Home Builders Association, acknowledged the government’s efforts to improve planning, but pointed to the increasing costs imposed by local and national policies, such as the Future Homes Standard, net biodiversity gains requirements and the growing demand for social housing. “While public bodies have the right to determine the social benefits of development, this must be done wisely,” O’Reilly said. “Setting targets that are too high could stall development altogether and undermine the overall housing supply.”
Viability, whose software automates land valuation for small developers – a capability usually reserved for industry giants – hopes to enable smaller property developers to gain data-driven insights to work more effectively with local authorities. The company has received funding from Innovate UK and is set to officially launch on September 16, after two years of development.
“Our mission is to address the housing crisis by supporting small and medium-sized developers,” said Mayle. He explained that Viability’s programme significantly reduces the time it takes for developers to assess potential sites. “What used to take days of traditional research can now be done in minutes with an accuracy of 2% of developers’ estimates,” he added, highlighting the potential of technology to streamline the development process and help meet the UK’s housing needs.
Comments are closed, but trackbacks and pingbacks are open.