The current housing shortage in the UK is a multifaceted issue that cannot solely be attributed to the inefficiencies of the planning system, despite the government’s focus on reforming it. While the complexities of the planning process are undeniable, with the system being criticised for being under-resourced and prone to delays, the real reason behind the stagnation in development lies much deeper. At its core, the viability of development projects is being threatened by a confluence of factors that make many potential schemes financially unfeasible, even if the sites are prime for development.
Developers are not shirking their responsibilities, nor are they uninterested in tackling the housing crisis. Rather, the challenge lies in the simple fact that many developments no longer make financial sense. Construction costs, for example, have surged by an estimated 25 per cent over the past five years, driven up by the rising prices of materials and labour. The pandemic, the war in Ukraine, and changes in immigration policy have all contributed to this cost explosion, creating a perfect storm that pushes the cost of building well beyond what many developers can justify. As the average age of construction workers in the UK now exceeds 50, with a growing number nearing retirement, the sector faces a serious shortage of skilled labour. Although efforts are being made to attract younger workers, demographic shifts have no quick solutions, and labour shortages continue to plague the industry.
Alongside these rising costs, shifting policies and regulations are putting additional strain on the viability of many developments. New building safety and sustainability requirements, often introduced with little notice, have forced developers to redesign projects, further escalating costs. These changes often push developments into the realm of financial infeasibility, leaving them stuck in limbo. Furthermore, the previous government’s decision to abandon compulsory housing targets has enabled some local councils to slow down their efforts, providing yet another obstacle to timely development.
Political instability has compounded these challenges, with the UK experiencing four different governments in just over two years. This constant flux has contributed to a climate of uncertainty, which has deterred investment and delayed developments. With the looming prospect of a general election, investor confidence has been shaky, and many have opted to move their capital to more stable markets. Even developments that were already underway are facing hurdles, with the high cost of finance acting as a significant barrier to progress.
In the residential market, the situation is no less complicated. Rising mortgage costs are making it increasingly difficult for buyers to afford homes, which in turn affects the financial viability of new residential projects. Business occupiers are similarly feeling the pinch, as tax hikes reduce their ability to pay higher rents, further dampening demand for new commercial spaces.
Despite these numerous challenges, there are avenues that can help alleviate the current deadlock. One potential solution is greater public sector involvement in development. By providing funding to clean up contaminated sites or contributing development land upfront in exchange for a share of the profits, the public sector can help make previously unviable projects more feasible. This model, which involves collaboration between the public and private sectors, is gaining traction and has shown success in a challenging economic environment.
Ultimately, while the planning system may be a factor in the UK’s development woes, it is far from the sole reason for the current stagnation. A combination of soaring costs, regulatory changes, political instability, and financial uncertainty has created a perfect storm that is preventing many developments from moving forward. Until these broader economic challenges are addressed, the country will continue to face difficulties in meeting its housing and development needs.
(Source: CITY AM)