Why viability is now the defining challenge for residential development

Build cost pressures reshaping land values

According to the Home Builders Federation (HBF), the cost of building a home in England has increased by around £76,000 over the last five years, driven by material and labour cost inflation alongside new and emerging regulatory requirements. At the same time, higher mortgage costs and weaker consumer confidence have constrained demand, leaving developers with less room to absorb additional costs.

This pressure is now being reflected clearly in the land market. Research from Savills Q2 2026 Residential Development Land Market in Minutes report revealed that UK greenfield land values fell by 1.2% in Q2 2026, taking annual falls to 3.3%. Urban land has come under even greater pressure, with values falling by 2.1% over the quarter and 6.6% annually. These headline figures mask considerable local variation, but the direction of travel is clear: where viability is most stretched, land values are adjusting more sharply.

The squeeze is particularly acute in less affordable markets and on brownfield sites. Urban development often carries additional complexity, from remediation and infrastructure requirements to longer planning processes and higher regulatory costs. Recent changes associated with the Building Safety Regulator have also increased approval times and costs for high-rise buildings, reducing appetite for more complex urban schemes. As a result, brownfield values now sit around 17% below their 2022 peak.

This has important implications for housing delivery. City centre and high-density schemes are often central to local housing strategies, yet these are the very projects where viability is proving hardest to make work. Weaker buyer appetite for flats has added another layer of pressure, particularly in markets where build-to-rent demand has softened. In London, for example, buyer demand remains limited and the quantity of bids for sites is low, with developers showing a preference for schemes below 18 metres to avoid additional cost and complexity.

Cautious optimism

Smaller housebuilders are feeling the strain most sharply. The decline in sentiment has been most pronounced among developers delivering fewer than 75 homes per year. With less control over supply chains, smaller firms are more exposed to material cost increases and weaker sales rates. Savills analysis of National House Building Council (NHBC) site data suggests sales rates for this group have fallen below 0.3 sales per outlet per week, making it harder to justify land acquisition in the current climate.

There are some reasons for cautious optimism. The Build Cost Information Service (BCIS) forecasts that build cost inflation will ease from 3.2% annually to around 2.0% by the end of 2026. If this is matched by steadier house price growth and improving mortgage affordability, it could reduce some of the pressure on viability. However, it requires much more to move the dial as it stands. While lower development finance costs would help restore confidence, there needs to be positive movement across the board, including more government investment, more flexible planning policy and more pragmatic policy targets.

For now, however, viability remains the key lens through which land opportunities are being assessed. Developers are responding with greater due diligence, deferred payment structures, conditional contracts and a more selective approach to site size and location. In this environment, the sites most likely to attract competitive interest will be those with clear planning prospects, manageable infrastructure requirements and enough pricing headroom to withstand continued uncertainty.

Further information

Contact Sarah Gregory or Mark Breen