On 30 October 2025 Neal Hudson, the housing market analyst wrote in the FT a thoughtful piece about housing market failure. The headline summed up his analysis the problem New homes: even if you build them, there’s no one to buy them. The writer’s explanation was to focus on the distinction between housing need and housing demand. He has a point. This distinction is useful in helping to more precisely differentiate some aspects of demand, when trying to fathom out why the english housing supply fails to respond to market signals.. But the distinction may also simply act as a camouflage to identifying more deep seated causes of market failure. Some commentators responding to Hudson’s piece have certainty become frustrated and then drawn their own conclusions. Here is an one example
‘ This article is fatuous. If people cannot afford to buy homes at current prices, prices have to fall. The build cost is only a small part of the price of a new home in the UK. A house that costs £450K was probably built for £85K to £115K. Almost all of the remaining “cost” is land value. Developers may make a loss, but only because they bought at inflated prices from the previous owner of the land. Prices must fall.’
Hudson does not miss the point, recognising that the cost of building a new home has shot up, thus squeezing profit margins. He also recognises that viability is not the same across the country. His rational and balanced conclusion is
‘Profit margins aren’t big enough to incentivise developers to commit in today’s riskier market, while land values are insufficient to encourage the owners to sell for residential development. It’s created a spiral where delivery is falling, and it will take a lot of time and money to turn it around. He then adds …….’So what is the solution?’
Despite thorough-going earlier analysis this sort of flopsy bunny cop-out …..’and it will take a lot of time and money to turn it around’….. is disappointing but a significant clue too. The commentator above actually said the truth, that (land) prices must fall. Hudson does not say so too, instead offering this inadequate culmination.
’This leads me to the conclusion that this government, like all those before it, will at some point panic and decide that a little house price inflation is exactly what we need. So it will concoct some manner of demand-side stimulus.’.
He is wrong to think this is the next step for the government. And I hope it is not what they do. What the current supply impasse is telling us is that land prices are too high, and according to classic demand and supply theory they must fall. (Remember land prices are extremely volatile. They are the residue of surplus after all other variables are endorsed). Except they won’t fall, unless the government does something radical! Let me explain. Early in my professional career I first encountered the secret rule that govern’s developers and lenders lives. For bankers it is central to their business model. Having once accepted real estate (including land, as well as property) as collateral for a loan you never approve a subsequent transaction which would compel a surveyor to reduce the value of the investment, and therefore the extent of your risk exposure. Decades ago I could not persuade a developer of a small terrace of industrial units to let the last vacant unit at a market rent. Why? Because the market had weakened and the prevailing market rent was the new and lower figure I was endorsing, regardless of the higher rates achieved on the other units. If the entrepreneur developer had accepted my advice, due to the small print of his loan agreement with the bank, his profit share would have dropped dramatically. Developers will therefore make no concessions to a weakening market until their profit share is extinguished. This harsh truth is the reality of the development industry. Developers will not significantly shift their asking price expectations unless and until external pressures compel a change in policy. This deep bedded resistance to downward shifts in house also prices lies at the heart of Nimby resistance to new housing supply; after all their building society is at risk too!
Is there a solution? Yes, and it requires the government to continue with their planning reforms, but start thinking very hard about ten years or more ahead. Because they urgently need to take a radical decision. That after 2035 all at scale sites needed for housing demand (not housing need!) will be owned or controlled by local councils (or development corporations), both greenfield and brownfield at scale sites. Is this radical change in the supply of housing land a decade or more ahead affordable? Yes again. Because hope value for house building sites not due for release for building until after 2035 will, due to the uncertainties of timing and location, and vagaries of market sentiment (re-read Hudson and look at recent housing cycles), will be at or very close to nil. In the meantime, as councils finger preferred locations the first symptoms of hope value might appear. If the government has the foresight and if the councils in high priced areas have the leadership ability they, as the controlling owner, and planning authority will be ideally placed to achieve 100% land value capture. Why not. The big unknown is not money, it is local leadership confidence. Some crash lessons in building places which release premium values may be needed.
There is of course one more massive upside to this radical change in control and delivery of future building land .All the existing supply projects and their promoters will, provided this means of breaking the supply impasse is supported by opposition parties in Westminster so developers do not hang on for a policy U-turn in 2029, will fast-track their projects seeing ahead the threat of new, appealing an affordable homes from new sources., Indeed, I cannot see any hurdles which will stop this revolution if the government has the leadership and the Westminster support. And just think about the benefits! Economic benefits, an explosion of new short term supply as project control realise the land lottery is coming to an end and affordable homes on the horizon in the thirties. Local residents in areas whose history shows high levels of resistance to local land use change may need extra attention. For example residents in host areas after 2035 will receive rates holidays, whilst residents in areas which do not build the homes needed will carry, through their rates an additional financial burden payable to residents in host locations, if they insist on being an export overspill area, ie. residents who prefer to export their homes demand to other council areas and pay the price to do so.
Ian Campbell
09 November 2025
