Figures show housebuilding faltering as developers call on ministers to address rising costs

Housing Secretary Steve Reed wants Britain to “build, baby, build” towards the government’s flagship 1.5 million homes target by the next election. But housebuilding in England has slowed to its lowest level in nine years, with the number of homes built falling by 6% to 208,600 in the year to March 2025.

A combination of rising building costs and weakening house prices has left “half of the country unviable (for development projects) and the other half of the country unaffordable”, Steve Turner, executive director of the Home Builders Federation (HBF), told Sky News.

Ambitions for affordability are competing with high safety and design standards, which have been pushing up costs.

The government acknowledges housing delivery has not reached required levels – but maintains building will ramp up as their policies come into effect.

Since the election, 275,000 homes have been delivered to date, compared to the 400,000 that would have needed to be on track for 1.5 million homes.

“Additional housing is now at around 200,000 homes a year and is at best flatlining. We’re still some way away from where the government wants to get to, to meet the nation’s housing need,” Mr Turner said.

The rising price of materials and labour have contributed to the increase in the cost of building homes in recent years – for example, the cost of bricks and clay products increased by over 26% in the year to August 2023.

At the same time, higher interest rates since 2022 have increased the cost of financing development, in addition to weakening buyer demand, as mortgage rates have soared.

As a result, the sales value of homes has not kept pace, eating into profit margins in a trap described as the “jaws of death” by housing developers.

While the cost of building homes has increased by just under 13% on average since September 2022, house prices have increased by less than 3% on average across Britain, while flat prices in London have decreased by 0.5%.

The government is currently consulting on emergency measures to “get spades in the ground” in London after the number of new homes starting construction in the capital plummeted to just 4,000 in the latest year to June 2025 – a fraction of the area’s 81,000 building target.

These include a funding package and temporary reductions in affordable housing targets from 35% to 20%, as well as relief from some levies.

Housebuilders have also faced increased costs from updated building design standards introduced from 2022 onwards, including fire safety rules mandating a second fire escape stairwell for tall buildings, and regulations to improve energy efficiency, ventilation, and electric vehicle infrastructure.

The greatest impact is in London. High-rise housing is more common, and additional Greater London Authority regulations require more affordable housing and additional requirements such as “dual aspect” design.

A recent report by Savills estate agency and property developers Ballymore estimates that delivering homes in Greater London now costs 10-15% more than elsewhere, thanks to these requirements.

Property developers told Sky News that new building and fire safety regulations add costs of around £21,500 per home for a two-bedroom flat in London, while community infrastructure levies add £12,000 on average and can be as high as £50,000 in some areas. New costs – a 4% residential development tax and a building safety levy costing between £1,500 and £3,500 per home – are expected to be added in the near future.

“The viability of sites is very, very strained and is snuffing out general supply of new homes from the UK’s housing pipeline,” Nick Cuff, managing director of real estate advisory and development business Urban Sketch, told Sky News.

“We’re just not funding these things properly, and we’re asking the private sector to pick up the bill in almost all cases. We are effectively seeing a cessation in development activity because it cannot support the requirements that government is placing on it now. And that’s why the numbers have dropped off a cliff in the last two years,” he added.

Affordable social housing is mostly built by private developers through a cross-subsidy model, which requires private housebuilding to be viable as well.

While some are hoping for emergency measures in London to be made permanent, others are wary of a race to the bottom.

“If at the first test, you pull back on the [affordable homes] target, what message are you sending? It must be temporary – we need to see if it does then move the market,” Rachael Williamson, director of policy, communications and external affairs at the Chartered Institute of Housing (CIH), told Sky News.

“We’ve got to manage the tension [between safety and costs] without saying ‘let’s cut corners’. History tells us where you get to with that,” she added.

Outside of London

Though these issues have been particularly fraught in London, the rest of the country also faces significant challenges.

Analysis by online property portal Zoopla finds it is now not viable to build in just under half of England, on the basis that the sales value of homes is less than the total cost of delivering a new home.

The analysis excludes figures for London, though research firm Molior separately found that housebuilding in half of London would be unviable even if housing and infrastructure contribution requirements were completely removed.

They also found that those areas where building is viable are the areas where people were less likely to be able to afford to buy, creating a mismatch between supply and demand.

The viability to develop new homes is better in the south of England, where new build prices are among the most unaffordable for buyers.

Although planning reforms have been “very positive”, Mr Turner said it only addresses one side of the equation, and that the government “needs to find a way to support buyers, which will then create confidence with house builders that ultimately they can sell the product they deliver”.

There is currently no suggestion that the government intends to revive a version of the Help to Buy scheme, which critics have argued contributed to increasing house prices and reducing affordability in the long run.

Long-term planning needed

Speculation around the upcoming budget has also added to uncertainty, and developers have called on the government to rethink proposed landfill tax changes, which would further add to building costs.

“We’ve definitely seen an increase in regulation over the last few years. Often very well-meaning regulation, but which can hinder the viability of sites and developments,” a spokesperson for the homebuilder Barratt Redrow told Sky News.

“We buy land on the basis of the costs of construction, including the regulatory burden, at the time, and obviously, if four years later, when we’ve got planning permission, it’s more expensive to build, then that is going to have an impact on whether it makes financial sense to go ahead with the development,

“As an industry and also as a business, we’re not against the right sort of regulation, but it’s important we’ve got long-term certainty because the process of buying land and building houses is so long and involves such risk,” he added.

Housing Secretary Steve Reed said: “Today’s statistics show, in the clearest terms yet, the extent of the housing crisis we inherited and are now fixing.

“We took over a planning system that blocked rather than built, and high inflation and soaring construction costs that created a perfect storm holding back housebuilding.

“Our 1.5 million homes target is not just a number – it’s a way to give children a secure home, for young people finally to move out and enjoy independence, and for working families to have a place to call their own.

“We have already taken down the barriers that stopped this country from building, overhauled the planning system and pumped record investment into social housing. This will bring about the change we need to end the housing crisis by getting spades in the ground wherever homes are needed most.”

Development ‘hit by a perfect storm of costs’

A spokesperson for the Mayor of London said: “Through the London Plan, the mayor has been able to set the highest housing design standards relative to other parts of the country, and these standards have supported the delivery of high-quality homes in London

“However, London needs more sites coming forward to meet the capital’s housing needs, and development has been hit by a perfect storm of costs from national policy and wider economic conditions that disproportionately affects London.

“Through our proposed changes to London Plan design guidance, we are hoping to reduce the barriers to housebuilding and introduce flexibility so that planning policies are applied in line with their original intent – helping to bring developments forward. These measures will help to unblock stalled building sites, giving the mayor stronger levers to approve homes and bring forward thousands of homes more quickly.”