Clearly it’s not an easy fix. There are various issues which need to be addressed, above and beyond those that are under the Government’s control. Many parties will need to come together to support such an ambitious plan for more homes - including developers, construction firms and building material suppliers - all of whom will need ready support from the commercial finance industry.

Planning reform:

The Government has been prioritising removing what it sees as the main barriers to building new homes by overhauling planning and increasing land supply. There is no doubt that these have been significant barriers to increasing the housing stock in recent years.

The revised National Planning Policy Framework revealed in December included restoring mandatory council housing targets as well as guidance to building on the Green Belt and the newly coined Grey Belt. The Planning and Infrastructure Bill being introduced into Parliament later this month has been designed to contain much of the primary legislature required to enact the Government’s plans. The Government intends it to ‘take an axe to red tape’ by speeding up and streamlining the planning process to build homes and major infrastructure projects.

However, reform itself will not speed up the planning process if there are not enough trained planning officers to implement it. The Government believes that an additional 300 new recruits across England by the end of 2026 will suffice, but that’s less than one tenth of the 3,100 planning officers who left the public sector between 2010 and 2020. Certainly, the 300 won’t have any impact at all in the near future whilst they are being hired and trained. Either way, an improved planning system and increased land supply will not themselves deliver the 1.5 million new homes.

Building the homes:

This target will require the build of over 300,000 new homes in England per year, which is a number not achieved since the 1970s. Back then, local authorities were a large contributor to the supply of new homes, roughly equal to that of private companies. Now, local authorities are a very small factor and the Government is hoping that private companies will pick up the shortfall.

However, unlike local authorities, private firms need to make an immediate profit to survive. Building more homes needs to make financial sense for them. However, the construction industry has been facing big challenges in recent years, including dealing with a chronic shortage of skilled workers as well as a lack of availability and affordability of building materials.

In 2024, the total number of construction firms becoming insolvent was 4,032, which is a 25.3% increase on the 3,218 of pre-pandemic 2019. Of all cases where the industry was captured in the statistics, construction experienced the highest number of insolvencies (source: BCIS and the Insolvency Service).

So how can private developers and construction firms - who are crucial players in the Government’s plan - make enough profit? Since higher profits can be made when supply is lower than demand, it’s counterintuitive for them to hugely increase their efforts and essentially flood the market with new homes. This would make them less profitable than they currently are. The only way that this might make financial sense is if it coincided with their costs coming down.

I’m sure that construction industry bodies, associations and lobbyists are working hard to persuade the Government to make changes to increase the supply of skilled workers and increase access to affordable building materials. The Government must realise how critical these factors will be to achieving its ambitions.

The cost and certainty of funds is also a factor for these firms to consider. So, how can we, in commercial finance, help them make a healthy return?

Commercial finance options:

Different types of firms involved in delivering homes will benefit from different funding choices. Invoice factoring might be a wise option for a building material supplier, for example. However, since Funding 365 is a property finance lender, that is what I’ll focus on. Luckily, the cost of funds for specialist lenders are coming down, which means that we are able to pass on lower interest rates to our customers.

Development lenders tend to specialise in funding certain types of development projects. At Funding 365 we focus on small developments, providing funding between £250,000 and £1.5 million for projects across England and Wales.

Delays in obtaining planning permission disproportionately affect SME developers, who, unlike bigger developers, are often unable to juggle resources across different sites.

Bridging finance can help with projects that run past their development finance term, either for ‘development exit’ which provides extra time for developers to market and sell their properties, or for ‘finish and exit’ which also includes completing the build.

Property conversions:

Whilst much of the attention is on ground up development, ‘net additional dwellings’, which measures the change in overall housing stock and is likely to be the indicator that Government will base its success on, includes not only new build properties but also property conversions and changes of use.

As many people continue to largely work from home, there’s less demand for office space and many office buildings present excellent opportunities for conversion to residential.

Bridging finance can help here, too. Funding 365’s Light Refurbishment product, for example, allows for property conversions with works up to 40% of the day one value and has interest starting at just 0.69% per month, with no exit fees. Our Heavy Refurbishment product delivers cost of works up to 150% of the day one value.

Stamp duty changes:

Lenders helping developers by reducing their cost of funds will become even more important from next month. Unless the Government applies a last minute grace period - as many people hope they will, given the predicted backlog with conveyancers - an increase in Stamp Duty Land Tax (SDLT) in England will come into force on 1st April. Changes include reducing the threshold for main residences from £250,000 to £125,000 and for first time buyers from £425,000 to £300,000.

For landlords buying property, the Additional Property SDLT will increase for the £125,000 to £250,000 bracket, which will move from 5% to 7%. To put that in context, the average price for a residential auction property sold in England during the three months to January 2025 was £187,167 (source: EIG Property Auctions). For this average purchase, the increase in Additional Property SDLT would equate to an extra £3,743.34.

Any additional SDLT cost to buyers will not help developers to sell their new homes. In practice, the developers may find themselves absorbing some or all of that additional cost in order to secure sales, further reducing their margins.

Working together:

All of these extra costs affecting developers - labour costs, material costs, site delay costs and stamp duty costs - will hamper the Government’s plans. There are many obstacles to delivering such an ambitious number of new homes and at present it appears that the Government is hoping that simply recording an aspirational figure and making some planning reforms and local authority targets will make it happen.

Private firms are the ones who will actually deliver the bulk of the new homes - and whilst their costs remain high, it simply isn’t economically viable for them to deliver so many. The Government needs to do more to try to reduce their costs.

In the meantime, the commercial finance industry will do what it can to support the effort, passing on any reduction in cost of funds and endeavouring to provide new product solutions.