Shock data reveals home building unviable in half England
Zoopla's analysis reveals Government's 1.5 million homes target is unachievable as building costs have risen faster than house prices.
Building new homes is not financially viable across large swathes of the country, with new analysis from Zoopla revealing a fundamental affordability gap that threatens to undermine Labour’s flagship housing policy.
The research shows home building is unviable in 48 per cent of England and challenging in almost two-thirds of it.
The news comes just days before Labour’s conference, where housing delivery will dominate discussions with six separate sessions set to address how to speed up the delivery of 1.5 million new homes.
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.”
Richard Donnell, Executive Director at Zoopla (pictured), 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.”
According to the data, there is a major disconnect between viability and affordability – in areas where it is viable to build homes, buyers cannot afford them, and where homes are affordable for buyers, builders cannot make the finances for developments stack up.
Build costs have risen 17 per cent since 2022, while sales prices have increased by just one per cent, creating an impossible equation for developers in much of the country.
And there is a clear north-south divide. Two-thirds of southern England have sales prices that support development costs, compared to just 13 per cent in the Midlands and 10 per cent in the North.
affordability squeeze
Donnell says: “It is much harder for builders to build homes where it’s affordable for home buyers to buy.”
He adds that the affordability squeeze has been worsened by the ending of Help to Buy and rising mortgage rates, while demand from housing associations has dropped due to building safety costs and higher borrowing rates.
Planning permissions, which offer the best indication of the programme’s progress, have fallen to their lowest level since records began, down 23 per cent since 2022. And, to compound Labour’s problems, in its own constituencies, 37 per cent of its housing targets are rated as unviable for development.
The Government has no idea of what it’s like to run a construction or development company. They have no idea of the impact of S106 and CIL obligations on SME companies in particular, never mind all the heavy costs of insulation, cooling and ventilation requirements, biodiversity net gain, water neutrality, etc etc, none of which costs burdened developers in the days of high build rates in the 1960s and 1970s.
An example: Angela Rayner was trumpeting the availability of “grey belt” land, yet she was demanding developers give away 50% of the site as social housing, which means all the planning costs, the land costs, and trying to achieve a profit margin falls on the remaining 50% of houses for private sale. Builders at best receive the cost of construction for the social housing they build, and increasingly not even then not, because labour and construction costs have soared but the rents charged by housing associations, on which they base their “offer” – as though the builders have any choice about whether to accept it – have not increased. And many housing associations are simply not interested in acquiring new-build social housing now, no matter how massively and forcibly subsidised they are by housebuilders, because they are investing their capital into renovating their existing housing stock to meet new EPC rules, new ventilation requirements, etc.
The heavy cost of S106 and Community Infrastructure Levy is unaccountable rarely mentioned when these assessments of construction affordability are made, but they are the elephant in the room as well as the housebuilding industry is concerned.
No one ever seems to mention the aftermath of the terrible help to buy scheme. It was so orientated around new homes that it drove new home prices up at least 10% higher than used homes. Developers benefitted by that 10% and are now paying the price. Trying to build large flat developments with little parking and sell them for top prices just isn’t going to fly any more as FTB’s can buy much better value homes on the residential market. It will eventually balance out as wages and house prices rise and catch up with new homes but the government needs to leave it alone with no more SCHEMES which just kick the can down the road. Only good thing that can be done is to start lending 100% mortgages on 5 year fixed rates to good quality buyers. It will help all those in rented as well as releasing first time sellers to move up the ladder. Slowly but surely approach.