According to new research published by Savills this month, a record level of new homes will be built in London this year, with total net completions expected to reach 46,500.
Despite this, the findings also reveal that this will be insufficient to meet housing demand. It puts the real figure of new homes needed at 64,000 a year – far ahead of the target of 42,000 homes set in the London plan.
The Savills report notes that the rise in home starts was funded by a growth in the volume of sales, but going forward, home starts are likely to drop due to a slow down in rates of sale.
As noted last month, transaction levels in the capital’s housing market have started to slow due to more stringent lending requirements, changes in stamp duty land tax and post-Brexit concerns about the economy. This has meant that less homes are being made available for first-time buyers. Off-plan sales have fallen for similar reasons, serving to “further depress the capacity of the market delivery model”, according to Savills.
As sales start to slow, Savills believes that there will be an oversupply of housing, particularly in the lower prime market. Nevertheless, it balances this forecast by stating that this market will be corrected by the interest of overseas purchasers, due to favourable exchange rates and large scale private rented sector deals.
According to the report however, the real concern is that the housing being built is not meeting the demand for more affordable housing; in both the sub-market rent and lower mainstream sectors. The report estimates that 58% of the demand is for housing valued at less than £450 pft, whilst only 15% of the five-year build forecast is expected to be at this value.
Reaching a high in 2015, development starts fell by 25% in 2016. They are expected to fall to just 21,500 in 2017 and to 18,000 over the next two years. Completions are similarly expected to fall to 18,000 by 2021, leaving the capital with a significant shortfall.
Savills suggests that “further significant stimulus”, in addition to stronger policy interventions with build-to-rent and affordable housing programmes, is part of the solution. A policy framework making the capital attractive to developers with “more policy carrots than sticks” is also viewed as a vital next step.
In the long term however, it believes that the market delivery model needs to be reassessed.
While the Help to Buy scheme has helped to boost new build sales in the rest of the country, it has been less popular in London, where it is capped at £600,000.
Savills’ concerns are backed up by research commissioned by the British Property Federation published at the end of March, which noted that the number of Build to Rent homes under construction across the UK’s regions is double that in London.
In order to resolve this long-running problem, the report states that public sector land should be utilised to a much greater extent, accompanied by a review of the green belt. Coupled with this, it argues that the Mayor of London, Sadiq Khan, should be more proactive with his forthcoming devolved powers.