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July 22, 2025

Can New UK Government Initiatives Address the Chronic Housing Shortage?

Key Initiatives Include National Housing Bank, Social and Affordable Homes Program, Planning and Infrastructure Bill 

 

Important: Rasmala Investment Bank Limited is regulated by the DFSA. This communication is for professional clients (DFSA) only and for informational purposes only. It does not constitute investment advice or an offer to buy or sell any security. It is not for retail distribution. Past performance is not indicative of future results. Investments carry risk, and values may fluctuate, falling as well as rising.

 

The UK housing market may present potential long-term investment opportunities due to a chronic undersupply of housing, which may underpin both income and capital values for investors. However, accessing attractively priced properties, particularly through greenfield and brownfield development, is hindered by government regulations and escalating construction costs, especially in regeneration areas. 

The UK Housing Crisis: A Deep-Rooted Imbalance 

The UK housing market faces a longstanding supply-demand imbalance with significant socio-economic consequences. The UK has a backlog of 4.3 million homes that accumulated between 1955 and 2015, a substantial deficit compared to the average European country.  

Despite efforts by agencies like Homes England, which reported 38,308 housing starts and 36,872 completions in 2024–25 and exceeded its internal targets for two consecutive years, broader national housing goals remain out of reach. This indicates a long-term, structural challenge rather than a temporary issue for investors.  

Affordability is a growing concern, particularly for renters. As of April 2025, private renters in England spent approximately 29.6% of their income on housing. While rising earnings have modestly improved affordability for buyers, rental costs continue to soar, especially in cities, pushing more households toward social housing. This divergence highlights growing pressure on the rental market and points to strong fundamentals in the Build-to-Rent and Single-Family Housing sectors, which may offer stable, inflation-linked returns and are less exposed to regulatory constraints affecting high-rise sales developments.  

Government Interventions: A Multi-Pronged Approach 

The UK government has launched a series of significant initiatives in 2025 to tackle the housing crisis, combining direct financial intervention, long-term funding certainty for affordable housing, and comprehensive planning reforms. These interventions aim to improve the investment environment by providing additional funding and streamlining processes.  

  • The National Housing Bank (NHB): A New Financial Lever 

Launched in June 2025, the National Housing Bank (NHB) is a crucial component of the government’s housing strategy. Backed by £16 billion in new public capital and £6 billion in existing funds, the NHB aims to deliver over 500,000 homes by partnering with the private sector and providing financial certainty to investors. This public support is expected to unlock up to £53 billion in private investment.  

Operating as a government-backed arm of Homes England, the NHB has the authority to issue guarantees and deploy capital directly. To reduce risk for private investors, it offers a full suite of financial tools, including equity, debt, and guarantees. Specifically, £2.5 billion will support affordable housing through low-interest loans, and SMEs will benefit from revolving credit and expanded partnerships with lenders. For investors, the NHB may offer co-investment opportunities in previously unviable projects, especially those involving regeneration, infrastructure, or SME builders. By absorbing early-stage risk, the NHB lowers barriers for private capital and creates new entry points into complex developments. However, investors should conduct thorough due diligence to understand how NHB-backed projects, which may benefit from subsidies or guarantees, could alter normal pricing dynamics and affect returns and market value.  

  • The Social and Affordable Homes Programme (SAHP): Long-Term Certainty 

 Published in July 2025, the £39 billion Social and Affordable Homes Programme (SAHP) aims to deliver 300,000 new affordable homes over 10 years, a scale twice that of its predecessor. At least 60% (180,000 homes) will be for social rent. From April 2026, social housing rents will be capped at the Consumer Price Index (CPI) plus 1% for a period of at least 5 years, providing long-term clarity for planning and reinvestment.  

The SAHP also reforms the Right to Buy scheme, extending tenant qualification periods, adjusting discounts, and exempting new social homes from sale for 35 years. It also aims to rebuild public sector delivery capacity by strengthening local authority borrowing, regulation, and partnerships. This 10-year funding and rent framework may offer investors a rare level of predictability, potentially reducing uncertainty and strengthening the appeal of affordable housing as a potentially stable, inflation-linked investment. A renewed focus on council-led housebuilding may open the door to more joint ventures between local authorities and private firms, potentially offering new opportunities for developers and investors with relevant delivery expertise.  

