By Chris Wheaton, Senior Director of Development Viability at Pegasus Group 

 

The effects of the Iran War have now reached UK shores, adding even more pressure on housing developers in a market that was already suffering an affordability crisis. 

Disruptions to supply chains and a fall in investor confidence are now feeding through to development pipelines, squeezing budgets and delaying projects.  

 

A difficult starting point 

Before February 28, rising construction costs, tighter finance, and regulatory changes had pushed many schemes to the margins and left housing starts well below Government targets. Economic growth had weakened at the end of 2025, and labour markets were softening, leaving the sector very little capacity to absorb any further shocks. 

 

How the conflict feeds into costs and viability 

Energy-driven price rises are already showing in housebuilder quotes. Higher energy costs flow through to materials and transport, lifting overall build costs. At the same time, borrowing is becoming more expensive, and boards are reassessing the returns they need to approve schemes. 

The result: schemes that relied on modest cross-subsidy to deliver affordable homes are seeing those margins erode. For many developments, a significant slice of expected returns has been wiped out, making previously marginal projects unviable. 

 

Impacts for registered providers and tenants 

Registered providers (RPs) face the same headwinds as private builders. Where RPs have been developing homes themselves, rising costs and weaker cross-subsidy make new schemes harder to justify. Meanwhile, day-to-day repairs, maintenance and management costs are rising. With a softer economy, tenants may need more support, increasing pressure on RP finances. 

 

What can be done 

Outside of an end to the Iran War, a coordinated package of policy reforms and delivery changes would help stabilise UK housing supply. Priority actions include: 

  • Larger public investment in social and affordable housing to reduce reliance on developer cross-subsidy. 
  • Planning and tax adjustments to restore viability for development. 
  • Partnership delivery models that let RPs and builders share risk and play to their strengths. 
  • Targeted short-term measures to shore up supply chains and protect capacity and skills. 

The conflict overseas has amplified problems that were already undermining the delivery of affordable UK housing. Without decisive policy shifts and collaborative delivery approaches, the pipeline for affordable homes is likely to shrink even further.  

If you’d like to discuss how Pegasus can support your development, get in touch with our Senior Director of Economics Chris Wheaton.