Government taxes, planning obligations and building regulations are pushing up the price needed to make new homes financially viable by as much as £442,000 in London, according to new research from the Centre for Policy Studies (CPS).
The report, Easing the Burdens: How Government Policy Blocks New Homes, claims government-imposed costs account for 57% of the minimum viable selling price of a typical new-build flat in inner London. The equivalent figure for a housing development in the Home Counties is 42%.
The findings raise questions about whether planning reforms alone can deliver the government's housebuilding ambitions while developers face rising costs and tighter margins. The report argues that successive governments have focused too heavily on planning restrictions while overlooking the cumulative cost of taxes, levies and building requirements.
London flat viability gap
Researchers modelled a brownfield development of 100 two-bedroom flats in inner London, each measuring 700 sq ft. They calculated that each private flat would need to sell for approximately £775,000 to make the development financially viable.
Without the taxes, obligations and regulatory requirements included in their model, the researchers estimated a minimum viable price of £333,000, representing a difference of £442,000 per flat.
The model includes affordable housing obligations, planning delays and taxes such as stamp duty, corporation tax and the Residential Property Developer Tax. It also accounts for the Community Infrastructure Levy, Biodiversity Net Gain requirements and additional building specifications, including balconies, dual-aspect layouts and second staircases.
However, the £333,000 figure represents a theoretical scenario rather than an achievable market price, as it assumes the removal of the government-imposed costs and requirements included in the model.
Home Counties impact
The researchers also examined a greenfield development of 100 three-bedroom houses in Chelmsford. Their model found that each property would need to sell for approximately £535,000 to make the scheme viable.
Without the modelled government-imposed costs, that figure would fall to £311,000. The £224,000 difference represents approximately 42% of the modelled minimum viable selling price.
The CPS argues that these additional costs can make developments commercially unviable, particularly where local property values cannot support the required selling prices. It also warns that faster planning decisions may have limited impact unless policymakers address the wider costs of development.
Reform calls
Report co-author Edward Donovan said the government needed to improve financial incentives for private developers if it wanted to increase housing supply.
“People build businesses and invest where they can make a return. The greater the return from building homes, the more talent, entrepreneurs and capital enter the sector, and the more homes get built,” he said. “If it wants more homes it must make them more attractive to build. With 57% of the price of a new London home set by Government policy, that is in the Government’s gift.”
Ben Hopkinson, CPS head of housing and infrastructure and co-author of the report, said planning reform would not be enough on its own.
“Recent governments have rightly focused on reforming the planning system, which is necessary in order to get homes built. But without also addressing the regulation and taxation making those homes uneconomical to build, the country will continue to be millions of homes short of where it needs to be.”
Shadow housing secretary Katie Lam backed the report's findings and called for changes to property taxation and environmental regulations. “In far too many cases, it simply isn’t financially viable to build the homes that we need in the places where people want to live,” she said.
Lam argued that ministers should scrap stamp duty and reduce net zero-related building requirements to improve development viability.
The CPS report calls for the government to examine the cumulative impact of its policies on housebuilding costs rather than relying primarily on planning reform. Its conclusions rest on two modelled developments, rather than a comprehensive assessment of all new-build properties, meaning the figures illustrate the researchers' assumptions about development viability rather than the amount by which existing homes would fall in value if regulations changed.
