London housing delivery slowed throughout 2017 - will it continue to downward trend?

There are numerous sources for housing supply figures in London but between them there is a fairly consistent trend - housing completions peaked in Q1 2017 before slowing over the rest of the year. Yet, the most up-to-date indicators suggest this slump may be short lived, with both Energy Performance Certificates (EPCs) and Molior showing an uptick in delivery following a Q1 2018 low.

Data from the GLA for ‘Net Conventional Completions’ show that housing delivery in London reached a high of 41,371 completions as at Q1 2017. The most recent official MHCLG statistics on national housing delivery are ‘Net Additional Dwellings’ and cover the 12 months to March 2018. Although they have consistently differed since 2013 compared to the official GLA figures, they are the most recent official government figures on housing delivery in London and are a fair indicator of trend. The MHCLG numbers indicate that in the 12 months to Q1 2018 the number of new additions to housing stock totalled 31,723 homes, a decrease of 20% on the previous year.

A significant component of this decrease is the fall in the number of permitted development conversions. In the 12 months to March 2018 there were just 3,178 conversions to residential – a drop of 51% on the previous year.

EPCs issued for new homes are an unofficial leading indicator of housing delivery, with the latest EPC data to Q3 2018. EPCs show a similar trend to the official government data, with the number of certificates for new homes peaking in Q1 2017 at 40,896 before slowing over the rest of last year. EPCs for new homes bottomed out in the first quarter of 2018. Significantly colder-than-usual weather could potentially explain the marked drop in construction output over this period, though there was a less obvious effect on national numbers.

Going beyond the reporting date of the ‘Net Additional Dwellings’ data, Q2 2018 and Q3 2018 saw the number of EPCs issued picking up again, suggesting that the slowdown culminating in the Q1 2018 low may have been a short-lived dip rather than a more fundamental change of direction.

Molior data for gross completions on private schemes over 20 units, also released to Q3 2018, shows a similar profile of delivery to the EPCs. According to Molior, whilst private completions show an upward trajectory over the previous two quarters, delivery peaked in Q1 2017.

In the following two charts, we have taken private supply activity on sites above 20 units and split the data by price point to show the particular dynamics of the mainstream and prime development markets.

These markets are defined as follows:  

• Mainstream – Less than £1,000psf
• Prime – More than £1,000psf

Mainstream

Starts and sales in the mainstream market fell by 17% and 10% respectively over the three months to September 2018.

Nevertheless, starts continue to outpace sales – a trend that has occurred since Q4 2013.

Construction completions overtook sales in Q3 2018 but continue to lag significantly behind starts. This is due to longer build periods, construction delays and labour shortages.

As at Q3 2018, construction completions are up 13% since their most recent trough in Q1 2018.

prime 

In the prime development market, construction starts continue to slow – starts are now 59% lower than their peak in Q3 2016.

Construction completions fell by 5% over the last quarter. This means that the increase in starts between 2014 and 2016 is still yet to translate fully into construction completions.

Sales, which have fallen by 12% over the last year, remain broadly in line with average levels seen since 2014.

Build to rent

Build to Rent continues to make up a significant proportion of overall delivery, accounting for a third of new build sales in London in the first three quarters of 2018.

There are a total of 18,397 build to rent units currently under construction in London with a further 35,272 in planning.

The total number of build to rent units either complete, under construction or in planning in London has increased by 20% over the last year.

Help to buy

The 2018 Budget confirmed the extension of Help to Buy until 2023, though limited to first time buyers and regional value caps.

The number of Help to Buy loans in London in Q2 2018 totalled 1,493. Help to Buy London loans peaked in Q2 2017 which correlates with the peak in completions for schemes under £1,000psf across London (see Fig 2).

There have been a total of 13,697 Help to Buy loans issued in London since April 2013. Of these, 9,214 were issued since the introduction of Help to Buy London (with a £600k limit and 40% equity loan) in April 2016.

Since then, six boroughs including Barnet and Lewisham have each seen over 500 loans issued whilst RBKC has had just one Help to Buy loan issued.