New home completions continue their recovery but London’s prime markets remain sluggish
London’s construction industry has continued its recovery in Q2, with 6,472 new homes completing in the quarter according to Molior, who track developments with more than 20 private homes (large sites). This is the highest number of completions in a single quarter since 2018 and takes the number of completions in the year to Q2 2021 to 22,848, 9% above the figure at this point last year.
The number of new construction starts, however, has remained low. There were 15,891 new starts in the year to Q2 2021, which is -16% fewer than this time last year.
The volume of homes currently under construction has shrunk to its smallest level in six years due to completions outpacing new starts. There are now currently 55,326 homes under construction on large sites in London.
New home sales have also struggled to recover from the effects of the pandemic. With 17,730 sales in the year to Q2 2021, annual sales are -13% below this time last year. The spread of new variants of the virus has meant international travel has been slower to return than expected, limiting sales volumes, particularly in the markets above £1,000 psf.
The mainstream markets have fared slightly better, assisted by a significant pickup in Build to Rent in Q2 which, combined with Help to Buy, accounted for roughly 70% of all new homes sales in the quarter.
The gradual return of employees to central London offices and international travel will boost demand in London’s new homes market in the second half of the year and 2022.
The number of complete and unsold homes increased slightly in Q2, owing to high completions and low sales rates. There are now 3,096 complete and unsold homes in London, though this is still -18% below the peak in 2019.
There has been a pickup in the number of permissions granted in London in the last twelve months. 28,614 homes gained permission in the year to Q2 2021, an annual increase of 17%. However, new applications submitted have continued to fall and the number of new homes applied for are down by -10% annually.
The number of new Energy Performance Certificates (EPCs) registered in the year to Q2 2021 stands at 40,717 and reflects the recovery shown in the data from Molior, up 11% compared to this time last year. EPCs are a good proxy for housing delivery and offer a more up-to-date view on total housing supply compared to official figures.
Latest official data from the MHCLG shows 41,720 net additional dwellings were delivered in the year to March 2020. This represents an annual increase of 14% but is still over 10,000 homes short of the London Plan housing target and is less than half the 93,500 homes required in the government’s new calculation of housing need (Standard Method 1.1). More information on SM1.1 can be found in our separate note here.
Although London’s supply is forecast to increase in the next 18 months, the decline in starts, permissions and applications over the last few years means future housing delivery in London will remain some way short of targets and need.
With the greatest demand for housing in London being for more affordable homes, local councils have stepped up their efforts in building them. A number of local authorities have their own housing companies with significant development pipelines for the next few years. Despite this, there is still expected to be a large shortfall in sub-market housing in London over the next five years. The number of affordable starts on GLA housing programmes fell by -23% in the year to March 2021 to 13,318 homes. Completions continued to rise, with 9,051 affordable homes completed in 2020/21, but remain well below the strategic target to ensure that 50 percent of all new homes in London are to be affordable as set out in the London Plan.