Flattened – the pressure on London meeting its housing targets

The Savills Blog

Flattened – the pressure on London meeting its housing targets

The new government has set an ambitious housing target of building 1.5 million homes over the next five years – 300,000 a year. Delivery levels meanwhile are currently just 221,000, according to EPC data. This has encouraged much discussion around whether the target is likely to be reached.

Starts have also been falling rapidly. According to the National House Building Council (NHBC), annualised starts in England were -41% below the 2017-19 average. NHBC do however show that there has been some recovery in the last quarter. Construction starts saw a rebound in Q3 2024, with total annualised starts rising 16% compared to Q2. While levels are still low, this is a positive sign of improvement in development activity.

The uptick however is yet to be seen in London. Construction starts in the capital have been falling since 2015 and in the 12 months to Q3 2024, annualised starts were -64% below the 2017-19 average.

 


Completion levels are also short of housing need. In London, completions have averaged around 40,000 a year since 2016 but they now sit at circa 36,000 according to EPC data. With continuing falling starts, completions will follow this downward trajectory. The level of housing need in London according to the current Standard Method is c. 88,000 homes per annum, meaning delivery is less than 59% of where it needs to be. Of all regions in England, London is the furthest from meeting its housing need.

There are various reasons why delivery in London is more challenged than anywhere else. Many of these are often referenced and lamented – land is even more scarce, viability more stretched, and the regulatory hurdles even more complex. One key issue which is less widely discussed however is this. Flats. Flats make up the vast majority of new homes in London in a way that they don’t anywhere else in the country. In 2023-24, 96% of new homes built in London were flats, compared to between 4-5% of new homes delivered in the Midlands or North. 

Because there is limited space to expand outwards in the capital, developers are forced to build up. These tall buildings are inherently more complicated and expensive to build. They require more complex engineering and are subject to additional safety requirements and planning regulation. Additionally, once a tall building starts construction, it cannot be phased, unlike a typical housing development. 

And at the same time sales values have been, well, flat. Since January 2016, tender price inflation – a proxy for build costs - has increased by 44%. Prices for London flats meanwhile have only increased by 9%. As this gap continues to widen, viability becomes impossible, meaning that developers’ options are increasingly compressed.

 

Further information

Contact Paul Wellman

 

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