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Terrifying Statistics or Development Opportunities???
Housing delivery in London remains significantly below target, with new starts plunging to record lows in recent quarters. The rolling annual number of construction starts has fallen to just 11,700 in Q3 2024, a 13% annual decrease and 65% below the peak of 2014.
The government has set a new target to deliver 80,000 homes per year in London, but housing delivery will continue to fall short of this target.
According to MOLIOR LONDON LIMITED’s construction monitoring service this shows the number of residential units ‘starts’ falling consistently since 2017, with 2024 seeing just ~10,500 new units in the construction pipeline.
Over the same period, their analysis of completions suggests some ~16,100 residential new homes across the capital in 2024 – a level that is around 20% of the government target.
Looking forward, the picture appears even more stark – based on current levels of construction starts and the typical timeline to practical completion, Molior estimate that just 7,100 new residential units are on course for delivery in 2027 AND 2028 combined.
Of these 7,100 homes currently in the pipeline London-wide, Molior’s analysis suggest ~45% have already been presold; the vast majority via bulk corporate deals to BTR operators, housing associations and local councils. This leaves roughly ~3,900 new build units ‘available’ to private individuals and the wider market.
Sales in Q1 2025 across the capital saw corporate buyers overwhelmingly target stock at the more affordable end of the market, with the majority of units priced at below £800 psqft being sold off either in bulk sales or traded to a BTR operator or switching to affordable housing.
Current market conditions therefore seem to imply the buyer-base for stock priced at £900 sqft or more is limited exclusively to private UK or overseas buyers which will have a negative impact on absorption rates, marketing costs and broader development strategy.
Chronic under-delivery of new housing will likely continue to act as a support for pricing in the face of consistent demand, subject to affordability issues; high mortgage rates at 90//95% LTV and difficulties securing/saving for a deposit remain major barriers to ‘first-steppers’ exiting the rental market and buying their first home.
Uncertainty about new potential fire safety regulatory reform in light of the government’s recent adoption of the Grenfell Tower Enquiry recommendations (additional changes to Approved Document B (Fire Safety) are now expected in late 2025) as well as resourcing problems associated with Building Safety Act Gateway 2 inspections are already leading to significant delays in delivery of new high-rise apartments.
This will likely be complicated by emerging, fundamental changes to the legal tenure & management structure for future new build apartments in the form of a new Commonhold system.
If the Government are commited to their proposed housing delivery targets then we are at a critical juncture in the market to ensure the momentum shifts into 'positive' territory. Despite the siginifcant challanges faced by developers, there is clearly appetite to lend to well established and experienced developers.
We at Allsop LLP are well placed to advise and happy to share further insight into the market dynamics - Sebastian Verity.
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