VIABILITY CHALLENGES

It is fair to say that 2025 was an exceptionally challenging year for the residential development market. This is against the backdrop of the government’s ambitious target of £1.5 million homes to be delivered by summer 2029. This target equates to in excess of 300,000 homes p.a., with 440,000 of these homes due to be delivered in London. The reality is that the annual housing supply in 2024-25 was 208,600, which was a 6% decrease on the 2023-24 completions. Net additional dwellings reached a previous peak of 248,590 in 2019-20. Delivery of c300,000 homes hasn’t been achieved since the 1970s.

In London the housing delivery situation has been labelled a crisis. It is estimated that the capital will have achieved just 5,000 residential construction starts in all of 2025. This is 5.7% of the 88,000 annual housing target. In Q1 2025, 23 of London’s 33 boroughs recorded zero new housing starts in that quarter.

On the 27 November, the Mayor of London announced a consultation on draft London Plan Guidance, proposing a package of emergency measures aimed at accelerating housing delivery and boosting affordable homes in the capital. These measures include reducing the affordable housing percentage required from 35% to 20%, increased grant funding, flexibility on design standards, reduced cycle parking standards, and a time limited Community Infrastructure Levy (CIL) relief to support viability.

CHALLENGES IN THE AFFORDABLE HOUSING MARKET

Focusing on the affordable housing sector, the recent picture is somewhat bleak. Due to unprecedented demands on their finances, Registered Providers (RP) are scaling back their pipeline and rediverting funds into their existing homes. The G15, which is a group of London based RPs, reported just over 1,000 new home starts between Q1 2024 and Q2 2025.

This compares to over 15,000 new home starts in the financial year of 2016-17. Private sector housing delivery is responsible for around 44% of all new affordable homes through s106 developer contributions. Over the past five years, almost 140,000 new affordable homes have been delivered through private sector cross subsidy. The continued delivery of this vital tenure is under significant pressure, with numerous house builders finding it increasingly challenging to satisfy their s106 affordable housing commitments amid a shortage of bids from RPs. The Home Builders Federation in December 2024 reported that following a survey it undertook in October 2024, at least 17,432 s106 affordable housing units with detailed planning permission remain uncontracted.

Although financial constraints and the growing focus on maintaining existing stock are affecting RPs’ interest in new development, they only explain part of the picture. In 2024 Homes England launched the s106 Affordable Housing Clearing service which revealed that RPs often declined homes due to concerns around tenure mix, design, location and delivery times. Through my own experience working for two G15 RPs and my review of numerous s106 opportunities, it’s clear that substandard affordable housing design remains disappointingly common. The misalignment between the standards RPs desire for their stock, and the current minimum building regulations that developers are typically building to, has led to a breakdown in the usual delivery model for affordable housing.

In April 2025, the G15 released a publication entitled “Building Together, Building Better: Rethinking S106 Affordable Housing Delivery” which sets out its expectations for successful s106 deals and includes advice on tenure and unit mix, design and construction standards and handover and post completion obligations.

BRIDGING THE VIABILITY GAP

Viability remains a challenge for both market sale and affordable housing. Stronger due diligence can, however, significantly improve scheme viability. Engaging with RPs and affordable housing specialists early in the process, before submitting a planning application can help resolve potential issues upfront and prevent costly redesigns or later amendments to the affordable housing layout or tenure mix.

COMMON PITFALLS

Common challenges often arise from proposing an unsuitable mix of unit types or an imbalanced tenure profile. Often a tenure mix which is 100% compliant with planning policy can be impractical from a housing management perspective.

The real skill lies in striking the right balance between meeting policy expectations and ensuring the scheme is deliverable and manageable in practice. This is why involving an RP or an affordable housing expert at the preplanning stage can be so valuable. They can provide early, pragmatic input that helps shape a mix which is both policy aligned and operationally workable. One example of this is the way LSH works closely with our sales agents at Hamptons and Connells to provide expert advice on shared ownership homes. Design quality for these homes is often overlooked by developers, yet shared ownership carries genuine sales risk and has a customer base of households earning up to £90,000 in London and £80,000 outside of London. These buyers expect a high quality product, and in some areas where supply often exceeds demand, they have more choice than ever, making thoughtful, well executed design essential.

Another frequent challenge is failing to define the specification accurately from the outset. This often results in escalating build costs, which can undermine overall scheme viability. At LSH, our Ikon team which specialises in project delivery services tackles this head on by working with clients to develop a ‘first principles cost plan’, establishing what can realistically be spent on each component before design work begins. This proactive approach avoids the common pitfall of designing first and pricing later, ensuring schemes remain both deliverable and financially robust.

SUMMARY

The pressures facing the residential development sector in 2025 look set to continue into 2026. With delivery falling far short of national and London specific targets, and both private developers and RPs struggling to bring forward viable schemes, the need for a more collaborative approach has never been clearer. The steep drop in housing delivery reflects a perfect storm of rising costs, tighter regulation and reduced appetite from both investors and RPs, all of which have pushed scheme viability to its limits.

Many of these pressures can be eased with smarter early stage collaboration. Bringing RPs, affordable housing advisers and project delivery specialists into the process at the feasibility stage and ahead of submitting a planning application helps ensure that tenure mix, design quality and specification are grounded in operational reality. By addressing these issues upfront, developers can avoid costly redesigns and create schemes that are both policy responsive and genuinely deliverable. Reenergising housing delivery will depend on this kind of pragmatic, Joined-up approach across the sector.