Tax reform vital for real estate sector viability as economic headwinds persist

Stacy Eden leads the real estate team at RSM UK. He recently took part in a panel session hosted by Women in Property in partnership with RSM at UKREiiF.

The UK real estate sector is in urgent need of government action to boost housing supply and stimulate the market amid a challenging and uncertain economic backdrop caused by the Iran war.  

In March, the Office for Budget Responsibility (OBR) downgraded its economic growth forecasts for 2026 from 1.4% to 1.3%, with the ongoing Middle East conflict raising inflation and interest rate expectations for the year. This will only intensify challenges for the UK real estate market, which was already facing significant headwinds such as high levels of taxation, tight regulation, and economic volatility.

RSM’s latest Real Estate 360 Report, a survey of over 270 business leaders in real estate, found respondents viewed economic uncertainty and high tax levels as the biggest barriers to investment in real estate.

Most respondents said they don’t believe the government can meet its target to build 1.5m new homes by 2029. Despite ongoing planning reforms, the OBR forecasts that cumulative net additions to the UK housing stock will only reach 1.3m by 2029-30, with the ever-increasing cost of development impacting project viability. A recent report from the Home Builders Federation highlighted that the cost of developing a new build home had increased by £76,000 over the last six years, while the average sales price remained consistent at £375,000. Nearly half of this rise is due to tax increases and government regulation. 

RSM’s Real Estate 360 survey found clear appetite across the sector for tax reform to help stimulate the housing market. Over a third (33%) of respondents stating that abolition of Stamp Duty Land Tax (SDLT) would help improve viability, with increasing skilled workers, further planning reforms and assistance for first time buyers also cited.

To address the housing crisis, the government aims to continue speeding up the planning process, but viability constraints remain a key concern for investors. The reduction in the government’s affordable home target in London to 20% of developments, as opposed to 35%, is good news. However, the planning refusal for the proposed development of 867 homes at the Aylesham Centre in Peckham led to Berkeley homes stating developers “can no longer invest in new London”, showing that the issues are far from resolved.

In the longer term, sustained economic growth, alongside government support to resolve viability concerns, will be crucial to meet housing targets.

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RSM’s latest Real Estate 360° report reveals the outlook for the year ahead and analyses the challenges and investment opportunities real estate businesses are facing. Based on a survey of over 250 respondents, it covers key topics including the economic and funding outlook, asset class trends, housing supply and technology.

To find out more, view the report here.