Why viability looks different for Registered Providers
When a private developer appraises a scheme, success is defined by profit. Margins are measured in the short term, and if the numbers don’t stack up, the project is dropped.
For housing associations and registered providers (RPs), the calculation is fundamentally different. The key question is not “what margin can we make today?” but “can this scheme sustain itself for the next 30–40 years?”
That long-term investor mindset means that projects unviable for a housebuilder may still work for an RP, particularly where steady rental income offsets high land or build costs. In today’s challenging housing market – where land prices remain sticky, build costs have risen, and private sales are slowing – RPs are increasingly attractive development partners for both councils and private developers.
New data from FYFP returns indicates that while construction and acquisition costs for housing rose by +32.8% in 2024–25, they’re forecast to slow sharply to a 6.2% increase in 2025–26, and then decline in subsequent years, signalling a cooling in development pressure.
The cross-subsidy challenge
Like private developers, RPs also deliver open market sale and shared ownership homes. The difference is that profits here are not simply booked as bottom – line they are reinvested to cross-subsidise genuinely affordable housing.
But in 2025, that cross-subsidy model is under strain:
- Build cost inflation has pushed margins tighter.
- Grant rates, while stabilised under the Affordable Homes Programme, remain insufficient to close viability gaps.
- Sales risk on shared ownership has increased in some regions, with affordability stretched for first-time buyers.
As a result, schemes once considered “safe bets” now require careful scrutiny.
Shared ownership in today’s market
The shared ownership model continues to offer mixed outcomes. RPs benefit from an upfront capital receipt on the initial tranche sale plus ongoing rent on unsold equity. But with the new model lease, capped rent increases, and tighter consumer protection, the old assumptions of robust surpluses are being re-examined.
In 2023–24, there were 18,324 initial shared ownership (“first tranche”) sales – a 5% increase on the previous year, with 76% of these going to first-time buyers – highlighting strong ongoing demand.
Shared ownership makes up around 6% of registered providers’ stock, amounting to approximately 269,500 homes – a significant, though minority, tenure in delivery.
- Staircasing (buyers purchasing further equity shares) is still a financial upside, but it cannot be relied upon. In reality, staircasing to 100% is rare – estimated at just 3% per year overall, and even lower regionally: around 0.7% in the North-East, rising to 15.3% in London.
- Affordability testing is more important than ever. If households nominated by local authorities cannot afford the product, sales stall and holding costs quickly erode surpluses.
Shared ownership remains an important tool – but in 2025 it is no longer the guaranteed “banker” it once was.
What viability looks like in practice
When assessing viability, RPs apply both financial and non-financial tests. These include:
- Strategic fit – Does the scheme align with corporate plan priorities, ESG commitments, and local housing need?
- Funding environment – Is grant available, and how does this interact with s106 or land-led opportunities?
- Risk assessment – Planning risk, build risk, sales exposure, and potential regulatory impacts.
Financially, three tests remain central:
- Net Present Value (NPV): The scheme must deliver a positive NPV, typically assessed over 30–40 years.
- Loan repayment: Can the scheme repay borrowing within a 30–35 year timeframe without breaching covenants?
- Cost-to-value ratio: Particularly important in s106 deals, this test helps ensure RPs are not overexposed relative to market value.
Ultimately, the scheme must also be stress-tested against the organisation’s business plan, ensuring it doesn’t tip the RP into covenant breach.
Long-term revenue and cost pressures
For social and affordable rent schemes, income streams are relatively predictable, though capped. Rent increases, as reported in sector FYFP forecasts for 2024–25, averaged 6.0%, compared to CPI of 2.3% and RPI of 3.4% – though rent growth is forecast to slow to 3.8% in 2025–26, then to 3.3%, 3.1% and 3.0% over the following three years.
However, inflation for general costs is trending lower – projected to be 2.9% for 2025/26, falling to 2.5% in 2026/27.
- Repairs and major works costs are climbing faster than rents.
- Net zero investment and new regulatory requirements under the Social Housing Regulation Act 2023 have added long-term liabilities.
- Voids and arrears risk is climbing in certain areas, linked to wider affordability pressures.
These factors mean that while income may be steady, expenditure profiles are less predictable – a key pressure on viability assessments today.
The role of grant in 2025
Grant remains the single most important factor in making schemes stack up. Without it, RPs cannot compete head-to-head with private developers for land. Most affordable housing schemes still depend on section 106 delivery or blended tenure approaches to work.
At the same time, RPs continue to invest significant portions of their own borrowing. In the 2024 global accounts, the sector’s total other provisions increased by £0.1 billion (8%) to £1.1 billion, including liabilities to undertake refurbishment work and future shared ownership repairs.
Final thoughts
In 2025, understanding viability is about more than running the numbers. It is about balancing risk against long-term mission, managing the tension between commercial exposure and social purpose, and ensuring that each new scheme strengthens, rather than weakens, the organisation’s business plan.
New angles like slowing rent growth, persistent cost inflation, low staircasing rates, and growing long-term liabilities have shifted the viability landscape. For private developers, a stalled sales market may mean mothballing schemes. For RPs, the calculation is longer-term – yet the stakes are higher than ever. A single misjudged scheme can jeopardise regulatory standing and financial resilience.
In this climate, viability is not just a financial exercise, it remains the cornerstone of organisational survival.
