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The conventional housing model depends upon continual economic growth. A developer buys land, obtains planning permission, installs infrastructure, builds houses and sells them at prices sufficiently high to cover every cost while leaving an acceptable profit.

The Home Builders Federation’s report, The Viability Crunch, suggests that this model is beginning to fail across substantial parts of England and Wales.

The Federation calculates that additional taxes, regulations and rising material and labour costs have added as much as £76,000 to the cost of building a typical house since 2020. It cites research suggesting that conventional house building is financially unviable across 48 per cent of the country and faces viability difficulties in a further 16 per cent. Typical housing schemes are therefore viable in little more than one-third of English local authority areas.

The Home Builders Federation represents the building industry, so its recommendations naturally reflect the interests of developers. Nevertheless, its figures point towards something more fundamental than a dispute over planning regulations.

The national housing machine is faltering

Government housing policy assumes that granting more planning permissions will produce more houses. But planning permission does not make an unprofitable development profitable.

Developers build only when completed houses can be sold for enough to cover land, materials, labour, finance, taxation, environmental obligations and infrastructure contributions. If household purchasing power is weakening while these costs continue to rise, the calculation no longer works.

This is particularly serious in parts of the Midlands and northern England, where house prices may be too low to support present construction costs. The strange result is that houses may be desperately needed but cannot be supplied through the commercial market.

A national housing shortage can therefore coexist with land that has planning permission, builders who need work and families who need homes. The missing element is not physical capacity. It is financial viability.

This is one more indication of the shrinking economy. The monetary value of a completed house can no longer be assumed to rise fast enough to absorb every additional cost imposed upon its construction.

Development will become increasingly uneven

Where building remains profitable, investment will be concentrated. This is likely to be in localities with high incomes, wealthy purchasers, strong employment markets or an influx of people able to bring money from elsewhere.

Other localities may receive very little new housing, even where their existing population needs it. Young people may be forced to leave because homes are unavailable or unaffordable. Older people may remain in houses larger than they require because suitable smaller homes have not been built.

This could divide the country into pockets where conventional development remains profitable and much larger areas where it does not.

Central government may respond by increasing subsidies, reducing requirements or pressuring planning authorities to approve more land. But none of these measures resolves the underlying problem if construction costs remain above what local people can afford.

A threat to local communities

The immediate consequences could be damaging.

Fewer homes will mean fewer opportunities for local families. Small builders may disappear because they are less able than national companies to absorb delays and rising costs. Building trades may lose employment. Contributions towards roads, schools, drainage and affordable housing may also decline.

Large developers may concentrate on standardised estates in the most profitable locations. Such development is designed primarily around the national housing market, mortgage finance and car travel. It does not necessarily meet the needs of the locality.

There is also a danger that government, desperate to meet national targets, will overrule neighbourhood plans and local objections without ensuring that the resulting schemes are financially deliverable. Localities could lose control over land while still receiving few of the homes they actually need.

The opportunity for localism

The failure of the national development model could eventually encourage a different approach.

A locality does not merely need a numerical allocation of houses. It needs particular kinds of homes for particular people: modest houses for young families, smaller homes for older residents, accommodation for carers, homes connected with farms and small businesses, and housing that can be maintained with locally available skills and materials.

Instead of asking how many houses a national developer can profitably sell, the starting question could become:

What homes does this locality need in order to remain a functioning community?

That change of question has far-reaching consequences.

Land might be released at a value related to local housing need rather than its speculative development value. Community land trusts, housing co-operatives, local authorities and small builders could play a larger part. Some homes might be self-built or completed gradually. Existing buildings could be subdivided, extended or converted. Groups of cottages might share heating, water, workshops, gardens and other facilities.

Local builders could use designs suited to the climate, landscape and available materials. Houses might be smaller, simpler and easier to repair. Construction could provide apprenticeships and maintain practical skills within the locality.

This would not remove the cost of building. Safety, accessibility, water conservation and protection of nature remain important. But decisions could be made together, at locality level, rather than arriving as an accumulation of separate national demands, each considered worthwhile but with little regard for their combined effect.

Housing as local infrastructure

In a shrinking economy, housing can no longer be treated principally as a financial asset. It must increasingly be regarded as part of the essential infrastructure of a locality.

A community cannot maintain farming, food processing, care, education or small manufacturing if the people doing those jobs cannot afford to live nearby. Housing policy must therefore be connected with the future economic purpose of the locality.

Some localities may need homes tied to essential work. Others may need to renovate empty properties rather than build large estates. Towns may convert redundant offices and shops. Rural areas may need small groups of cottages close to farms, workshops and local services.

The appropriate solution will differ from one locality to another. That is precisely why a rigid national model is becoming less useful.

From developer viability to community viability

The Home Builders Federation asks whether a development leaves an adequate return for the builder and an incentive for the landowner. Those are legitimate questions within the existing system.

Localism asks a broader one: will the locality itself remain viable if the homes it needs are not built?

The answer cannot be found simply by relaxing planning control or subsidising the established development industry. It requires new relationships between landowners, builders, residents and local government. It also requires society to accept that rising land and house prices cannot remain the foundation of housing provision indefinitely.

The house-building viability crisis is therefore both a warning and an early sign of change. The growth economy produced housing as a national investment product. A shrinking economy will increasingly require homes to be created as durable, affordable and useful parts of a locality.

The future may involve fewer large estates and more small, locally determined developments. They will not be judged merely by the profit they produce, but by whether they provide sufficient homes, sustain essential work and allow the locality to endure.