We all love our festive traditions. Buying the tree, decorating the house and wrapping presents, all soundtracked by Wham! and Mariah Carey. In recent years we have added the unwrapping of a new National Planning Policy Framework into the mix as December now often brings a flurry of government announcements on planning.
The Draft NPPF, published on 16 December and the enactment of the Planning and Infrastructure Act two days later were more positive steps paving the way for greater investment in new housing. But while it is hard to pick holes in the government’s progressive and committed approach to reforming the planning system and bringing greater efficiency to the planning process, 18 months into the Parliament, with all housing indicators still pointing in the wrong direction, ministers might be considering other levers at their disposal to create the conditions in which home builders can confidently turn investment appetite into homes and communities.
The past month could be considered a useful microcosm for the last couple of years. A raft of encouraging planning announcements marred by confirmation of rising policy costs and taxes on new homes that threaten to undermine the good work of MHCLG’s ministers and officials and compromise collective efforts to hit that much-vaunted 1.5 million homes ambition.
OBR cites viability as a threat to housing forecasts
The Office for Budget Responsibility’s recent Economic and Fiscal Outlook publication suggests the target is effectively unachievable in this Parliament. Its forecast sees total net additions around the one million mark, 100,000 lower than the previous Parliament. The OBR does see net additions almost hitting 300,000 in the first full year of the next Parliament, but supply is not forecast to exceed 245,000 net additions during this term.
To put that into perspective, drawing a straight line from the 208,000 net additions recorded in 2024/25 to hit 1.5 million over the Parliament would necessitate close to 400,000 annual net supply by 2029. In its analysis the OBR acknowledged growing pressures on viability for home building across the country, identifying it as a risk factor that may lead to its forecasts for increases later in the Parliament being compromised.
Alongside continued efforts to improve planning, tackling the viability crisis needs to be a priority for the government. However, the cost of building homes looks set to continue to rise significantly in the years ahead.
Residual land value
It became a mantra in Whitehall in the past decade that any additional costs on development could ‘come off the land value’. This reflects the consensus across government departments that further policy costs, new taxes and regulatory changes are all affordable because residual land value calculations will lead to landowners subsidising these costs. This has been cited to support the introduction of Biodiversity Net Gain provisions, the Residential Property Developer Tax and a swathe of building regulations changes. Today the envelope of costs that residential development must bear has tilted inescapably too far, rendering sites and even entire patches of the country undevelopable. In other words, successive governments have gone to the well too many times.
There was a recognition in the government’s October 2025 housing package for London that even the capital is in the midst of a viability crisis and a recent Zoopla report analysing the rest of the country showed that building homes is financially unviable across half of the country. Following the OBR acknowledgement of the viability challenges, there does now seem to be recognition amongst policymakers that land values are not an infinite pool in which to fish, but the situation will likely worsen before it gets better.
Landfill Tax rise
The Budget on 26 November brought the welcome decision by the Chancellor not to press ahead with a full equalisation of the Lower and Standard Rates of Landfill Tax which would have effectively resulted in a 3000% increase in Landfill Tax paid on most of the waste removed from home building sites. The Chancellor said:
‘I am responding to our consultation on Landfill Tax and listening to representations particularly from our housebuilding industry, I will not converge towards a single rate’
Full convergence of the two rates, currently set at £4.05 per tonne and £126.15 per tonne, would have been a disaster for the industry, leading to an average of £15,000 of additional Landfill Tax liabilities on the average new home and eliminating any vestiges of hope of ramping up housing delivery in the coming years.
The outcome decided upon by the Chancellor will, however, still see Landfill Tax rates increase significantly over the coming years as the Standard Rate will escalate in line with RPI with the Lower Rate rising by the same cash amount. So, the rise will not be 3000%, but it is likely that the Lower Rate will increase from £4.05 to around £25 per tonne by the end of the Parliament leading to a couple of thousands of pounds of additional costs being borne by each new home. Because of the inflexibility available on smaller sites this is another area where tax and policy will disproportionately impact SME home builders at a time when they need all the support they can get.
New levy on new homes
As we look ahead to 2026, it’s hard not to also be preoccupied by the next big increase in the cost of delivering new homes. The £3.4 billion Building Safety Levy will come into force in October.
Without entirely relitigating the introduction of the Building Safety Levy, it is hard to see the justification, fairness or policy sense in introducing this additional tax on new homes. The UK home building sector has already contributed £6.7 billion to remediation through unprecedented commitments to go back and remediate older buildings and the 4% Corporation Tax precept paid by larger builders. Furthermore, the existing £5.1 billion Building Safety Fund appears to have more than £2.5 billion left unallocated some five years after it was established.
With rates set according to local house prices, the impact on London is likely to undo some of the good in the housing package negotiated between the Housing Secretary and the Mayor. For instance, on a brownfield development in Redbridge this is likely to mean an additional cost of £2,500 per new apartment.
Setting realistic priorities
At a time when we desperately need more affordable housing, it is disappointing the available envelope of ‘land value’ that can be put towards public goods has been so radically rebalanced away from the site (Affordable Housing) or the local community (other S106 infrastructure) and towards central government coffers. On sites where residential development might be in competition with other potential uses, as is the case with many brownfield opportunities, the fiscal and policy advantage handed to developers of commercial property, warehouses, data centres and supermarkets continues to grow with every passing year.
Home building is capable of offering wider public goods but it needs to be approached in a sensible way by policymakers with a clear understanding that there is a finite pot and exceeding that will not just reduce affordable housing supply, it will compromise private sector delivery, employment and tax revenues.
Ministers have made exceptional progress on planning over the past 18 months, but if builders cannot make the economics of building and selling homes stack up then a positive, progressive planning system will be of little use to the economy and the housing crisis will only worsen. As we enter 2026 then, and assuming the draft NPPF can pass into formal policy, focus will need to quickly switch to improving viability.
David O’Leary is an Executive Director of the Home Builders Federation, overseeing policy and external relations, including leading on engagement with government. Before joining HBF, David held a range of roles, advising national politicians on housing and culture policy and spent time in local government where he worked on business rate reform, housing policy and government relations.
