If there is one question dominating conversations across housing development teams, it is: 

”Can we still trust our viability assumptions & calculations?” 

Development appraisals have always been central to decision-making. They determine whether projects proceed, if funding can be secured and whether it is financially viable for organisations to deliver affordable homes. However, the environment in which those appraisals are created has changed dramatically. 

The viability challenge has become more complex 

Over the past few years, housing providers have faced unprecedented levels of uncertainty. Construction costs have risen significantly, interest rates have fluctuated, building safety requirements have increased and the focus on sustainability standards continues to evolve. 

The government recognised these pressures when it renegotiated the Affordable Homes Programme* last year, after higher-than-expected construction costs and wider financial pressures affected project viability across the sector. 

Despite this, the challenge remains: many viability models were built for a more stable market and assumptions can become outdated very quickly. 

Net Present Value: what does it actually mean? 

At the heart of most appraisals sits a single figure: Net Present Value, or NPV. In simple terms, NPV takes all the net revenues a project is expected to generate over its life less the net costs to build it - and expresses them in today's money. Rule of thumb, if the NPV is positive, the project is worth investing in. If it is negative, the investment is not so attractive. 

The trouble is that NPV is only ever as good as the assumptions feeding into it. A project doesn't ‘perform’ just because a spreadsheet returns a positive number. It performs because the discount rate, cash flow timing and input values genuinely reflect the reality, and because that output has been checked rather than taken on trust. In practice the KPIs are less about the formula and more about the discipline around it: understanding what drives it, testing it and revisiting it as conditions change. 

Small changes can have major consequences 

A viability appraisal could include multiple variables, split between ‘corporate assumptions such as; Interest rates, borrowing rates, inflation assumptions & revenue costs and profiles. As well as the project specific variables such as build costs, land values, grant rates, rental and sales values as well as programme timelines. 

A relatively small shift in any of these areas can fundamentally alter a project's viability. Yet many organisations only update appraisals periodically, for example, when they hit a key milestone, or sometimes not until a project reaches completion. By then, it’s too late to take action if the numbers don’t stack up. Without a real-time view of performance across the entire programme, organisations risk missing opportunities to intervene or adjust an underperforming scheme with a stronger-performing project. 

Do you really understand your own calculation? 

It may sound obvious, but it’s a question worth asking. Appraisals are often inherited - built by a colleague who has since moved on, adapted from a template, or expanded year after year until nobody is entirely sure how every cell links together. Boards and finance teams are increasingly expected to explain and defend the numbers behind a project, not just present them. And that's difficult to do if the original reasoning for the calculation has got lost along the way.   

It’s also worth remembering that viability models are still built in spreadsheets for good reason: they remain a flexible, familiar and highly capable tool for developing and testing appraisals. However, as models become more sophisticated, it’s increasingly important to keep them accurate and up to date. A misplaced formula or an outdated assumption can quietly distort results that appear perfectly sound on the surface. Regular reviews and testing help to maintain confidence in the numbers behind key decisions and ensure appraisals remain robust over time. 

Scenario modelling: essential, not a 'nice to have' 

Historically, organisations may have produced a base case appraisal and reviewed it occasionally. Nowadays, boards want robust answers to questions like: 

• What happens if build costs rise by another 5%? 

• What if grant levels change? 

• What if delivery is delayed by six months? 

These aren't theoretical questions, they are increasingly common discussions taking place at board-level, and without solid scenario testing, organisations can find themselves reacting to issues rather than planning for them. 

Are you checking against your peers? 

Internal scrutiny only tells part of the story. Sector benchmarking reports exist precisely because every organisation's assumptions can drift from reality in ways that are hard to spot from the inside. If another organisation's management or maintenance assumptions are significantly different from your own, it’s worth understanding why, rather than dismissing it. It may be an early signal that your model needs revisiting. 

Measure twice, model once 

A good appraisal isn't a one-off exercise, it's a living document that needs ongoing scrutiny. Who checks it, how often and against what standard? And critically, what happens when the person who built it moves on? Institutional knowledge about why a formula was set up a certain way, or why an assumption sits where it does, can walk out of the door with a staff change, leaving successors to maintain a model they didn't build and may not fully understand. Robust appraisal practice means documenting assumptions clearly and building in regular, independent reviews, so the model doesn't depend on any one individual. 

The pressure to deliver 

The difficulty is that demand for social housing has not diminished. More than 1.3 million households remain on waiting lists in England.** 

At the same time, social housing delivery remains below the level many commentators believe is required. Recent research by Shelter† suggested that, at current delivery rates, it could take more than a century to clear existing waiting lists. Housing associations therefore face a difficult balancing act: how to deliver more homes while keeping their finances on track. 

The real challenge 

The issue is not whether organisations are producing appraisals - most housing providers are. The issue is whether those appraisals are adequate. Are they sufficiently dynamic, transparent and robust enough to support decisions in a rapidly changing environment? Combine this with the fact that viability has become increasingly susceptible to external pressures, confidence in the numbers is now just as important as the numbers themselves. 

Sources:  

* GOV.UK Affordable Homes Programme annual report 2024 - 2025  

** GOV.UK Social housing lettings in England, tenants: April 2024 to March 2025 

 † Shelter: Building social homes at current speed will take 119 years to clear housing waiting lists 

In part 3 we will be looking at the funding squeeze and asking how funding and cashflow management are impacting on housing development. 

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To find out how your development and finance teams could benefit from a system that delivers one version of the truth for your next project, please get in touch.  

email: sales@m3h.co.uk