Stagnating house prices and rising development costs are putting the viability of new housing schemes under increasing pressure, according to RSM UK.
The latest UK House Price Index shows the average UK property price stands at £272,000 in June, 2% higher than a year earlier.
However, the headline figure masks a widening regional divide, with stronger growth across northern England contrasting with falling or largely static prices across parts of the South.
The North West records the strongest annual increase in England at 4.7%, while London prices fall by 2.5%, marking the tenth consecutive month of annual declines in the capital.
DEVELOPMENT VIABILITY UNDER PRESSURE
Stacy Eden (main picture, inset), national head of real estate at RSM UK, says: “Today’s data indicates that house prices have flatlined nationally. However, there are significant disparities between regional markets with prices largely rising in the North, and either declining or not moving in the South. This is particularly evident in areas such as London, where penal rates of Stamp Duty Land Tax (SDLT) and larger mortgages at ever higher mortgage rates are most keenly felt.
“Average mortgage rates remain around 5%, edging upwards due to increasing gilt rates driven by concerns about the UK fiscal position and expectations of further inflation.
“As a result, mortgage approvals remain subdued, with the figure for June at 58,200 – below the long-term average of 61,400 and further driving stagnation in the market. With Rightmove reporting a 2% decline in the average house price on its website in August, we could see a decline in average UK house prices in the coming months.”
BUILDING COSTS ADD TO CHALLENGE
Eden warns that the combination of subdued house prices and increasing construction costs is making a growing number of developments unviable.
The situation is particularly acute in London, where weaker values reduce the headroom available to developers to absorb higher construction, finance and regulatory costs.
Eden says: “We urge Andy Burnham to recognise the ever-increasing cost for housebuilders of building a home which, combined with stagnant house prices, is seeing an increasing number of developments become unviable.
“Currently, the government is on track to build 837,5000 homes by 2029, which falls well short of the 1.5m target it set. This is driven by very little development of housing in London due to the viability concerns.
“And with the Building Safety Levy (BSL), coming into force on 1 October 2026, estimated to add over £2,000 to the cost of developing a flat, there are concerns that viability challenges will only intensify. Many developers are calling for this to be scrapped.”
CALL FOR TAX AND PLANNING REFORM
Eden says changes to property taxation could help stimulate activity in weaker markets, while warning against measures that add further costs for developers.
He adds: “We’d like to see Andy Burnham’s government take a more long-term and holistic approach to planning policy and real estate taxation, which would enable the sector to thrive and improve the viability of developments.
“A reform of SDLT to reduce penal rates at the top end could provide a much-needed boost to the most-struggling regional markets. However, there is a risk that other additional taxes or regulation, such as a penal land tax or the BSL, will become another cost for developers to consider, exacerbating the challenge of development viability.”
