The UK Housing Crisis and Development Finance: Opportunities for Developers

The UK housing crisis is not a new phenomenon, but it has deepened considerably over the past decade. The country needs to build approximately 300,000 new homes per year to meet demand, but delivery has consistently fallen short — averaging around 200,000-250,000 completions annually. This persistent undersupply has driven house prices to levels that are unaffordable for many, pushed rents to record highs, and created a generation of would-be homeowners unable to get on the property ladder. For property developers with access to finance, this imbalance between supply and demand represents a significant and sustained opportunity.

The causes of the housing shortage are well documented: an insufficient supply of developable land (constrained by the planning system and green belt designations), skills shortages in the construction workforce, the slow pace of planning decisions, and the historically cyclical nature of housebuilding (where developers reduce output during downturns, even when long-term demand remains strong). Infrastructure constraints — particularly around water, energy, and transport capacity — also limit the pace at which new homes can be delivered in some areas.

What makes the current period particularly interesting for developers is the convergence of political will, planning reform, and financial incentives aimed at accelerating housing delivery. The Government has signalled its intention to reform the planning system to speed up decision-making, release more land for development, and support the delivery of homes in areas of greatest need. For developers who can navigate this landscape, the opportunities to build profitable schemes that also contribute to solving the housing crisis are substantial.

The housing shortage is not evenly distributed across the country. Some regions face acute undersupply, while others have a more balanced market. Understanding where the need is greatest helps developers identify locations where demand is strongest and sales risk is lowest. Greater London remains the single largest area of undersupply, with a shortfall estimated at tens of thousands of homes per year against the London Plan target. However, the high cost of land and construction in the capital means that many London schemes are only viable for large, well-capitalised developers or those with access to mezzanine finance or joint venture equity.

The South East — particularly Kent, Surrey, Hampshire, Berkshire, and Hertfordshire — faces a similar dynamic of high demand and constrained supply. These counties benefit from London commuter demand, strong employment markets, and good schools, but face planning constraints (particularly green belt) that limit the supply of developable land. Sites with planning permission in these counties attract intense competition, and developers who can identify and secure sites ahead of the market enjoy a significant advantage.

Outside the South East, cities like Manchester, Birmingham, Leeds, Bristol, and Edinburgh all face housing undersupply driven by population growth, economic expansion, and changing household formation patterns. The advantage of these markets is that land and build costs are typically lower, making schemes viable for a wider range of developers. In our experience, a well-located residential scheme in any of these cities will attract strong lender interest and competitive development finance terms, reflecting the demonstrable demand for new homes.

Rural areas and market towns also face housing pressures, driven by a different dynamic. Limited new supply, combined with demand from retirees, lifestyle movers, and (since the pandemic) remote workers seeking more space, has pushed prices up in many rural locations. Development opportunities in these areas tend to be smaller-scale — infill sites, conversion of agricultural buildings, and small housing estates — but can be highly profitable for developers who understand the local market.

The Government has introduced a range of measures aimed at stimulating housing delivery, several of which directly benefit developers seeking finance. The most significant include reforms to the planning system designed to speed up decision-making and reduce the cost and uncertainty of obtaining planning permission. The introduction of Planning Performance Agreements (PPAs), expanded permitted development rights, and proposals for zonal planning systems all aim to create a more predictable environment for development.

Financial incentives are also available. The Help to Buy equity loan scheme (and its successors) has supported first-time buyer demand for new-build homes, effectively underwriting a proportion of the sales risk for developers. Homes England provides grant funding for affordable housing and has expanded its loan programmes to support SME developers and the delivery of homes on complex sites. Infrastructure funding — including the Housing Infrastructure Fund — has unlocked major sites that were previously unviable due to the cost of roads, utilities, or drainage.

For developers, the practical implication is that government support can improve scheme viability in ways that directly affect the finance available. A scheme that benefits from Homes England grant funding, for example, may achieve a higher profit margin, which in turn supports higher leverage from a development finance lender. Similarly, a scheme on a site allocated in a Local Plan with a supportive planning policy framework presents lower planning risk, which lenders reward with better terms.

We advise developers to explore all available incentives before finalising their appraisals. In our experience, many developers leave money on the table by not investigating Homes England programmes, local authority incentive schemes, or brownfield land registers. A small amount of research — or a conversation with a knowledgeable broker — can identify opportunities that materially improve scheme economics. To discuss how incentives might apply to your scheme, submit your project through our deal room and we will include an assessment of available support in our response.

Development finance lenders are, by their nature, aligned with the goal of building more homes. Every facility they advance funds the delivery of housing, and lenders are increasingly aware of the social impact of their lending alongside the financial returns. Several lenders have introduced products specifically aimed at supporting housing delivery in areas of greatest need, including discounted rates for schemes that include an affordable housing component, enhanced leverage for developments on brownfield land, and fast-track processes for sites with full planning permission.

