Zoopla’s 2025 Homebuilding Viability Report reveals a stark reality that S106 Management have been assisting applicants with for the last decade:
Building new homes is now financially unviable in nearly half of England and under pressure in much of the rest.
The viability gap: costs vs prices
- Since 2022, the cost of delivering a new home has risen by 17%, whereas average house sale prices have increased by only 1 % over the same period.
- Costs (materials, labour, financing, regulatory burden, various taxes and levies) have significantly outpaced price growth. Therefore, contrary to the widely held assumption that development is a ‘magic money tree’ for policy makers, many developments simply cannot generate a viable profit margin.
- In fact, Zoopla finds that 48% of England is currently non-viable for homebuilding, and 64 % of the country is classified as either non-viable or “challenging.”
- Nowhere is this more obvious than London, where fewer than 1,000 housing starts have been made by Q2 2025, suggesting 5,000pa against a requirement of 88,000pa.
Geographic disparities and the north/south divide
- There is a pronounced north–south divide in viability. In southern England, about 64% of areas have sales prices high enough to support development at current cost levels, whereas in the Midlands only 13% and in the North only 10% of areas meet that threshold. This accords with S106 Management’s experience – that broadly a majority of northern viability challenges are successful, leading to 100% reductions in s106 contributions and affordable housing requirements.
- This leads to a paradox: areas where it is viable to build tend to be the least affordable for buyers; in contrast, in more affordable regions, building is often not commercially feasible. This results in the requirement for viability assessment in all northern areas, and increasingly southern areas as well to reduce pricing – as cross-subsidy requirements for s106 contributions and affordable housing perversely drive increased house prices on open market portions of schemes.
Demand, planning, and regulatory pressure
- Demand for new homes is weakening. The end of Help to Buy in 2022 combined with higher mortgage rates has constrained buyer viability. Recent unhelpful political speculation around property taxes has also ground the market to a halt, particularly for properties over £500,000, which demand has fallen -10-15% in recent months. This has the impact of further constraining viability, as the more expensive properties which would otherwise cross-subsidise unprofitable affordable housing delivery are taking longer to sell, and sell at significant discounts, resulting in higher finance fees and lower returns.
- Housing association / public sector demand is also under significant strain, given capital pressures, safety-related liabilities, and maintenance burdens. Few registered providers are currently in the market for acquisitions, or are focussing on denser, more cost-efficient sites; this has resulted in more than 700 developments and 8,500 homes being stalled and unable to sell due to occupancy restriction clauses in s106 agreements. S106 management have assisted many local and national developers and builders recently in resolving such stalled sites through innovative methods such as negotiating cascade mechanisms, commuted sums in lieu of onsite delivery, or alternative tenures of affordable housing which can be delivered without RP involvement.
- Planning constraints and regulatory burdens exacerbate the viability challenge both through construction costs of delivery and increased time and financing costs. However, viability assessments often only allow for historic or ‘standard’ financing costs and delivery times – S106 management are one of the only viability consultancies to properly account for these increased costs in our appraisals, providing a more accurate picture of viability when considering current sites and circumstances, compared to many providers who seek to oversimplify and underplay this element of development financial appraisals.
Implications for housing targets
- The government’s target to build 1.5 million homes over five years was always aspirational, and is now under threat of turning into a complete route, with recent sources suggesting less than half of this number will be built in reality.
- Zoopla finds that the number of homes granted planning permission has declined: permissions are 23% lower since 2022 and around 7% down year-on-year.
- Without emergency viability measures, as recently suggested by the deputy mayor of London, including bringing back S106BA and instructing authorities to take a more flexible approach to quantities and tenures of affordable housing, the current rigid and uninformed approach to affordable housing and s106 contribution delivery will lead to a complete shutdown in housing delivery across the UK, which in turn will only worsen affordability across the board.
S106 Management’s recommendations
To bridge the viability gap and stimulate greater delivery of new homes in the short term, S106 Management proposes four immediate core reforms will be required by the time of the Budget 2025:
- Planning reform: reduce affordable housing requirements to 10% on over 15 dwellings in all areas, as a temporary measure via national ministerial statement or imposition of the long-overdue National Development Management Policies. This will stimulate delivery automatically in all areas. This should be accompanied by reinstating S106BA to allow quick revision of existing s106 agreements on sites which have stalled, similarly to how delivery was stimulated immediately following the Global Financial Crisis.
- CIL Reg 122 review: currently many statutory stakeholders appear to have moved back towards the early 2000s’ ‘endless shopping list’ approach to development, with unjustified and disproportionate requests for substantial financial contributions towards local services providing significant additional burden on development. Similar to affordable housing delivery there should be a national trigger threshold imposed for CIL Reg 122 requests, exempting any site under 15 dwellings, and setting national rates for contributions on larger sites to ensure this is transparent and properly evidenced, and most importantly reducing the required amount of stakeholder consultation which significantly delays every planning application.
- S106 agreement standardisation: the egregious delays caused by s106 drafting and lack of local authority legal expertise, willingness, creativity or capacity to deal with important issues post-consent cause significant additional costs and unnecessary delays. They are also often perversely complicated by over-detailed drafting which is not required. Simple catch-all requirements for affordable units to be delivered at a defined discount on open market value would cover both a scenario of disposal to registered providers and a scenario of disposal direct to market at a discounted price. There is really no need for the extensive additional clauses on tenure, method, type, delivery mechanism, pricing, defining various institutions, review mechanisms and others. Simplification for any site under 50 dwellings, in tandem with the above reforms, would allow flexibility, significantly reduce delays, capacity issues, and barriers to entry, and unlock stalled sites while also reducing LPA capacity burden and legal costs. It would also stimulate competition via SME operators, in a system which currently favours larger national housebuilders to the detriment of delivery. Frankly, there is a current moral hazard where professionals are apparently incentivised to add complexity into the system rather than simplifying and standardising, while funding issues with local authorities has resulted in a lack of officer ability to deal with those same issues.
- Taxation reform / Infrastructure Levy: development is currently taxed through many different avenues resulting in a marginal rate of up to 80% on some schemes. Simplifying the taxation system and making it fully transparent - to a flat development sales tax per new build unit sold which covers all the requirements of capital gains, CIL, affordable housing, etc would allow more accurate pricing of development costs at an earlier stage, which in turn will allow these to be more accurately accounted for in land pricing. The originally mooted Infrastructure Levy was in principle a good idea, if terribly executed. It is a complicated exercise to resolve, but once resolved would hugely simplify development valuation. Currently the ad hoc s106 obligations system and hugely inconsistent approaches by statutory stakeholders project to project makes it impossible to accurately cost schemes, particularly given contributions are not in any way transparently advertised and therefore cannot be accounted for in land value.
Until sensible reform takes place, S106 Management can assist with site-specific affordable housing viability assessment or S106 contribution reviews to reduce or remove onerous costs.
