Labour’s plan to require developers to build affordable homes on at least 50% of “grey belt” land could make 80% of small development sites unviable, according to research from technology firm Viability. The study suggests that reducing the requirement to 35% would significantly improve feasibility, making 30% of sites viable for small developers.
The viability analyzed small-scale gray belt sites within London’s green belt, an area where house prices are among the highest in Britain and where developers can typically achieve strong returns. The study assumed a 20% profit margin as the minimum for developers to continue operations and secure bank financing, and that landowners would only sell if they offered at least 10% more than current land values.
The research shows that if the government maintains the 50% affordable housing target, 80% of sites would pose a “significant financial risk” to developers and would be unlikely to go ahead. If the proportion of affordable housing is reduced to 35%, the proportion of viable locations would increase to 30%.
Labour’s wider reform of the planning system aims to build 1.5 million homes over the next four years, including on gray belt land – previously developed green belt sites that need to be cleared and repurposed. Local councils in England have been assigned mandatory housing targets, with Deputy Prime Minister Angela Rayner urging council leaders to view housing development as both a professional responsibility and a moral obligation.
The ongoing Ministry of Housing, Communities and Local Government consultation on the reforms, which closes on September 24, states that the 50% affordable housing target is “subject to the viability” of the location. If a developer proposes to build less than the 50% target, they must submit a viability assessment, which local authorities can reject if they believe the developer is paying too much for the land. The consultation also seeks input on whether local planning authorities should be allowed to set lower targets in “areas of low land value” to encourage more development in northern England.
Henry Mayell, co-founder of Viability, supports the government’s push for more housing, but calls for more flexibility to reduce costs for small developers tackling small sites. “It is essential to ensure the development remains financially viable. The starting point for any developer building homes is whether the location is financially viable,” Mayell said.
Small developers are responsible for about a quarter of the 200,000 new homes built annually. Mayell noted that small developers must consider a wide range of costs, including clearing land, improving biodiversity and providing infrastructure for local communities, along with housing mix.
Affordable housing, according to Mayell, typically costs between 85% and 90% of the construction costs of homes on the private market, but is sold to housing associations and local authorities at 50% to 70% of market rates. “Developers lose money by providing affordable housing, so the profit must come from market housing,” Mayell said. “Developers need to earn their profit margins to stay in business, and new regulations are making this increasingly difficult.”
The Ministry of Housing, Communities and Local Government disputed Viability’s findings, saying: “We do not recognize these figures. Developers have some flexibility in exceptional circumstances, but they must provide strong evidence if they cannot meet our affordable housing expectations.”
David O’Leary, executive director of the Home Builders Federation, acknowledged the government’s efforts to improve the planning process but noted the increasing costs imposed by local and national policies, such as the Future Homes Standard, net profit requirements in the field of biodiversity and the increasing demand for social housing. “While public authorities have the right to determine the social benefits arising from development, this must be done sensibly. If you set targets too high you risk halting development altogether, undermining the overall housing supply,” O’Leary said.
Viability, whose software automates land assessment for small developers – a capability usually reserved for industry giants – hopes to provide small real estate developers with data-driven insights to work more effectively with local authorities. The company has received funding from Innovate UK and will officially launch on September 16, after two years of development.
“Our mission is to tackle the housing crisis by supporting SME developers,” Mayell said. He explained that Viability’s software significantly reduces the time it takes developers to evaluate potential sites. “What used to require days of traditional research can now be done in minutes with an accuracy of 2% of developers’ estimates,” he added, highlighting the potential of technology to streamline and fine-tune the development process. contribute to meeting Britain’s housing needs.