Last updated: 6 May 2026
The viability challenge explained
Key points
- A shortage of viable land is now a major constraint on housing supply, threatening delivery of the Government’s housing targets.
- HBF estimates that cumulative policy costs, taxes and inflation have added around £76,000 per home over the past five years, significantly more than the average house price inflation in the same period.
- Viability is assessed through a residual land valuation calculation, comparing development value with total costs.
- Where costs rise, but land values do not or cannot adjust sufficiently, Section 106 and Affordable Housing contributions may need to be reduced to ensure development can still come forward.
- HBF is calling for a cancellation of the introduction of the Building Safety Levy, which is currently scheduled to become payable in October 2026. There should also be a moratorium on further policy costs and a comprehensive review of the cumulative impact of measures introduced across government in recent years.
What is meant by viability?
Viability refers to the financial feasibility of a residential project, determining whether the total revenue generated from selling the finished homes exceeds the total cost of developing them. These costs include construction, regulatory compliance, taxation, marketing, Affordable Housing contributions, financing, and a reasonable return on investment. There must also be sufficient incentive for a landowner to sell.
For a site to come forward for development, it must be considered viable, i.e. both economically and practically feasible.
How is viability determined?
Viability is typically assessed using a residual land valuation approach, which calculates the value of a development after all costs have been deducted.
First and foremost, the viability of sites is assessed during the process of preparing a local plan, as local authorities undertake viability assessments to ensure that policies within local plans are deliverable. These assessments test a range of site types and development scenarios within the local area. Following this process, local plans set out what might be an appropriate benchmark land value for each type of site, as well as the contributions expected from development, such as Affordable Housing. The intention is that viability is addressed at the plan-making stage, reducing the need for negotiation at the application stage. However, local plan-level viability assessments are unable to robustly test all types of sites across the entire local authority area for the whole period of the plan.
Developers will also carry out site-specific appraisals before progressing sites. Where a viability assessment is needed, this may be because market conditions have changed after local plans are set, meaning assumptions quickly become outdated. Individual sites may also have different viability characteristics than those assumed in local plans. Furthermore, new policy costs imposed by central government also affect the viability outlook. This is particularly the case if there was limited notice of changes, as with nutrient neutrality, or if specific details remained unknown until late in the implementation process, such as with Biodiversity Net Gain (BNG), the Future Homes Standard and Landfill Tax changes.
What is the additional cost for each new home from new taxes, levies and inflationary costs?
Over recent years, the total cost of delivering new homes has risen sharply. This rise has been driven by a combination of new regulatory requirements, taxes, and policy costs, as well as inflation in material and employment costs. As a result, many previously viable sites have become unviable, and the industry has been less able to plan effectively for new homes.
In May 2026, HBF estimated the average additional cost per housing unit of various policy requirements introduced in the last 5 years, alongside general build cost inflation:
Cumulatively, these new taxes, levies and inflationary costs have the potential to add £76,000 to the cost of building a home compared to five years ago, depending on location and scheme characteristics. For apartments in high-rise buildings, this uplift in costs rises to an estimated £98,000. This is significantly more than the average house price inflation in the same period. The £76,000 represents 20% of the average new home value of £382,000 (as at June 2025).
What is the impact of worsening viability on housing supply?
The home building industry recognises that there is a legitimate policy rationale for some of the different policy costs and taxes introduced in recent years. However, in aggregate, they have imposed a significant cumulative cost burden on housing delivery, which is inevitably limiting the ability of developers to invest in new sites and threatening the housing pipeline.
This cumulative cost burden is now one of the main constraints on housing supply, threatening delivery of the Government’s housing targets. Rising costs have created a shortage of viable land in many parts of the country, limiting the ability of developers to acquire new sites or take them forward, and disproportionately affecting SME home builders who have more limited capacity to absorb new costs.
