By Chris Wheaton, Senior Director of Economics at Pegasus Group
One of my colleagues at Pegasus Group shared a story that probably sums up UKREiiF best. A couple of housing developers approached our stand and asked, “just how do we negotiate this 35% affordable housing requirement when our scheme’s not viable?”
They were, of course, referring to the Viability Tested Route: the planning process used when a proposed development falls short of local targets for planning obligations, most frequently affordable housing. In such a case, the developer must submit a comprehensive Financial Viability Assessment to evidence that fulfilling the standard policy obligations would squeeze their profit margins below the point at which a reasonable developer could commit capital to deliver the scheme.
The question was understandably very sharply put. It’s a question on every housing developer’s mind. In fact, aside from the infamously poor WiFi, viability was arguably the topic that came through most consistently across every discussion at UKREiiF.
The fundamentals for housing delivery remain strong but unlocking them is proving increasingly complex. And yet, many of the conversations I had at the event were bookended by a great deal of optimism for the road ahead.
Viability is still the defining challenge of housing delivery in 2026
For many residential schemes, especially in higher-density town centre developments, viability continues to be the biggest constraint for delivery.
There are many cumulative reasons for this:
- Rising build costs due to inflation
- Aspirational policy requirements and frameworks that continue to demand higher levels of affordable housing or additional obligations. Much of this tension is shaped by political pressures at a local level.
- Factors outside the residential market’s control like local election results and the Iran War – the latter of which is already impacting housebuilder quotes through energy-driven price rises for materials.
It’s not a surprise then that many of the people we spoke to at the show expressed having to make tough decisions about what is deliverable, when, and at what scale. On a more micro level, some expressed that high-rise scheme viability is getting harder, while strategic land is more stable, since there’s more opportunity to manage cashflow and sales risk by committing to smaller phases of development.
The upside is a growing sense of pragmatism in local authorities
Despite the above challenges, one of the most encouraging themes from UKREiiF was just how much optimism we heard from developers and other stakeholders. While some of this can be chalked up to the sheer resilience of the property industry, it was also attributed to a clear shift in mindset from local councils.
Compared to just a year ago, there is already much greater recognition from local authorities that viability pressures are indeed genuine and likely to be sustained. At a roundtable I spoke at during the event, the message was clear that many councils are quite motivated to be flexible including:
- Reviewing and amending policies and standards, including through interim guidance on areas of flexibility
- Exploring alternative delivery models
- Working more collaboratively with developers to do things differently and unlock development.
That theme consistently permeated the conversations I personally had with council officers, members, and developers. There’s a far more constructive dialogue now, partly because many recently appointed councilors are keen to boost local economic growth and get priority regeneration projects moving.
All of this is encouraging. It doesn’t undo the challenges, but it does suggest that conditions for more productive collaboration are starting to emerge.
Early optimism about policy interventions to boost residential development
Interestingly, we also heard cautious optimism around emerging policy support in the residential and affordable housing market.
The launch of the National Housing Bank, for instance, which is designed to provide low-cost lending to registered providers, has been broadly welcomed. There is a sense, too, that improving access to finance could enable RPs to ramp up their activity, particularly in a constrained funding environment.
Similarly, discussions around the next iteration of the Decent Homes standard points to a new wave of investment in existing housing stock that is expected to:
- Drive significant reinvestment into ageing homes
- Accelerate estate regeneration programmes where resident ballots support these
- Improve energy efficiency and reduce residents’ bills
While these measures alone won’t resolve all viability challenges, they do signal intent for speeding up delivery in specific parts of the residential market.
Strong capital appetite despite market challenges
It might even surprise some to know that there is no shortage of people wanting to fund residential development.
It would be easy to conclude the opposite, based on current viability challenges – that the UK residential market is fundamentally unattractive to institutional investors. But it’s a simple truth that investors generally flock towards undersupplied markets. And given that delivery isn’t keeping up with growing local housing need, the UK residential market certainly qualifies as undersupplied. Any investor who goes through that analysis will conclude that this is where we need to invest as a country.
Where investors get stuck is translating that capital into real delivery opportunities. Planning is frequently cited as a complex and uncertain process that acts as a barrier to development. Coincidentally, this is where Pegasus Group plays a big role in steering housing developments. We help de-mystify the planning process and de-risk it to move things forward.
How the Government can help unlock housing delivery
While bridging the gap between capital and delivery will be essential to unlocking housing growth, there are some additional measures the Government can take to further speed up housing delivery.
Reduce the tax and policy burden on development
- Current levies (affordable housing, CIL, S106, RPDT, Building Safety Levy) can exceed 100% of developer profit, effectively stopping schemes. Rebalancing taxation to reflect profit (not turnover) is critical to restoring viability.
Allow developers greater flexibility to build what the market demands
- Relax rigid planning requirements on unit mix, sizes, tenure, and design standards so schemes can reflect real demand (e.g. smaller units, efficient layouts), improving sales rates and overall viability.
Extend and deepen planning and funding reforms
- Build on measures like the GLA’s “Emergency Measures” with more flexibility on affordable housing, design, and funding. This would help more schemes come forward at scale.
Add demand side support
- Any demand side measures need to be very carefully considered to avoid inflating prices in an undersupplied market. However a carefully structured stimulus, perhaps focused solely on new build homes could deliver housing delivery and economic growth at no net cost to government.
Alignment will help unlock housing delivery
What UKREiiF made abundantly clear, in other words, is that the housing market isn’t lacking demand or capital.
The viability challenges are indeed real, and intensifying for many, but so too are the opportunities for growth. The UK’s housing shortage isn’t going away, and signs of greater pragmatism, strong investor appetite, and targeted policy interventions all point in the right direction. But unlocking delivery at scale will require developers and politicians to continue communicating with each other on how to meet in the middle, between political pressures and viability.
If you’d like to discuss how Pegasus can support your development, get in touch with our Senior Director of Economics Chris Wheaton.