Completions are considerably below target, starts are falling dramatically, and the routes to market are harder to find. Reflecting our research, data and market activity, as well as thoughts during our LREF panel, we keep asking ourselves:

• why is the delivery of homes important?
• how are we thinking about homes delivery today?
• what do we deliver in the future to mitigate the challenges we face? 

Housing Need

The scale of the challenge is considerable. London needs around 85,000 homes each year, yet only around 33,000 were completed during the last 12 months. The severity of the lack of housing delivery is quantifiable, according to Savills Research boroughs are spending £5.5 million a day on homelessness, average house prices are more than ten times earnings and renters are committing close to 40% of their gross income to housing costs.

Demand is therefore not in doubt. The challenge is delivering homes at the price points Londoners can afford while ensuring that schemes remain commercially viable, and that markets are active to ensure that they are deliverable.

Housing is not just a right, it also contributes significantly to UK GDP growth directly with every 100,000 homes delivered adding 1% to GDP , and the indirect growth for our economy in attracting and retaining talent, and of course tax, on real estate and also employment. 

The Challenges

Research by Savills, shown in the chart below, reveals that since the final quarter of 2015, build costs have increased by around 60%, while the value of London flats has risen by only approximately 10%. This disparity is particularly significant because 96% of London’s new homes are flats. Schemes that were viable several years ago may no longer support the same land values, affordable housing provision or developer returns. In some cases, they may not proceed at all.

The available routes to market, which starts on site now rely upon, have also narrowed. The withdrawal of Help to Buy, reduced overseas demand, worsening mortgage affordability and weaker transaction volumes have all combined to increase delivery risk. While sales of completed stock remain relatively positive, this is largely down to a lack of investors buying off plan and domestic buyers preferring to purchase homes that are completed. As a result, new homes are taking longer to sell, while lenders and investors require greater confidence in sales rates and exit strategies. In this environment, certainty can be as valuable as price. To this end, we welcome the government’s announcement of a new equity loan scheme – Your First Move – ahead of next month’s Budget and await further detail.

Looking Ahead

Our research shows that these pressures are already affecting future supply. Private housing starts fell from more than 27,000 in 2017 to around 5,600 in 2025. Build to Rent, affordable housing and co-living have also slowed, and there is currently no single tenure large enough to compensate fully for the wider decline. Even if market conditions improve, the low number of schemes entering the pipeline has already created a future delivery gap.

Bringing sites forward increasingly requires a different delivery model in order to create viable and deliverable projects: multiple sources of capital, multiple tenures and multiple routes to market. Delivery of private homes supports the delivery of affordable housing through Section 106, while Build to Rent, bulk sales and partnerships with affordable housing providers can offer alternative routes. However, each depends on the availability of capital, grant funding and delivery capacity.

The answer is a more sophisticated delivery model. The most successful developments of the next decade are likely to combine multiple tenures, multiple capital sources and multiple routes to market from the outset.

Bringing complex projects to market will therefore require collaboration from all parties from the outset provide more credible and deliverable routes to market. Developers, investors, lenders, affordable housing providers and public authorities need to align earlier around tenure, funding, delivery and risk. Greater flexibility between tenures, targeted public investment, institutional capital and more explicit risk-sharing could provide the confidence needed to move viable schemes forward. Initiatives such as the New Homes Accelerator and ATLAS (Advisory Team for Large Applications) may help unblock sites and address planning capacity, but acceleration can only succeed where the underlying scheme can be made viable, and those who are responsible for delivery have the confidence to start.

London cannot close its delivery gap by waiting for values to rise and build costs to fall.  The public sector cannot fund the solution alone. The market has changed structurally, and the way we deliver housing must evolve with it. Collaboration will be fundamental to converting demand into viable, investable and deliverable mixed-use places at scale, which is exactly what London needs.

Further information

Contact Katy Warrick or Sophie Rosier