Could 2025 be the year that developers transition from “Stayin’ Alive” to starting to thrive?

Back in 2023, “stay alive to 2025” was a phrase frequently bandied about at development industry events. Now we’ve made it(!) what’s the outlook for developers in 2025 and beyond – is the industry still in survival mode or are there signs of an emerging economic, legal and political landscape in which developers may be able to transition from the days of surviving to a future thriving?

Looking forward, there is no doubt that the triad of further interest rates cuts, planning reform and a stabilising of the pressures on land values will brighten the horizon for housebuilders. Market sentiment has also improved as a result of the fact that the new government, in a change from the last government, seems to genuinely want to unclog some of the blockers on residential development – the anticipated changes to the National Planning Policy Framework having already increased housebuilder and investor confidence in long term potential sites including in grey and green belt land is a case in point.

Whilst recent easing in debt and construction costs has helped stabilise pressure on land values, overall supply currently remains tight. That said, the following are changes that are likely to ease supply over time:

Agricultural land

In the Autumn Budget the Chancellor announced that agricultural property relief (APR) and business property relief (BPR) will be reformed with the effect that from 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property and 50% relief will apply thereafter. It may be that these changes result in a rise in agricultural land sales which would improve access to land for future projects.

Planning policies to drive development

The Government has made it clear that nowhere is decisive reform more urgently needed than in the country’s planning system and this is underpinned by its ambitious new housing target to deliver 1.5 million new homes over the next five years. This ambitious target combined with the introduction of “brownfield passports” to support and expedite the approval of urban sites all point towards greater development opportunities. That said, challenges remain with under-resourced planning departments and uncertainty as to what extent proposed reforms to environmental impact assessments will achieve the goal of supporting growth by saving developers time and money, whilst still protecting the environment.

Land value capture

Under proposals set out by the Government at the end of last year, councils, Mayoral Combined Authorities and other public bodies, including Homes England, will be able to directly take control of vacant and derelict land from landowners paying a fair price and not inflated ‘hope value’ costs, where they are delivering in the public interest. These reforms expand existing legislation allowing ‘hope value’ to be removed in more circumstances where social and affordable housing is being built and have the potential to drive the delivery of the ambitious new housing targets.

Grey Belt

The new concept of the “Grey Belt” included in the NPPF in December 2024 could play a significant role in unblocking new housing opportunities however there is significant uncertainty about how many dwellings can actually be built on grey belt land in addition to which access to public transport infrastructure and social infrastructure as well as environmental considerations will need to be considered to determine the viability of such developments. This means that whilst the grey belt may well present development opportunities it will also present challenges.

Whilst the above are just a snapshot of measures that have been proposed or implemented to improve supply it is important not to forget the impact that the raft of draft planning related legislation will have going forward. Of particular note are the draft statutory instruments designed to enact the provisions of the Levelling-up and Regeneration Act 2023 (LURA) that allow Crown Development and Urgent Crown Development on Crown Land to bypass local planning authorities and make applications directly to the Secretary of State. These legislative measures combined with policy measures such as the New Homes Accelerator programme set up to unblock and accelerate the delivery of stalled housing developments and the government’s unveiling of its plans for the next generation of new towns earlier this month which included:

• plans for a brokering service to resolve disagreements and issues raised by statutory consultees;
• an acknowledgement that bodies including National Highways, Natural England and the Environment Agency will need to bring planners and housebuilders to the table and iron out concerns that have been holding back development; and
• funding announcements to drive regeneration including to help transform neglected small-scale council-owned sites into new homes and to transform derelict brownfield sites,

all contribute towards a positive market sentiment.

Recent analysis by Knight Frank as part of their Land Index & Housebuilder Survey Q4 2024 noted an increase in activity and house prices even though housebuilders were still offering incentives to support sales and most anticipated prices remaining flat for the first quarter of 2025.

Whilst viability still remains a restraint on medium density urban development, it is also worth mentioning that the measures introduced by the Building Safety Act 2022 and the secondary legislation that has followed to implement and vary various parts of the building safety regime introduced by the Act are not only affecting financial viability but more importantly delays at the Building Safety Regulator are creating “unknowns”. If there is one thing that developers and investors hate more than anything else, it is uncertainty.

On a more positive note:

• institutional investor demand for the bulk purchasing of single family housing;
• the countdown to changes to first time buyer stamp duty relief; and
• the recent interest rate cut,

should all help keep the market positive for the next few months.

Institutional investment in the housing market is also having a positive effect on new build quality and sustainability as well as creating communities as these are all fundamental investment requirements. At the moment, bulk institutional investors are often having to pay on top of usual purchase price for improved environmental performance works to their new build such as  air source heat pumps, solar panels, electric vehicle charging points, batteries and triple glazed windows, as these are not considered “essential”. The question is whether these building energy efficiency related requirements are likely to become more standard as more new build buyers and mortgage lenders demand them and developers seek to give their schemes a competitive edge. It will also be interesting to see what effect the new single mandatory consumer code for housebuilders and the New Homes Ombudsman Scheme have on build quality and customer care.

Sticking with the “green theme” for a moment, water and nitrate neutrality and BNG solutions are helping to unlock previously stalled schemes as well as providing opportunities for natural capital investors and landowners.

Set against a background of noise and general busyness in the sector there has been what may be construed as an ominous silence from the government to date on implementing the contractual controls over land proposals which was one of the aspects of interest contained in the Levelling Up and Regeneration Act 2023 to promoters, landowners and developers. We will have to wait and see whether 2025 will be the year when requirements are brought in for all options, rights of pre-emption and contracts to be registered and what effect this will have.

Setting aside the concerns over economic uncertainty coming from across the Atlantic, with UK interest rate reductions making schemes more viable and an underlying political agenda to drive planning policy to set the foundations for improving the housing crisis we can be hopeful that the future is looking bright(er). One thing for sure is that we are only a few months into 2025, and it already looks like there is lots to keep the development sector busy!

How we can help

If you would like advice on any of the issues raised in this article, please get in touch with our development team.