"Even when developers do manage to secure land, planning hurdles create further delays. Policy inconsistencies between local authorities mean that securing permission can be a lengthy and unpredictable process"
- Lee Williams - Saffron for Intermediaries
The UK’s housing crisis is being driven by a persistent imbalance between supply and demand, with the total number of completions for new homes in 2024 standing at just 217,911, according to Energy Performance Certificate data, compared to 231,000 in 2023 and over 253,000 in 2022.
This ongoing gap has led to rising prices and affordability challenges for many prospective buyers. As a result, the government has set out to deliver 1.5 million new homes over this parliamentary term, but high land prices present a major obstacle.
Buyers are ready, and some high street lender mortgage rates have fallen below 4%, making borrowing more accessible. New housing developments are not keeping up. While material costs have stabilised, land values remain stubbornly high, slowing down developers who are looking to build, making the government's target harder to achieve as a result. But what can be done to address high land prices, and how can lenders support developers to address the supply and demand imbalance?
Why land prices haven’t fallen
The combination of a slow planning system, limited available plots, and firm landowner expectations has kept land prices high by restricting the number of sites that become available for development.
The planning system’s inefficiencies delay approvals, further constraining supply, while landowners hold onto properties in anticipation of rising values, creating a cycle where demand continues to outstrip available land.
The pressure on developers
For developers, high land costs are making projects increasingly difficult to fund. Over the past decade, land values in some regions have surged by more than 50%, significantly impacting project feasibility. While material prices fluctuate, overall construction costs remain high. When combined with expensive land, the profit margins on new developments have decreased, making some projects unviable.
Smaller and mid-sized developers, who play a vital role in housing delivery by catering to local needs, are being hit the hardest. With limited access to funding and fewer resources to navigate planning delays, developers are facing significant setbacks, slowing down the delivery of much-needed new homes.
Planning delays are undermining confidence
Even when developers do manage to secure land, planning hurdles create further delays. Policy inconsistencies between local authorities mean that securing permission can be a lengthy and unpredictable process.
Developers often face issues when amending planning permissions. In some cases, developments are stalled for years due to backlogs, changing regulations, or local opposition. This uncertainty makes it harder for developers to commit to future projects, further reducing housing supply.
With developers facing mounting financial challenges and planning delays, alternative solutions are needed to keep projects viable.
Lenders have a role to play
In this challenging environment, lenders can provide crucial support to developers. Traditional funding models often don't fit when land is expensive, planning is slow, and projects take longer to complete. Rising interest rates and inflation have squeezed margins for developers, but flexibility is key to overcoming these hurdles. Instead of rigid financing, tailored solutions can help developers manage costs and access the right support.
By working closely with developers, lenders can play a key role in getting new homes to market. As seen with Saffron’s approach, providing hands-on support for first-time and SME developers ensures that projects progress even in difficult conditions. This close partnership enables lenders to understand developers’ unique needs and offer solutions that drive projects forward.
If the UK government is serious about hitting its 1.5 million homes target, more land must be made available to increase supply and help to drive land affordability with clear planning pathways. The demand for housing is there, and developers are ready to build. However, in 2023 alone, housing demand outstripped supply by nearly 100,000 homes, according to government estimates, highlighting the urgency of addressing these barriers.
