BLOGS

The UK housing development sector is experiencing one of its most challenging periods in recent memory. Rising construction costs, elevated borrowing rates, and tightening viability margins are squeezing developers of all sizes, from SME housebuilders to the largest volume builders. Meanwhile, housing completions continue to fall short of government targets, creating a troubling paradox: the country desperately needs more homes, yet the economics of building them have rarely been harder.

The numbers tell the story

REalyse planning data reveals a significant cooling in development activity. Planning approvals for residential schemes fell from approximately 10,500 in 2024 to around 8,700 in 2025 — a 17% decline. The number of approved units followed a similar trajectory, dropping from 138,000 to 115,000 over the same period.

This slowdown is reflected in transaction data too. New-build properties now represent a median share of just 1-2% of total residential transactions across most property types, with only detached homes maintaining a healthier 10-14% new-build share. Average new-build sale prices sit around £380,000-£450,000, with significant variation by property type — flats commanding £600-680 per square foot in premium locations, while houses typically achieve £300-340 per square foot.

These figures suggest that despite strong underlying demand for housing, developers are struggling to bring sufficient stock to market at prices that make schemes viable.

The cost squeeze on developers

Construction costs have risen substantially since 2020, with materials, labour, and energy all contributing to tighter margins. The Building Cost Information Service (BCIS) has tracked sustained increases across most building components, while contractor insolvencies have further constrained capacity and pushed tender prices higher.

For SME developers — typically building fewer than 100 units per year — the squeeze is particularly acute. These builders often lack the purchasing power to negotiate favourable supply contracts, the land banks to weather extended delays, or the diversified portfolios to absorb losses on individual schemes. Many have been forced to pause projects mid-development or abandon sites altogether.

Volume housebuilders have more tools at their disposal, including forward purchasing agreements, in-house capabilities, and access to cheaper capital. Yet even the majors have pulled back on land acquisitions and slowed start rates. Several have reported lower completions guidance, citing the need to match supply to achievable sales rates rather than chase volume at any cost.

Finance costs add another layer of pressure

Development finance has become significantly more expensive as base rates rose through 2022-2024 and have remained elevated. Senior debt facilities that were once available at 4-5% are now pricing closer to 8-10%, with mezzanine and stretched senior products commanding even higher rates.

For schemes already in the ground, the impact is manageable if sales proceed on schedule. But for projects experiencing delays — whether from planning, construction issues, or slower-than-expected absorption — the compound effect of higher carrying costs can quickly erode margins to nothing.

REalyse data shows over 9,300 residential planning applications still pending decisions across England, representing significant capital tied up in uncertain outcomes. Each month of delay adds cost and reduces the ultimate returns available to developers and their investors.

Viability under the microscope

Local planning authorities are increasingly scrutinising viability assessments, particularly for schemes seeking reduced affordable housing contributions. Developers argue that rising build costs and finance charges make historic Section 106 requirements undeliverable; councils counter that land values should flex to accommodate policy requirements.

This tension has led to extended negotiations on major schemes and, in some cases, stalled permissions that cannot proceed without revised terms. The result is a planning pipeline that looks healthier on paper than it feels in practice — with hundreds of thousands of consented units that may never break ground under current economic conditions.

For investors and lenders evaluating development exposure, REalyse's planning and transaction data provides crucial visibility into which schemes are progressing, which are stalled, and how local market conditions affect ultimate sales values. This intelligence is increasingly essential for underwriting new commitments and stress-testing existing portfolios.

What comes next?

The outlook for UK housebuilding hinges on several factors beyond developers' direct control. A sustained reduction in base rates would ease finance costs and improve viability, though the timing and extent of any cuts remains uncertain. Government intervention through planning reform, infrastructure investment, or direct support for smaller builders could help unlock stalled supply.

For now, the sector appears to be in a period of consolidation. SME developers with strong balance sheets and conservative leverage will survive; those stretched thin may exit the market through distress or acquisition. Volume builders will prioritise margin over volume, focusing on prime sites with clear demand signals rather than speculative landbanks.

REalyse will continue to track planning activity, new-build sales performance, and development pipeline data to provide clients with the intelligence needed to navigate this challenging environment. Understanding where schemes are viable — and where they are not — has never been more important for investors, lenders, and developers alike.