The Intermediary – December 2025 - Flipbook - Page 38
SPECIALIST FINANCE
Opinion
SME developers
bear the brunt of
nutrient neutrality
N
utrient neutrality
regulations now
require UK developers
to balance and offset
the nitrate and
phosphate outputs of
new-build homes throughout much of
England and Wales. The regulations,
introduced in 2019, now apply to as
much as 55% of land in England.
The rules aim to protect our
waterways, but have inadvertently
stalled the planning of as many as
160,000 new homes, according to the
Home Builders Federation (HBF).
Large volume housebuilders
have the resources to absorb these
additional costs, but nutrient
neutrality has created a high barrier to
entry for smaller players.
The rules are creating a challenge
for small to medium (SME)
developers – boosting overheads,
eroding margins, and in many cases,
stalling the delivery of much-needed
local homes.
Disproportionate burden
Nutrient neutrality is a nobly
intended safeguard, protecting
England and Wales’ waterways,
wetlands, and groundwater drinking
supplies. However, the reality of
its implementation has created a
two-tier system, hiing smaller
developers hardest. Compliance relies
on resources that SME developers
simply do not have: scale, deep capital
reserves, and strategic land banks.
The primary method for achieving
neutrality is off-site mitigation
and offseing. This typically
involves taking agricultural land
out of production or converting
it into wetlands to balance the
phosphates and nitrates generated
by new housing. Many large volume
housebuilders own thousands of acres
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The Intermediary | December 2025
of strategic land, or possess established
relationships with landowners across
the country. They can internally
trade land to mitigate their own
developments or utilise their balance
sheets to buy entire farms to fund
mitigation schemes.
Conversely, an SME developer
building 10 homes on a brownfield
site is far less likely to own, or be
able to purchase, 20 acres of spare
farmland nearby.
Limited supply
Without land, SME developers
are forced to bid and compete for
limited pools of credits on thirdparty markets. With credits in short
supply, prices have surged – in some
catchments reaching £5,000 to
£50,000 per 1kg unit.
Even when our larger Governmentled programs do finally come online,
Natural England has acknowledged
that these schemes will still not meet
the demand for mitigation, or not
anytime soon.
Cashflow versus capital
Insufficient nutrient mitigation
options don’t just delay homes, they
can kill an SME developer’s business.
The HBF recently reported that the
planning process for small sites is
already disproportionately slow;
nutrient neutrality is exacerbating
this with indefinite delays.
Large developers can afford to
park or land bank a stalled site and
move capital to a different region less
affected by nutrient neutrality rules,
whereas SME developers typically
operate on a project-to-project
cashflow. If one site is stuck in a twoyear nutrient neutrality limbo, their
project and capital can be frozen, oen
preventing them from buying their
next site.
SIMON THOMPSON
is director at NVS
Scale and capital also loom large
when engaging technical partners.
Calculating a nutrient budget requires
complex inputs such as water usage
rates, land run-off coefficients, and
buffer zones.
For, say, a 500-home scheme, the
cost of hiring specialist hydrologists
per unit is negligible. For a five-home
scheme, these fixed costs add a massive
premium to the build cost.
Key to quality
Many market stakeholders may view
the struggle of SME developers as
natural arition or healthy market
consolidation. They overlook the vital
role SMEs play.
SMEs are essential in unlocking the
UK’s grey belt; thousands of small,
scrap plots that volume housebuilders
will not touch because they lack
the mass volume to drive margins.
SME developers compete on a higher
standard of product, prioritising
superior quality, bespoke design, and
the adoption of new technologies,
oen raising standards and seing
the bar of quality for larger volume
house builders.
Those worth their salt in the
development market know that SME
developers are key alleviating the UK’s
housing crisis. It’s SME developers
that create homes that respect local
character, rather than imposing
standardised estates.
If we want to solve the housing crisis
without sacrificing quality, we need
mitigation solutions that are workable
and accessible. ●
