Sustainability challenge for housebuilders has changed dramatically: Steve Preston
In recent years, sustainability has moved rapidly up the agenda for housebuilders and property developers, but now the nature of the challenge has changed dramatically.
This year, conversations with property companies and housebuilders are focussed on how sustainability objectives can be delivered in a way that remains commercially viable.
The reality is that developers are operating in an increasingly complex environment. Construction costs remain elevated, planning processes can be protracted, financing conditions are challenging, and regulatory expectations continue to increase.
At the same time, investors, lenders and occupiers are demanding higher standards of environmental performance and greater transparency around ESG performance, particularly with the introduction of the UK Sustainability Reporting Standards (UK SRS).
Against this backdrop, sustainability has become less of a reporting exercise and more of a delivery issue.
A significant tension we’re seeing is the widening gap between ambition and affordability. There is broad agreement that the built environment must improve its environmental performance, but there is often less clarity about how those improvements can be funded whilst maintaining acceptable returns.
Ultimately, sustainability measures must be evaluated through the same commercial lens as other investment decisions. Developers need to understand which actions genuinely protect asset value, support sales or lettings, improve liquidity and reduce long-term risk.
This is particularly evident when considering retrofit and refurbishment projects. Energy efficiency remains a critical consideration, but decisions around retrofit versus rebuild are rarely straightforward. Whilst embodied carbon and operational performance are important factors, the economics of delivery often become decisive. Cashflow, funding availability and tax treatment can all have a significant impact on whether a project proceeds.
Tax considerations are increasingly important in this area. Capital allowances continue to provide valuable relief for qualifying expenditure on building systems and infrastructure, whilst recent changes to investment incentives are influencing how developers assess project costs and timing. In many cases, the difference between a viable and non-viable scheme can be determined by how effectively available reliefs are identified and claimed.
The regulatory landscape is also evolving. Biodiversity Net Gain (BNG) is now firmly embedded within the planning process. Whilst the policy objective is well understood, the practical implications are significant. Failure to address BNG requirements at an early stage can result in redesigns, delays and additional costs that undermine project viability.
Similarly, changes to the Construction Industry Scheme (CIS) are creating new responsibilities for businesses procuring construction services. Increased scrutiny of supply chains means governance and compliance are no longer issues confined to the finance function. Organisations must have confidence in their processes, controls and supplier relationships, as the financial consequences of non-compliance can be substantial.
Plus, investors and lenders increasingly expect robust oversight, clear accountability and reliable sustainability data. Strong governance frameworks help organisations demonstrate credibility whilst reducing operational and reputational risk.
Data is equally important. Accurate, consistent and accessible data enables developers to makeinformed decisions, monitor performance and provide evidence to stakeholders. The growth of PropTech is helping organisations achieve this by improving visibility across the development lifecycle, from planning and construction through to building operation and energy management.
Looking ahead, it’s likely the most successful developers will be those that integrate sustainability into their commercial decision-making rather than treating it as a separate workstream.
Sustainability, tax, governance, financing and development strategy are increasingly interconnected.
Organisations that recognise those links should be better placed to manage risk, secure funding and deliver projects that remain attractive to buyers, tenants and investors.
For housebuilders and developers, the challenge is not whether to pursue sustainability, but how to do so whilst protecting viability and creating long-term value.
Steve Preston is a partner at accounting and business advisory firm, Saffery in Leeds.