The number of new homes built in London is expected to peak at 46,500 this year, the highest total since the 1930s and ahead of the London Plan minimum target of 42,000 set by the Greater London Authority, but what is being built does not match the shape of demand.

When appointed as London mayor, Sadiq Khan made the city’s shortage of homes his number one priority, with his Homes for Londoners promise. Last year’s figures make encouraging reading in absolute terms, but we are at the limit of what can be built under the current delivery model. As a result, we expect volumes to peak this year and fall over the next five years in response to falling sales.

By 2021, Savills forecasts that just 34,700 new homes in the year will be built in London, little more than half the 64,000 new homes we think are really needed annually to meet demand from a strong economy and growing workforce.

Savills forecast for total new homes completions

Source: Savills Research

Importantly, not only does London desperately need more homes, it needs many more affordably priced homes. Falling volumes will leave London chronically undersupplied in the homes it desperately needs.

A majority – some 75 per cent - of what’s currently being built is priced above £450 per square foot. In the mid-mainstream market (£450-£700 per square foot) supply is matched by demand, but above this level that changes.

In the prime market, above £1,000 per square foot, construction was started on 1.6 homes for every sale over the past two years, resulting in an oversupply, albeit in a relatively small segment of the market. It will take time for this stock to be sold and developers have already started to scale back, but there is a much bigger issue for London.

Some 58 per cent of demand is for homes priced below £450 per square foot, whether for sale or to rent, but only 25 per cent of those homes being built are at this price point. London has a huge and rapidly growing undersupply of homes in this part of the market. We anticipate that for each of the next five years, only 9,800 homes will be built compared to demand for 37,000 homes.

This year may present some harsh realities for a number of developers, but the bigger issue remains that of a city chronically undersupplied in the homes it desperately needs. Additional models for housing delivery are needed, that add to the output of major housebuilders and the market sales model.

Further information

Read more: London's future homes and workplaces – the next five years