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.
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.
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.
