Labour’s ambitious plan to mandate 50% affordable housing on grey belt land has drawn mixed reactions. Small developers argue that such a requirement threatens the feasibility of many projects.
This plan, aimed to boost affordable housing, risks rendering numerous small development sites financially unviable, which could ultimately hinder the broader goal of increasing housing supply.
Viability of Grey Belt Sites
An analysis of small-scale grey belt sites within the London green belt has shown that enforcing a 50% affordable housing target could pose a significant financial risk. Developers often achieve strong returns here, given the high house prices in the area.
The study revealed that with the 50% target, 80% of the sites would become financially unfeasible for developers. Reducing this target to 35% could improve site viability to 30%.
Challenges for Small Developers
Small developers emphasise that maintaining a 20% profit margin is essential for sustaining operations and securing bank funding. Additionally, landowners generally require at least a 10% premium over the current land value to consider selling.
Henry Mayell, co-founder of Viability, argues for more flexibility, stating, “It is essential to ensure that development remains financially viable. The stopping point for any developer building homes is whether the site is financially feasible.”
Financial Impact of Affordable Housing
Delivering affordable homes often results in financial losses for developers.
Affordable housing typically costs between 85% and 90% of the construction cost of private market homes but is sold at 50% to 70% of market rates. Thus, profits must come from market homes to keep developers in business.
Mayell highlighted, “Developers need to earn their profit margins to stay in business, and new regulations are making this increasingly difficult.”
Government’s Stance
The Ministry of Housing, Communities and Local Government maintains that the 50% affordable housing goal is ‘subject to viability’. Developers proposing less than this target must submit a viability assessment that local authorities can reject.
The ongoing consultation also considers if local planning authorities should set lower targets in low land-value areas to encourage more building in northern England.
Broader Impact of Labour’s Plan
Labour’s broader reform of the planning system aims to build 1.5 million homes over the next four years, including on grey belt land.
Local councils in England have mandatory housing targets, with Deputy Prime Minister Angela Rayner urging council leaders to see housing development as both a professional responsibility and a moral obligation.
The consultation on the reforms closes on September 24.
Industry Reactions
David O’Leary, Executive Director of the Home Builders Federation, acknowledges the government’s efforts but points out increasing costs due to new policies such as the future homes standard and biodiversity net gain requirements.
“Setting targets too high risks halting development altogether, undermining overall housing supply,” O’Leary remarked.
The Ministry for Housing, Communities and Local Government disputed Viability’s findings, stating, “We do not recognise these figures. Developers have some flexibility in exceptional circumstances, but they must provide strong evidence if they cannot meet our expectations on affordable housing.”
Technological Solutions for Developers
Viability aims to support SME developers with data-driven insights through their automated land assessment software.
The software significantly reduces the time needed to evaluate potential sites, enhancing accuracy and efficiency for small developers.
Mayell explained, “What used to take days of traditional research can now be done in minutes with a 2% accuracy of developer estimates.”
Flexibility in Labour’s affordable housing plan is crucial. Small developers play a significant role in meeting housing demands, and rigid requirements could stifle their contributions.
Striking a balance between ambitious housing goals and financial viability is essential to ensure the success of these initiatives.
