Latest housing research: the cost of increasing housing supply, and the cost of failure

These findings are echoed in Zoopla’s report on the viability gap in England, which outlines that development costs for new homes have risen by 17% since 2022, while sales values increased by only 1%. It notes that higher borrowing costs from increased interest rates, materials and labour inflation and increasing costs of regulatory requirements have hit supply, while higher borrowing costs and reduced demand for Section 106 homes have weakened demand.

By comparing sales values for new homes to the all-in cost of delivering a new home, Zoopla has found just 36% of areas in England are viable for starter and family housing projects, meaning two-thirds of markets in the country now face viability challenges, with a clear North-South divide. The spatial nature of viability, Zoopla argues, creates an affordability paradox: it’s hardest to build in areas where homes are cheapest, whereas building is easiest in high-price areas where locals can’t afford the new homes.

These findings have been reinforced by a report from the Home Builders Federation (HBF), which revealed that housing delivery in London is at its lowest level in a decade. Challenges related to viability mean fewer sites can meet the London Plan’s 35% affordable housing requirement. These developments are ineligible for the Fast Track Route for planning and must proceed via the Viability Tested Route, delaying the process. Developers, especially those in London, are also disproportionately affected by building safety regulations.

The reports by Zoopla, HBF and The Housing Forum cite resourcing, planning system issues and costs linked to regulation as barriers to housing supply. The Housing Forum’s report on collaborative solutions to housing delivery additionally highlights barriers around an ageing workforce of contractors and labour and skills shortages affecting the construction industry.

The consistently recommended solutions to overcome these barriers include long-term, inflation-adjusted investment in affordable housing, continuation of planning reform (a shift towards a rules-based or zoning planning system and standardised Section 106 negotiations), and reviewing the costs linked to new regulations. The Housing Forum also recommends creating a comprehensive national housing strategy to ensure a stable policy and regulatory environment for the future. This might involve investing in skills hubs and creating efficiencies through embedding AI, as well as embracing modern methods of construction.

The cost of not meeting demand is high. Research for Shelter estimates that failing to provide 90,000 new social rent homes a year in England would cost £3.3bn within a year, rising to £18.5bn per year within a decade. These costs include higher housing benefit payments and increased NHS spending due to poor housing conditions, as well as lost productivity and poorer labour market outcomes because of inadequate housing. Moreover, people are missing out on the benefits that living in social housing can provide.

Another study commissioned by Shelter from HACT tracked 420 people who recently moved into social housing, measuring outcomes over time. The first report on the immediate impact of moving into a new tenancy saw over three-quarters of new social tenants say their housing condition is better than where they lived previously. Just over half of people (52%) reported it was easier to pay rent and bills, 61% said their current home improved their mental health and 44% felt their physical health was better in their new home.

Furthermore, over half (51%) were no longer burdened by debt they’d had before moving into social housing. Parents noted their children had space to play and do their homework. Finally, nearly two-thirds (62%) of new social tenants felt that their new home made them able to plan for the future again.

These statistics underline the fact that delivering affordable homes is not just about hitting supply targets or balancing precarious budgets – affordable social housing directly improves well-being, opportunity and dignity for citizens, addressing their needs now in order to create a better future.

Bekah Ryder, research and insights manager, Altair, and member, Thinkhouse Editorial Panel