It’s right to question regulation – but slash and burn is no way to tackle the viability crisis

It is hard to go far in the construction sector at the moment without having a conversation about viability and regulations. With construction in the doldrums – the sector has been shrinking since the start of 2025 according to purchasing managers data – many firmly point the finger at the diminishing returns to be gained from development.

In response to all this, the Conservative Party at its recent annual party conference promised a bonfire of regulations, which it said would boost economic growth and deliver new jobs and investment.

This included abolishing the requirement for biodiversity net gain, alongside nature quangos Natural England and the Environment Agency, and scrapping the introduction of the Future Homes Standard. Shadow chancellor Andrew Griffith said the measures together would take £50k off the price of a house.

The Conservative Party clearly senses an opportunity to be seen to be backing development by taking the viability crunch in construction seriously

The party is unlikely to be in a position to implement this any time soon, but it clearly senses an opportunity to be seen to be backing development by taking the viability crunch in construction seriously.

The question for the sector is not so much whether these specific proposals will work – they are not about to be brought in – but whether deregulating in this way for growth represents an approach that the industry should be pushing government and its agencies to embrace as a way out of the current crisis.

Welcome intervention

The Conservatives will undoubtedly have won themselves some friends in the sector with these proposals. The viability challenges facing developers, while not uniform across the country, are undoubtedly real. And the sense that the Labour government has not quite grasped the seriousness of the problem is real too.

The residential sector has been the part of the industry most challenged, with development volumes now bumping along the bottom after dropping sharply in the materials price shock that followed the onset of the Ukraine war. The creation of the Building Safety Regulator, and new requirements around second staircases on high rise homes at the same time, has acted to virtually sterilise development in much of the capital. Annual London housing starts, typically around 15,000-20,000, fell in 2024/5 to just 4,280, though they have recovered slightly since.

But it is not just London. A study by Zoopla released last autumn found that homes were now prima facie unviable in 48% of markets in England, victim of additional materials and regulatory costs while prices have flatlined. On top of this, the Iran war has hit hard: shackling demand with high interest rates while further raising materials costs.

The specifics of the viability crunch were laid out in a report by the Home Builders Federation (HBF) earlier this year, which found that an average of £76,000 in costs will by next year have been piled on the construction of homes since 2021. While half of that has come from recent spikes in materials costs, the rest has, the HBF said, come from self-inflicted wounds: additional taxes and regulations. This included £5,700 from implementing biodiversity net gain on sites, £7,800 from dealing with nutrient neutrality, £4,400 from additional taxes and levies, and £10,200 from addressing the Future Homes Standard, to name a few.

Headline-grabbing

Nevertheless, it is easy to see the intervention by the Conservatives as a pretty facile attempt at headline grabbing. Its main focus – the Future Homes Standard (FHS) – is going to be implemented in March next year, so pledging to scrap something that by the time of the election will be well bedded in seems more like theatre than reality.

The announcement allows the party to strike a deregulatory pose, contrasting them with Labour’s soft-left statist approach, but without the messy reality of carrying it out. A cynic might go further and point out that all of the additional regulatory costs listed in the HBF analysis of £76k – excepting the final decision about where the FHS will land – were from policies developed and delivered under the previous Conservative government.

People want warm homes that are cheap to heat, they want clean rivers, and they are concerned about the decline of nature. Cutting rules that set standards for these things takes more than writing a press release

Which is to say, there were clearly reasons why Conservative politicians thought it right to bring in those rules in the first place. People want warm homes that are cheap to heat, they want clean rivers, and they are concerned about the decline of nature. Cutting rules that set standards for these things takes more than writing a press release.

Regulatory trade-offs

One of the lessons of the dreadful Grenfell tragedy was that an ideological drive to deregulate, particularly when approached in a crude way, could result in terrible outcomes for those the state is supposed to protect. Regulations set a vital floor to industry behaviour, without which the good firms risk being out-competed by cowboys, with buyers having little way to distinguish between the two. Hence, why the environmental lobby and some in the sustainable construction sector have reacted with horror to the Conservatives’ proposals.

But in the context of a housing crisis, it is not enough to simply cry foul on principle at any attempts to reduce the burden of rules on business.

The reality is that regulation is a trade-off. The benefit of whatever a regulation is protecting – in the case of the FHS, carbon emissions and home buyers’ energy bills – generally comes at a cost to the regulated industry, limiting the potential for economic growth, innovation and employment.

In this case, the FHS can be argued to hinder the building of more affordable homes, the housing of more people. Rather than just registering opposition, campaigners have to be able to make clear why particular regulation can be justified on first principles.

Indeed, the regulatory response to Grenfell through the Building Safety Act and Building Safety Regulator has given the sector a clear example of how well-intentioned regulations that are too heavy-handed and badly implemented can be disastrous for the industries they operate in. Development of thousands of homes has been held up or abandoned – in the view of many in the sector – without clear justification.

So if political rhetoric about cutting red tape is crude electioneering, what is important is rules that work smartly, preventing important harms without unnecessary bureaucracy and enabling healthy competition without introducing barriers to market entry.

Making regulation better

So, that gets to what a sensible way forward would actually look like.

There are definitely developers that are calling for implementation of the FHS as currently envisaged to be paused, at least during the current Iran conflict.

But only half of the approximate £10k per home cost cited by the HBF from the FHS actually comes from next year’s planned upgrade – the rest is already built in from improvements to fabric efficiency than came in under 2021 Part L. The 2027 uplift does not actually require a big change in what developers build on current standards – the major shift is in the mandating of electric heating and cooking and the fitting of solar PV panels.

Much of next year’s additional cost actually comes from what many in the sector consider to be an over-heavy PV mandate – added quite late on in the process – and there are definitely arguments for looking at this again. Or allowing developers to innovate to hit a generation target, rather than mandating technology – making the regulation smarter.

But the broader shift away from gas boilers, towards heat pumps, is something for which the industry has been preparing for several years now, and there is not widespread support for scrapping it: Abolishing the FHS has not been widely called for. Already, a third of new homes built last year were fitted with heat pumps, not boilers. And further – as some Conservatives are talking about – rolling back 2021 rules on fabric efficiency, thereby making new homes colder and harder to heat in the middle of an energy crisis, is something that would have little or no sector support.

But there are other opportunities. Cross industry body the Future Homes Hub is currently undertaking a piece of work looking at what regulatory savings could be made without compromising standards. While it has not reported yet, it is expected to call for measures such as a moratorium on changes to building regulations, the rolling up of disparate environmental rules into a single natural environment standard, and measures to speed up the delivery of environmental permits.

Further to this work, there are questions over other regulations, such as whether the current requirement for all new homes to have electric vehicle charging points is proportionate. On biodiversity net gain, the government could legislate to ensure the requirement is applied uniformly by local authorities – stopping some from forcing developers to produce much higher levels of habitat recovery.

But the biggest costs are ones laid on the sector by a cash-strapped government unwilling to dip into its own pocket. The costs of nutrient neutrality, affordable housing and the Building Safety Levy are all examples of areas where the government has seen the development sector as a goose laying golden eggs to fund its public policy ambitions. Each is an area where developers are paying to solve essentially social problems. The problem is, the goose has been put under so much pressure it has stopped laying, and no homes are being built.

Ultimately the government may have to accept that if it wants to build private and social homes both to a high standard and at scale, it may need to pay more to make this happen. Simply dropping standards that make homes warmer and cheaper to run does not seem a smart way forward.

Joey Gardiner, contributing editor, Building