A recent report by Zoopla found that building homes is viable in under two-fifths of England. Zoopla assessed the 38 local authority areas outside of London with the largest housing targets (those with targets of at least 1,500 new homes per year) and found that in 58% of areas, development was broadly unviable or marginal at best. These 38 councils account for just under one-third of the total annual housing targets for England, excluding London.
Many of the unviable or marginal areas are to be found in areas where sales prices are lower, such as northern England or the Midlands. This includes Birmingham, where, on average, the costs of development outweigh average property prices by 6% and Sheffield, where costs exceed sales prices by more than 20%. Marginal areas, where costs and property prices are very similar, include Leeds and Leicester and, further south, Somerset, Cornwall and Medway.
In 2020, following several years of strong construction activity and government-led initiatives designed to accelerate new home delivery, housing supply reached an annual peak with just under 250,000 net additions to the housing stock. It is no coincidence that, amid rising costs and a less favourable policy environment, these record levels of output have not been sustained. In the 2024/25 financial year, only around 208,000 new homes were completed, representing a 16% decline from 2020. More recent indicators, including planning approvals and Energy Performance Certificates, suggest that supply has continued to soften
What is the impact of viability on Affordable Housing supply?
Additional policy costs, such as BNG, nutrient neutrality, and the Building Safety Levy, reduce the amount of value that can be captured for Section 106 funding and Affordable Housing. In effect, they represent a significant transfer of resources from local government to national government, leaving fewer funds available for local communities. The industry is concerned that this is undermining the vital community support and local consent needed to support increased delivery and the Government’s ambitious housing targets.
If land values are not adjusted to account for these additional policy costs, negotiation or re-negotiation of local Affordable Housing thresholds and Section 106 contributions may be necessary to ensure development can still come forward. Payments and liabilities to central government, by virtue of being statutory or imposed through the tax system, are fixed and non-negotiable, leaving the only balancing items as land values and Section 106 contributions.
In some cases, local policy compliance, including Section 106 contributions and other development liabilities, combined with national taxes and levies, can leave a ‘negative land value’, which leaves development land with an effective value of zero, necessitating subsidies for land to come forward.
Where schemes would otherwise be unviable, multiple factors influence the outcome, including the attractiveness of delivering housing in that locality and the local planning authority’s wider housing strategy. If a policy threshold for Affordable Housing cannot be fully met, it is still beneficial for all stakeholders if a Section 106 negotiation results in housing delivery that would not otherwise occur, typically including a proportion of Affordable Housing even if below the full policy target.
Why can’t land values just adjust to new policy costs?
For many years, it has been assumed by policymakers that all rising development costs can be offset by adjustments to land values. The adage has been that landowners would ultimately bear the costs of new policy requirements, taxes or cost increases by accepting a smaller receipt in exchange for the transfer of their land.
However, the scale of cost increases over the past five years has pushed this assumption to its limit. Land values can only fall so far before the supply of land for housing is compromised. In many areas, land values and negligible or negative house price inflation mean that securing land for residential development is no longer a sensible investment once the full costs of delivery are accounted for. The continued decline in the number of sites securing planning permission illustrates the challenge of expecting land values to adjust further to maintain viability.
What is the industry calling for to ease the viability crisis?
HBF is calling for a moratorium on further new policy costs, taxes and levies on home building. This should begin with a cancellation of the introduction of the Building Safety Levy, which is due to become payable in October 2026 and has been shown by HBF to be unnecessary, unjustified and disproportionate, and the suspension of the planned annual increases in Landfill Tax, which are scheduled for the next four financial years.
The Government should also urgently commence a comprehensive analysis of the unprecedented increase in policy costs imposed from across various government departments in recent years. Without a coordinated review of cumulative costs and a willingness to make necessary trade-offs between different government priorities (for example, building safety versus waste management versus Affordable Housing), the viability of new housing development will continue to erode, with serious implications for the Government’s housing ambitions.
Where can I find more information?
If you have any questions about viability, contact our Policy team at policy@hbf.co.uk.
Find out more about our policy work
View the latest HBF correspondence with Government and recent activity