• The new build market has remained resilient in the face of market pressures in the last five years

• But housing delivery remains significantly below target

• Just 63% of the 420,000 new homes set to be delivered by 2023 have been completed

• And just 52% of the affordable homes target has been met.

The number of private new homes starting construction has been falling, down 30% since 2017 according to Molior. This is within the context of increasing pressures on affordability and viability, rising land values, policy changes, the UK leaving the EU and a global pandemic – to name just a few challenges.

Volumes and values

Yet these issues vary in the severity of their impact on the market. Some, such as the affordability pressures, are being felt across the whole London market and can be seen in transaction levels. Since the second hand London market peaked in June 2014, transaction levels have fallen by -27%. And that is despite the second hand market seeing a boost in transactions from the stamp duty holiday in 2021. In the new build market, transactions have fallen by just -4% over the same period.

In the five years leading up to June 2014, house prices in London increased by 49%, and then rose by just half that level in the five years following – as the gap between house prices and incomes increased. But the introduction of the London Help to Buy (HTB) 40% equity loan in 2016 has meant transaction levels in the new build market have remained far more resilient. We predict how the market will respond to the end of HTB in our forecasts.

Unsurprisingly there has also been an impact on demand for flats during the pandemic, which has impacted values. The race for space saw demand shift to larger, and scarcer, second hand homes – with house values across London increasing 5.3% in the year to March 2022. Whilst values for flats fell during 2021, demand is starting to return with annual growth at 1.6%.

And the record rental growth seen in London suggests there is still plenty of demand from young professionals looking for smaller homes.

How many homes have been built?

The new build market appears relatively resilient compared to the second hand market in London, and demand for flats is returning. So, why are we still not building enough new homes to meet demand?

Looking back at the 2013 Homes for London housing strategy, the ambition was to deliver 420,000 new homes over ten years. According to DLUHC’s latest figures, 63% of that had been delivered by Q1 2021, though delivery hit just 52% of their 150,000 affordable home target.

Though supply has increased over that period, it has now plateaued around 40,000 new homes being built every year. This is below the London Plan target of 52,000 new homes and significantly below the Standard Method for calculating housing need in London (see our work on Standard Method here) which would be around 83,000 new homes each year.

This suggests there are serious constraints preventing this delivery increasing, ranging from too few planning consents being granted, constrained land supply, pressure from competing uses as well as increasing standards in the face of high build cost inflation – (see more here).

Comments from newly appointed Prime Minister Truss suggests she wants to abolish housing delivery targets. When this last happened in 2010, 270,000 homes were slashed from targets in emerging plans across the country. Whilst delivery has fallen short of target, it does provide pressure on local authorities to ensure they are aiming to deliver enough homes, as well as providing an understanding of just how undersupplied the market is. Without that pressure, there is a risk that local authorities reduce supply further and exacerbate the housing shortfall in their areas.

And it is likely that the targets currently in place still drastically underestimate true demand, as the long-term undersupply of housing has limited households’ ability to grow. This has resulted in more longer-term sharing or moving elsewhere, which we delve into in our article looking at future demand in London.

So what has been delivered, where, and by whom? We delve into that in our analysis of supply.

_{Read the other articles within this publication below.}