  • Planning and Infrastructure Bill: Streamlining Development

Introduced in March 2025, the Planning and Infrastructure Bill aims to streamline homebuilding and infrastructure delivery as part of the government’s target to build 1.5 million homes by 2029. Key reforms include reinstating mandatory housing targets (from December 2024), allowing development on ‘grey belt’ land (lower-quality green belt areas), simplifying regulations, reforming compulsory purchase processes, and enabling strategic, cross-boundary planning. While development on ‘grey belt’ land increases theoretical supply, it doesn’t eliminate local opposition. Investors may consider prioritising regions where local authorities support development and where strong community engagement strategies are in place to mitigate potential delays from community resistance.  

The Reality on the Ground: Persistent Delays and Their Impact 

Despite ambitious policy frameworks and significant financial commitments, the practical implementation of housing development in the UK is severely hampered by persistent and systemic delays. These bottlenecks, particularly those associated with the Building Safety Act (BSA) Gateway 2 approvals and the broader planning system, create considerable friction and risk for developers and investors.  

Building Safety Act (BSA) Gateway 2 Delays 

Gateway 2, introduced under the 2022 Building Safety Act, requires approval before construction begins on Higher-Risk Buildings (HRBs), typically high-rise residential projects. Developers must submit complete plans and safety documentation to the Building Safety Regulator (BSR), but the process has become a significant constraint. Delays persist primarily due to the complexity of new regulatory requirements and a high rate of defective applications. Applications are taking between 25 and 40 weeks, with some projects experiencing delays approaching 18 months, straining contractor pricing models and disrupting cash flow. This regulatory uncertainty has prompted many developers to scale back or avoid high-rise projects, reducing the pipeline where urban density is most needed. Even with NHB and SAHP financial backing, Gateway 2 remains a critical bottleneck, limiting housing delivery speed and scope. The main issue is that developers often fail to demonstrate compliance adequately, submitting plans that show what work will be done rather than proving how building regulations will be met. However, the BSR is working to provide more explicit guidance and advisory services.  

Planning System Delays 

Beyond the Building Safety Act, the broader planning system continues to present substantial obstacles. Applications that should theoretically take 8-12 weeks routinely stretch to nearly a year, creating cascading delays. Local resistance, or NIMBYism, compounds these procedural delays, even on land designated for development like ‘grey belt’ areas. This opposition can derail projects that have already navigated complex regulatory hurdles, creating additional uncertainty for investors and developers. The cumulative effect has been a sharp decline in housing starts as developers become increasingly reluctant to commit capital to projects with unpredictable timelines. For investors, this uncertainty may translate directly into extended risk exposure and compressed returns, often deterring capital deployment entirely.  

Investment Implications: Navigating Delays and Opportunities 

The confluence of ambitious government housing initiatives and persistent development delays creates a unique landscape for real estate investment. Understanding these dynamics is crucial for identifying strategic opportunities while mitigating execution risks. While government capital is increasingly abundant, delivery remains constrained by regulatory bottlenecks, making execution risk the central investment consideration.  

Strategic Opportunities 

  • Target low-regulation segments: With high-rise projects facing severe regulatory delays, investor focus is shifting toward Single-Family Housing (SFH) and certain Build-to-Rent (BtR) models, which may offer faster delivery timelines, stable demand, and minimal exposure to Gateway 2 constraints. 
  • Leverage long-term certainty in affordable housing: The SAHP’s 10-year funding framework and rent stability may provide predictable, inflation-linked income streams, particularly attractive for long-term and ESG-focused capital seeking stable returns. 
  • Invest in delivery solutions: Strategies that compress timelines or ease regulatory compliance, such as modular construction, planning technology, or regulatory advisory services, may unlock significant value by accelerating bottlenecked projects. 
  • Co-invest in de-risked developments: Through NHB support, investors can potentially gain access to regeneration and infrastructure-heavy projects previously deemed too risky. Government backing may improve project viability and absorb early-stage risk, potentially making even Gateway 2-affected developments viable through shared risk structures.

 

Conclusion: A Shift in Investment Strategy 

The UK housing sector presents both significant challenges and potentially compelling opportunities. While planning and regulatory delays are expected to persist in the near term, the traditional “DIY” approach to investing in the UK residential property market is no longer viable for overseas investors. Even traditional Buy-to-Let investors are leaving the market. To navigate this complex landscape and access potentially attractive investment opportunities, one approach may be to partner with institutional investors who understand the market, possess on-the-ground expertise to navigate the regulatory environment, and can access potentially attractive investment opportunities. By targeting appropriate segments, structuring partnerships strategically, and planning for extended timelines, investors may access stable, long-term returns that align with both financial objectives and social impact goals.  

Important Note: This analysis is intended for professional investors. Past performance is not indicative of future results, and all investments carry risk.  

References 

 

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