Sustainability vs affordability: can UK real estate deliver both?

The UK real estate sector is under increasing pressure to deliver new homes that are both affordable and aligned with climate goals.

The government has set an ambitious target to deliver 1.5m new homes in England by the end of the decade. However, developers are facing tough choices as build costs rise and new environmental standards take hold.

So, can housebuilders really deliver greener homes without pricing out buyers? Or does sustainability come at the cost of affordability?

The challenge for UK developers: building sustainable homes at affordable costs

The Future Homes Standard (FHS), due to take effect later this year, will reshape how new homes are designed and built in England. It requires all new-build homes to be “zero carbon ready”, meaning that once the electricity grid decarbonises, no further modifications will be needed for the building to achieve zero carbon emissions. In Scotland, the New Build Heat Standard came into effect in April 2024, prohibiting direct emissions heating systems in new homes. Additionally, the Scottish Government is progressing legislation to introduce a Scottish equivalent to the Passivhaus standard, aiming to enhance energy efficiency and thermal performance in new buildings.

Homes built under the FHS must reduce carbon emissions by 75–80% compared to those built to current standards. Key measures include:

• Phasing out gas boilers and requiring low-carbon heating systems, such as air or ground-source heat pumps.
• A shift to a “fabric first” approach, which focuses on improving insulation, airtightness and ventilation to reduce energy demand from the outset.

The FHS will introduce a new Home Energy Model to replace the current Standard Assessment Procedure. This model will assess energy use, emissions and fabric performance more accurately, aligning compliance with future net-zero targets. Updates to Building Regulations, including Part F on ventilation, will accompany the FHS rollout. Transitional arrangements are expected, giving developers a short period to adapt to the new regulations once the FHS comes into force.

In addition, the proposed Environmental Delivery Plans (EDPs) under the Planning and Infrastructure Bill will allow developers to contribute to a central Nature Restoration Fund as an alternative to on-site environmental mitigation, signalling a shift in how ecological impacts are addressed through planning. Alongside mandatory Biodiversity Net Gain (BNG), evolving local planning frameworks and updated EPC standards, the compliance landscape is tightening significantly.

Meanwhile, material inflation, skills shortages and increasing demand for climate-resilient homes are putting further pressure on delivery models.

We recently asked 200 real estate businesses for their view on sustainability in our Real Estate 360° report. While many believe the balance between decarbonisation and financial returns is possible, the overarching sentiment is one of uncertainty.

Why sustainability in real estate doesn’t have to cost more

While the upfront cost of delivering greener homes can be higher, it’s important to consider the bigger picture, particularly long-term operational savings and whole-life value for buyers and residents.

Approaches such as fabric first design and Modern Methods of Construction (MMC) can deliver meaningful cost and carbon savings. These approaches help to improve build speed, minimise waste and future-proof developments against regulatory change.

In addition, building to higher sustainability standards from the outset reduces the likelihood of needing costly retrofits in the future, especially as regulations and buyer expectations evolve. For residents, energy-efficient homes offer tangible benefits in the form of lower utility bills and improved comfort, factors increasingly influencing market demand.

Where public policy and finance come into play

There are signs of support for developers working to meet these challenges. The Affordable Homes Programme has been topped up with an extra £850m, and Homes England continues to champion MMC and green innovation in housing delivery.

In parallel, banks and institutional lenders are increasingly offering green loans and sustainability-linked finance, rewarding strong ESG credentials and transparent reporting with preferential terms. Developers that can demonstrate lower carbon emissions, climate resilience and community value are likely to gain a competitive advantage when seeking funding and procurement opportunities.

However, these benefits require robust data, credible plans and a clear understanding of what sustainability means in practice – all of which are still maturing across parts of the sector.

Six strategies for UK housebuilders to deliver affordable and sustainable homes

As regulation evolves and market expectations shift, sustainability is no longer a 'nice-to-have'. It is now central to the viability, insurability and investability of new homes.

To successfully balance the drive towards net zero with the need to keep homes affordable, developers should consider the following six steps:

1. Adopt a whole-life perspective: embedding sustainability into projects requires a shift from upfront capital cost thinking to lifecycle value creation. Whole Life Carbon Assessments (WLCAs), now formalised under RICS professional standards, offer a structured approach to quantifying long-term benefits, from reduced operational energy use to embodied carbon savings.
2. Prioritise early engagement with planning and finance: sustainable outcomes are rarely achieved through retrofitting. Early alignment with local planning policies, many of which now prioritise low-carbon, biodiversity-positive schemes, is crucial. Similarly, early engagement with sustainability-linked finance providers can help bridge initial cost pressures and demonstrate project resilience.
3. Leverage Modern Methods of Construction (MMC): modular and offsite construction is not just a cost-efficiency play, it delivers consistent energy performance, reduces material waste and accelerates delivery timelines. Supported by national and local initiatives, MMC approaches are becoming increasingly central to delivering sustainable and affordable homes.
4. Build supply chain capability: with evolving product standards, material provenance requirements and embodied carbon benchmarks, developers must invest in supplier engagement and data collection. Establishing transparent ESG criteria in procurement processes will become essential.
5. Integrate resilience into design: beyond carbon, the increasing frequency of physical climate risks should be factored into site selection and housing design. Early assessment of location-specific risks and adaptation measures will support long-term insurability and resident wellbeing.
6. Plan for regulatory alignment: the FHS, BNG requirements and rising EPC thresholds indicate clear regulatory trajectories. Proactively adapting to these changes now will reduce exposure to costly redesigns, project delays or stranded assets in years to come.

In practice, this means reviewing not only strategies but also the underlying data, governance and risk frameworks that support delivery.

If you’re navigating these changes, our ESG team can support you in various ways, including executing climate scenario modelling, preparing ESG data for reporting and aligning sustainability approaches with key assurance and reporting standards.