The standard viability appraisal used by UK developers, planning consultants and lending banks has not changed structurally for two decades. The residual land value framework, the developer's profit margin, the sales value and the build cost line: the architecture is settled. What has changed, materially, since the start of 2024, is the value of almost every input that feeds the model. A short audit, then, of where the standard appraisal is now out of step with the market and what that means for the decisions resting on it.
Build cost: the post-inflation plateau is not equilibrium
Headline construction cost inflation in the UK has fallen sharply from its 2022 to 2023 peak. The official tender price indices show the rate of increase returning to something close to the long-run average. The temptation, in the appraisal, is to revert to the pre-2022 assumption that build costs escalate at a stable two to three per cent a year and to set the contingency at the conventional five per cent of construction cost.
This is the wrong reading. Three structural pressures are still present in the cost base and the standard appraisal does not capture them.
- Labour availability. The skilled-trades shortage that drove the 2022 peak has eased but has not resolved. Regional variance is now wider than it was pre-pandemic, and the standard appraisal, which carries a single national contingency, no longer reflects the geography of risk.
- Building Safety Act compliance. The cost of compliance with the post-Grenfell regulatory framework (gateway approvals, principal designer requirements, golden-thread documentation) is not yet stable. Schemes above eighteen metres in particular are carrying compliance costs that exceed the pre-2024 budget by figures in the high single digits as a percentage of construction cost.
- Material price volatility. Steel, cement and timber have all returned to volatility patterns last seen in the late 2000s. The conventional fixed-price contract is harder to obtain and the contractor's risk premium has widened correspondingly.
The appraisal that carries a single five per cent construction contingency, against a fixed-price contract that does not yet exist, is understating cost risk by something in the region of three to seven percentage points of total construction cost. That figure, run through the residual, moves the land value materially.
Finance cost: the term structure has moved
The forward sterling curve in early 2024 implied a return to a base rate in the low threes by the back half of 2025. The realised path has been higher and the curve, at the time of writing, implies a more gradual path of reductions than the appraisals built eighteen months ago assumed. Two consequences follow.
First, the finance line in a development appraisal modelled on a 2024 forward curve is understating the cost of capital over the development period. The error is in the order of fifty to one hundred and twenty basis points on the senior margin for a scheme drawing finance through 2026 and 2027, and the compounding effect through the construction period is material.
Second, mezzanine and stretched-senior pricing has not normalised in line with the senior tranche. The widening of the capital stack, in absolute cost terms, has been concentrated in the subordinated layers and the appraisal that uses a 2023 blended cost of finance is meaningfully understating the actual weighted cost.
Sales value: the affordability ceiling is binding
UK house price growth in the year to early 2026 has been positive in nominal terms but, on the regional cuts that matter to most viability work, negative or flat in real terms. The growth rates embedded in the standard appraisal (typically three to four per cent nominal applied uniformly to sales values across the build-out) are no longer supported by transaction evidence in most regional markets.
The binding constraint is affordability: the combination of mortgage rates, deposit availability and real wage growth has produced a ceiling on achievable sales values that is now visible in transaction data. The appraisal that projects four per cent annual sales growth through a thirty-month build-out is, on current evidence, overstating gross development value by five to twelve per cent depending on region and price point.
Section 106 and the Community Infrastructure Levy
The policy framework around planning obligations has continued to move. Several local planning authorities have revised their affordable housing requirements upwards through the 2024 and 2025 cycle; CIL rates in a number of authorities have been re-indexed in ways that produce a step change rather than a smooth annual increase. The appraisal that carries a 2023 section 106 figure, unrevised, is likely to be understating the policy cost by an amount that the residual cannot absorb without re-pricing the land.
What the corrected appraisal shows
When the standard appraisal is updated for the four moves described (construction contingency, finance cost, sales value growth, planning policy cost), the residual land value typically falls between fifteen and thirty per cent against the equivalent 2024 figure. That is a wide range and it depends heavily on the specifics of the scheme; the central observation is that the move is in one direction and it is not small.
The viability appraisal has not failed. The inputs have moved, the market has moved with them, and the appraisal that has not been re-run against current inputs is not telling the developer, the lender or the planning authority what any of them think it is telling them.
A practical note
Three things are worth doing on any live appraisal that was first run before mid-2024.
- Re-run the construction cost line with a regional contingency rather than a national one, and benchmark against a current contractor's preliminary estimate where one is available.
- Strip out the embedded sales growth assumption and re-run the appraisal on flat nominal values for the build-out period. Treat any uplift as a sensitivity rather than a base case.
- Refresh the finance assumption against the current forward curve and disaggregate the senior and subordinated margins explicitly.
The number that comes out of the corrected appraisal is the number on which a current decision can defensibly be taken. The number from the 2024 appraisal is a record of what was once thought; it is not a guide to what to do now.