Robust Viability Testing Crucial to Achieving Government’s 1.5 Million Home Target, Research Shows

Ensuring the financial viability of housing developments is vital to meeting the Government’s goal of constructing 1.5 million new homes in England during this parliamentary term, according to new research by planning consultancy Lichfields.

The study, titled the second edition of Fine Margins, analysed 144 viability assessments completed since 2016 to understand how local authorities, developers, and planning inspectors evaluate the economic feasibility of housing projects across England and Wales.

Findings reveal that rising build and policy-related costs are not being offset by equivalent increases in Gross Development Values (GDVs), intensifying the need for thorough viability assessments, especially for schemes operating on narrow margins. Data from the Building Cost Information Service (BCIS) indicates that between the third quarter of 2021 and the third quarter of 2025, build costs rose by 21.8%, while average sales values increased by only 13.1%.

Since the initial Fine Margins report in 2021, several policy changes with cost implications have been introduced, including Biodiversity Net Gain, nutrient neutrality requirements, sustainability standards, and updated Building Regulations. Additionally, the forthcoming Building Safety Levy, set to commence in England on 1 October 2026, will impose a charge averaging £30-£40 per square metre on most new residential developments. This levy will include discounts for many brownfield sites and exemptions for affordable housing, small schemes, and specialist housing.

Simon Coop, Senior Director at Lichfields, emphasised the importance of understanding and testing development costs: “The Government’s housing target will only be achieved if development is viable. That means the costs associated with new housing must be properly understood, tested and kept under review.” He added, “Many of the new requirements placed on development are important, but they also carry cost implications. Where those costs are not matched by increased values, it becomes even more important that robust viability assessments are undertaken, drawing on realistic, well-evidenced assumptions.” He further noted, “Clear viability evidence helps local authorities and developers understand what can be supported, where flexibility may be needed and how policy requirements can be delivered alongside new homes.”

Affordable housing delivery, closely tied to development viability, particularly through Section 106 contributions, has seen a slight decline. In 2023/24, these contributions fully funded 45% of affordable homes in England, down from an average of 48% over the previous five years.

The research also highlights consistency in the assumptions used within viability appraisals, providing a strong foundation for standardising inputs. For instance, 95% of the assessments relied on BCIS data to calculate build costs, while 67% of those detailing sales values used HM Land Registry price paid data cross-referenced with Energy Performance Certificate records. Profit margins applied by developers were similarly consistent, with 20% of GDV commonly assumed for market housing and 6% for affordable housing.

These findings come amid proposed revisions to the National Planning Policy Framework aimed at clarifying viability assessment procedures, including when viability can be used to negotiate planning obligations and affordable housing requirements.

Coop concluded, “A more standardised approach to viability testing should help reduce uncertainty, but it must retain enough flexibility to reflect the circumstances of individual sites. Complex sites, brownfield land and marginal markets often carry costs that cannot be captured properly through a broad assessment. Clearer inputs will be helpful, but they need to sit alongside the ability to recognise real site conditions.” He stressed, “Viability testing has never been more important. In the context of changing costs and policy requirements, getting the assumptions right will be essential to supporting housing delivery and helping local authorities, developers and landowners make informed decisions.”