The UK’s housing challenge is no longer just about targets; it is about project viability. In late 2025, fresh analysis highlighted a stark reality: across roughly half of England, the economics of housebuilding no longer stack without significant policy support, tenure innovation, or infrastructure co‑investment. For investors, lenders and developers, this is the single most important structural story of the cycle. Supply will not save affordability if sites cannot be financed, consented and delivered.
Why Viability Broke: The Three-Equation Problem
1) Costs stayed higher for longer
Construction inflation that began in 2021 didn’t fully reverse. Materials volatility (steel, timber, concrete), labour scarcity, and insurance premiums lifted all‑in build costs and increased contingency requirements. Even with some input prices easing, main contractors continue to price risk — keeping tender prices structurally elevated relative to 2019.
2) Sales values lost their cushion
End‑values rose sharply in 2021–22 but then plateaued as mortgage costs jumped. Outside a handful of premium markets, developers can no longer assume price growth to “bail out” appraisals. Appraisal spreadsheets that once pencilled thin margins now show red cells even before Section 106 or affordable quotas are applied.
3) Planning friction widened the gap
Longer determination times, unpredictable obligations, and late-stage design iterations have extended pre‑construction periods. Time is money: every extra quarter before start on site erodes the IRR. The result is a large pipeline of schemes that look consentable on paper but aren’t fundable in reality.
Geography Matters: Not One England, But Many
| Market Type | Land/End-Value Dynamics | Viability Outlook |
|---|---|---|
| Inner London prime | High values, high costs | Selective viability on smaller infill, BTR forward-fund, PRS |
| Outer South & commuter belts | Moderate values, rising costs | Challenging without tenure mix/infrastructure grants |
| Core Northern cities | Mid values, stronger rental base | Better for BTR/PRS; open-market sales need sharp pricing |
| Smaller towns & rural | Lower values, limited absorption | Thin viability unless subsidy or MMC lowers costs |
The paradox is clear: places with the greatest demand (South) can be the hardest to build profitably, while Northern cities with resilient rental demand and lower land costs can viably deliver rental-led schemes even when for-sale becomes marginal.
Tenure Is the Release Valve
The shift from pure for‑sale to mixed-tenure is accelerating:
- Build-to-Rent / PRS: Institutional capital absorbs delivery risk via forward funding; developers recycle equity faster. Rents indexed to inflation plus amenity-led leasing support underwriting.
- Discounted Market Sale / Shared Ownership: De-risks sales rates and widens affordability bands in softer owner-occupier markets.
- Single-Family Rental (SFR): Suburban houses let to families offer lower capex churn, stable occupancy and depth of demand beyond the city core.
The most successful 2025 schemes are the ones that blend tenure to stabilise cash flows and satisfy planning while preserving developer margin.
How Deals Are Getting Done in 2025
Forward-funding & forward-commit: Institutions fund construction with pre-agreed yields; developers lock a modest developer’s profit and exit build risk.
Partnership models: Local authorities assemble land and infrastructure; private partners take delivery with agreed affordable mix.
MMC/DFMA where it actually fits: Modular/volumetric delivery works best for repeatable typologies (mid‑rise apartments, suburban SFR) with reliable factory capacity and short logistics chains.
Tighter value engineering: Early-stage cost plans now challenge NIA efficiency, facade choices, and MEP complexity; EPC B remains a must-have, but gold-plating is out.
Lender and Valuer Sentiment
Debt is available, but it is more discriminating. Senior lenders want stronger pre‑lets or pre‑sales, larger contingencies, and conservative exit assumptions. Valuers are marking appraisals to today’s money, not to optimistic re‑inflation. That is healthy discipline — but it means marginal land simply isn’t land at aspirational prices any more.
What Unlocks Viability from Here?
- Predictable planning & obligations: Clear, stable formulas for contributions reduce risk premia and shorten programmes.
- Infrastructure co‑funding: Transport, utilities and public realm that raise site values and absorption rates.
- Tenure flexibility baked into policy: Allowing PRS/BTR/SFR to meet housing need without punitive treatment in viability tests.
- Smarter land buying: Data‑led micro‑location analysis to find absorption and rent depth — not just headline city averages.
Strategy for Developers and Investors
- Go where the rents are: If for‑sale is marginal, underwrite PRS with realistic operating costs, then add sale units where depth exists.
- Phase ruthlessly: Smaller phases reduce peak equity exposure and allow repricing of later blocks.
- Lock supply early: Framework agreements with contractors and key suppliers mitigate variability.
- Design for EPC B/A with maintainability: Operational cost is the new amenity — and the clearest route to outperforming rent and resale values.
Ethira Perspective
Viability stress will cap new supply through 2026. That is inflationary for rents and supportive for existing, well‑located assets. It is also a filter: capital will flow to teams who can deliver mixed‑tenure product with planning credibility, robust cost control and institutional relationships. For clients, our advice is to prioritise income‑led strategies (PRS/BTR/SFR), acquire consented but stalled sites with tenure flexibility, and price land as an option, not a guarantee. This is a market that rewards execution over optimism.