The range of finance products available to developers addressing the housing crisis is broader than many realise. Senior development finance is the starting point, but developers should also consider mezzanine finance to increase leverage, equity joint ventures to fund larger schemes without deploying all of their own capital, and bridging loans to acquire sites quickly before arranging longer-term development finance. The choice of product depends on the developer's capital position, experience, and the specific characteristics of the scheme.

For developers building affordable housing — either as part of a Section 106 obligation or as a dedicated affordable housing provider — specialist finance is available. Several lenders have affordable housing teams that understand the dynamics of shared ownership, affordable rent, and social rent tenures. These facilities are typically structured differently from open-market development finance, with drawdowns linked to housing association purchase commitments and interest rates reflecting the lower-risk nature of pre-sold stock.

In our practice, we have seen a marked increase in developer interest in schemes that combine open-market and affordable housing. This blended approach can improve scheme viability (by de-risking a proportion of sales through forward commitments from housing associations), attract more favourable finance terms, and contribute to the delivery of homes for those most in need. It is a model that works commercially and socially, and one that we actively encourage developers to explore.

The build-to-rent (BTR) sector has emerged as a significant response to the housing crisis, particularly in urban areas where affordability constraints limit owner-occupation. BTR developments — purpose-built, professionally managed rental housing — offer a different model from the traditional build-and-sell approach. For developers, the appeal includes a more predictable exit (institutional purchase or retention as an income asset), typically faster delivery to market (no dependence on individual buyer sales rates), and the ability to contribute to the rental housing supply that the UK desperately needs.

Financing BTR developments requires a different approach to traditional development finance. The exit strategy is key: rather than individual unit sales, the developer typically either sells the completed scheme to an institutional investor (pension fund, REIT, or housing association) or refinances onto a long-term investment facility. Development finance lenders assessing BTR schemes focus heavily on the strength of the exit — is there a forward commitment from an investor, or is the developer relying on securing a buyer post-completion? A forward-funded or forward-committed scheme will attract significantly better terms than a speculative BTR development.

BTR yields vary by location. Prime London locations might trade at 3.5-4.0% net initial yield, while regional cities like Manchester, Birmingham, and Leeds offer 4.5-5.5%. These yields translate into capital values of £200,000-£350,000 per unit in regional markets and £400,000-£600,000+ in London. For developers, the maths need to work on both a development basis (is the scheme profitable to build?) and an investment basis (will an institution buy the completed scheme at a yield that supports the target sales value?). In our experience, schemes of 50 units or more in established rental markets are most attractive to institutional buyers.

We have arranged development finance for multiple BTR schemes and find that lenders are increasingly comfortable with the sector. Rates and leverage for BTR schemes with a committed institutional exit are now broadly comparable to for-sale residential development finance. Where no exit is committed, terms are more conservative, reflecting the additional sales risk. Developers considering BTR should engage with potential exit investors early in the process to strengthen both their appraisal and their finance application.

The housing crisis creates particular opportunities for small and medium-sized enterprise (SME) developers — those building 1-100 units per year. SME developers have historically delivered a significant proportion of UK housing output, but their market share has declined as large housebuilders have consolidated. Government policy recognises this and has introduced measures to support SME developers, including dedicated funding programmes through Homes England, planning reforms aimed at releasing smaller sites, and efforts to improve access to finance.

For SME developers, the financing landscape has improved considerably. The growth of alternative lenders (discussed in our guide on alternative lenders in development finance) has expanded the pool of capital available for smaller schemes that banks may not consider. Products like 100% build cost funding, whole-loan facilities combining senior and mezzanine debt, and streamlined application processes for sub-£5,000,000 schemes have all made it easier for SME developers to finance their projects. A developer building 6-8 houses with a GDV of £2,500,000 can now access facilities from multiple lenders with a facility of up to £1,750,000 at rates from 7.5%.

The best opportunities for SME developers tend to be on smaller sites — infill plots, garden land, small brownfield sites, and conversion opportunities — that are too small to attract the attention of volume housebuilders. These sites often fly under the radar of larger operators but can deliver attractive returns for developers with local knowledge and the ability to move quickly. Planning applications for smaller sites are also typically faster and less contentious than major developments, reducing risk and shortening the development timeline.

In our experience, the most successful SME developers are those who build strong relationships with finance providers, develop deep knowledge of their local markets, and maintain a pipeline of opportunities. The housing crisis ensures that demand for well-located, quality new-build homes will remain strong for the foreseeable future, providing a stable foundation for SME developers who plan carefully and execute well. To explore finance options for your next scheme, our deal room provides a fast and straightforward route to understanding what is available.