Our recent work reported in our Spotlight on London’s Housing Supply suggests that shortfalls in housing delivery in the capital are likely to be exacerbated in the next five years due to the constraints of developing into a low transaction market, at a time when development  finance is scarce.

The work identified 2,250 potential development sites across London with the capacity to provide over half a million new ‘market’ homes, but only 600 of those sites are expected to deliver even part of their housing potential over the next five years.

We therefore believe that only 66,500 private market units are likely to be delivered over the next five years. Together with a shortfall in affordable housing provision, this means that the total new home provision will fall some 50,000 short of the Mayor’s minimum housing target and around 79,000 short of household projections.

But the shortfall will not affect all London boroughs and sectors of the market equally.

It will generally be much easier for the market to sustain planned development in the more affluent upper mainstream and prime markets, on the back of wealth generated in London and the wider global economies.

Elsewhere, infrastructure is key to unlocking the development pipeline of larger sites that tie up a substantial proportion of London’s development potential. Areas that benefit from infrastructure led regeneration are amongst the most likely to be progressed.

For example, improved connectivity around Crossrail stations at Hayes, Ealing, Whitechapel and the Royal Docks will bring forward substantial supply in conjunction, while the Nine Elms regeneration scheme will benefit from the extension of the Northern line.

Nonetheless, we expect only 9 out of 33 of London’s boroughs to meet their housing delivery targets.

We forecast that the greatest volume of demand for housing will come in the lower mainstream market with values typically up to £450 per sq ft. This links to the fact that the highest population growth in the last five years was seen amongst London’s 20 to 35 year olds, whose numbers increased by some 340,000.

By contrast, there has been precious little growth in the pensioner population of London. This has increased by just 13,000 over the past 10 years, and owner-occupiers within this group have proved to be more “It will be much easier for the market to sustain planned development in the more affluent upper mainstream and prime markets” Katy Warrick, Savills Research mobile by virtue of the housing wealth generated during their lifetime.

Despite schemes such as NewBuy and FirstBuy, mortgage constraints continue to limit the ability of the young to gain access to the housing market. This will drive more singles, sharers and young couples into the rental sector, where rising demand has resulted in the disproportionately high rental growth seen in the London markets.

For investors to tap into this demand will require the development of a workable build to let model, the proceeds of which could have the added benefit of pump priming the development of currently undeliverable larger sites. To this end, all eyes will be on the details of Sir Adrian Montague’s report on institutional investment into the private rented sector.

Taken from
Residential Property Focus Q3 2012