Labour S Affordable Housing: 7 Essential Insights

Labor’s plan to require developers to build affordable housing on at least 50% of “grey belt” land could result in 80% of small development sites becoming unviable, according to a study by technology firm Viability. The study suggests that reducing the requirement to 35% would significantly improve feasibility, making 30% of sites viable for small developers.

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Viability analyzed small-scale gray belt sites in London’s green belt, an area where property prices are among the highest in the UK and where devel­opers can typically achieve high returns. The study assumed that the 20% profit margin was the minimum for devel­opers to maintain opera­tions and secure bank financing, and that property owners would only sell if offered at least 10% more than the current property value.

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The study found that if the government enforces the 50% affordable housing target, 80% of sites would pose a “signif­icant financial risk” to devel­opers and are unlikely to go ahead. Reducing the affordable housing ratio to 35% would increase the proportion of viable locations to 30%.

Labour’s wider reform of the planning system aims to build 1.5 million homes over the next four years, including on gray belt land — previ­ously developed green belt sites that need to be redeveloped and repur­posed. Local councils in England have been given binding housing targets, with Deputy Prime Minister Angela Rayner urging councils to view housing devel­opment as both a profes­sional respon­si­bility and a moral oblig­ation.

The Ministry of Housing, Commu­nities and Local Govern­ment’s ongoing consul­tation on the reforms, which closes on September 24, says the target of 50% affordable housing “depends on the viability” of the site. If a developer proposes to build less than the 50 percent target, they must provide a feasi­bility assessment, which local author­ities can reject if they believe the developer is paying too much for the property. The consul­tation will also seek sugges­tions on whether local planning author­ities should be allowed to set lower targets in “areas of low land value” to encourage more building activity in the north of England.

Henry Mayell, co-founder of Viability, supports the govern­ment’s push for more housing but argues for more flexi­bility to reduce costs for small devel­opers tackling small sites. “It is important to ensure the devel­opment remains finan­cially viable. The key point for any developer building homes is whether the location is finan­cially feasible,” Mayell said.

Small devel­opers are respon­sible for about a quarter of the 200,000 new homes built each year. Mayell noted that small devel­opers need to consider a wide range of costs, including land restoration, biodi­versity improve­ments and the provision of infra­structure to local commu­nities as well as the housing mix.

Affordable housing typically costs between 85% and 90% of the construction cost of private market houses, according to Mayell, but is sold to housing associ­a­tions and local author­ities at 50% to 70% of the market price. “Devel­opers lose money by providing affordable homes, so profits must come from marketing homes,” Mayell said. “Devel­opers need to make their profit margins to stay in business, and new regula­tions are making that increas­ingly difficult.”

The Ministry of Housing, Commu­nities and Local Government disputed Viabil­ity’s findings, saying: “We do not accept these figures. Devel­opers have some flexi­bility in excep­tional cases, but they must provide convincing evidence if they cannot meet our expec­ta­tions for affordable housing.”

David O’Leary, chief executive of the Home Builders Feder­ation, acknowl­edged the govern­ment’s efforts to improve the planning process but pointed to the rising costs caused by local and national policies, such as those for social housing. “While public bodies have the right to determine the social benefits of devel­opment, this must be done judiciously. Aiming too high risks stalling devel­opment altogether and under­mining the overall housing supply,” said O’Leary.

Viability, whose software automates property valuation for small devel­opers — a feature typically reserved for industry giants — hopes to give small real estate devel­opers data-driven insights to work more effec­tively with local author­ities. The company has received funding from Innovate UK and is officially launching on September 16th after two years of devel­opment.

“Our mission is to address the housing crisis by supporting SME devel­opers,” Mayell said. He explained that Viabil­ity’s software signif­i­cantly reduces the time devel­opers need to evaluate potential sites. “What once took days of tradi­tional research can now be done in minutes with an accuracy of 2% of developer estimates,” he added, highlighting the technology’s potential to streamline the devel­opment process and help meet the UK’s housing needs.