Government offers up carrots and sticks to boost development
4 minutes to read
Carrots and sticks
Now more than ever greater support is needed to boost housing delivery. The government’s target of 1.5 million new homes in England over five years, or 300,000 new homes annually, is a tall order. Yet, excluding the Covid period, Q1 2025 recorded the lowest annual total for new home completions since 2018.
While construction starts and planning consents are improving, they remain well below target, pointing to a continuing shortage of new-build homes.
Urban brownfield and high-density schemes are still feeling the squeeze from build cost inflation and regulatory burdens. Land values are adjusting, albeit slowly, while labour shortages and compliance with Gateway 2 and the Building Safety Act (BSA) are causing delays and cooling appetite for higher-risk sites.
On the demand side, elevated borrowing costs and limited government support for first-time buyers are suppressing activity.
In short, it’s a complex landscape for development. Developers have shifted toward lower-risk opportunities, particularly clean greenfield sites and strategic land away from city centres, or reimagined of schemes to avoid delays under the BSA by switching from high-rise to mid-rise.
Recent government announcements on planning policy arrive at a timely moment, though reception has been mixed.
The first, in a working paper titled Speeding Up Build Out, proposes new powers for councils to set housing delivery timelines as a condition of planning approval. If developers miss these deadlines, they could face fines or be blocked from future permissions. Annual progress reporting will also become mandatory.
At first glance, these measures risk disproportionately impacting urban developments which are already more speculative and financially constrained, as well as mid-sized housebuilders lacking the economies of scale of their larger peers. Rather than encouraging investment, additional hurdles could deter it.
The underlying assumption is that developers are sitting on land unnecessarily. Yet independent reviews -including the CMA’s 2023 Market Study and the 2018 Letwin Review - have repeatedly shown that build-out rates are dictated by sales absorption, infrastructure readiness, and local supply chain capacity, not intentional delays.
Developers see a return only by selling homes, so after securing land and planning approval, they’re fully incentivised to build and sell.
The urgency behind the announcement reflects the pressure on government to meet its 1.5 million homes pledge. Admitting the target will be missed will enable critics to label the party's housebuilding policy as a failure, which certainly isn't the case. The reinstatement of mandatory local housing targets, a commitment to greenbelt flexibility and increased funding for planning departments have all boosted sentiment, for example.
The second announcement offers a more encouraging note: new support for SME builders through streamlined planning and relaxed Biodiversity Net Gain rules for sites of up to nine homes, along with reduced complexity and costs for sites of 10 to 49 homes. These are steps in the right direction, even if they won’t transform delivery volumes on their own.
Ultimately though, the focus must shift toward incentives over penalties. Urban development needs support, first-time buyers need a leg up onto the housing ladder, and a major boost in social housing funding - including a long-term rent settlement - is essential.
New home sales
The irony in the first announcement comes from the fact that it coincides with declining mortgage rates, alongside an easing of mortgage affordability requirements which, if maintained, could help boost new homes sales and speed up delivery.
Nearly a third of respondents to our recent survey of more than 50 SME and volume housebuilders reported an increase in site visits and reservations in the first quarter of the year, up from just 13% at the end of 2024, for example.
When asked what was supporting sales, a growing majority pointed to falling mortgage costs, with nearly 70% selecting this option, up from 60% in Q4 and 50% in Q3. As things stand, markets expect the Bank of England to deliver another two quarter-point rate cuts before the year is out, taking the base rate to 3.75%. Capital Economics forecasts a rate of 3.50% by end-2027.
Competition in the mortgage market has continued to drive the best rates lower. All the major lenders still have products available below 4%. As of yesterday, the best two-year fixed rate products sat as low as 3.80%. The corresponding five-year rate was 3.83%.
This optimism is showing up in sales. Site sales per week have reached their highest point in over two years, with major builders reporting just over 0.6 sales per outlet per week.
Overall, the market remains in a holding pattern. Developers are responding cautiously, prioritising viable, lower-risk sites while waiting for clearer policy signals, lower interest rates, and a planning system capable of supporting real momentum in housing delivery.