Why can’t London build housing?
London has the UK’s least affordable housing and it’s building the least, Sadiq Khan’s affordable housing targets and the Building Safety Regulator are largely to blame, says Ben Hopkinson
Housing in London has been in crisis for decades. Unaffordable rents have kept professionals in their 20s living with their parents, made it harder for families to buy their first home, and forced 200,000 Londoners into temporary accommodation. What London needs is hundreds of thousands of new homes. Yet somehow the crisis is about to get even worse.
Over the last financial year, London only started construction on 4,170 homes. That’s less than five per cent of its 88,000 home target. New housing starts are down by 73 per cent in the capital, and London has started the fewest homes per capita of any English region. In fact, the capital is starting homes per capita at a rate less than a quarter of the rest of England.
London is the region in the UK that has the least affordable housing and it is building the least. This is amounting to a slow moving nightmare where London is trending towards basically no new homes being completed in a few years from now. At the same time, London’s population has grown by 90,000 people in the last year, putting even more pressure on our limited housing stock.
This crisis has several overlapping causes. Worsening macroeconomic conditions, stringent regulations, high affordability requirements and poor land use have combined to make new homes impossible to build. Each of these individually could be managed given the overwhelming opportunity of building in London, but taken together these straws have truly broken the camel’s back.
The recent spike in inflation has made building a home 21 per cent more expensive in 2023 compared to 2021, while high interest rates increase the cost of capital. That’s especially important given the number of large brownfield sites in London, where capital can be tied up for nearly a decade before the first homes are lived in.
But these explanations aren’t enough – because these things are happening in other parts of the country too, yet they have managed to keep building.
The truth is that new private housing in London has always been treated as a bit of a free money tree. The uplift in value from building in the capital is so great that the cash can be distributed to lots of different goals by any politician.
Not only is London starting the fewest market-rate homes of any English region, it is starting the fewest affordable homes too
Sadiq Khan, for example, has tried to funnel this uplift into lots more ‘affordable’ homes. He’s required 35 per cent of all new homes to be subsidised and upwards of 50 per cent on industrial or private land. That was deemed ambitious when he imposed it back in 2017 in better economic times. Today, the sums simply don’t add up: the money tree has been chopped down. Indeed, not only is London starting the fewest market-rate homes of any English region, it is starting the fewest affordable homes too.
The chaotic creation of the new Building Safety Regulator (BSR) also bears some of the blame. Originally conceived in the wake of the Grenfell Tower disaster, it has quickly morphed into a blocker. Nearly 70 per cent of initial applications to the regulator were rejected, and the wait times for approval have grown from their initial target of 12 weeks to 36. Hundreds of sites all over London are stuck waiting for sign-off.
Even complete homes sit empty waiting for final approval. In one case the BSR vacillated for 18 months before letting people move in.
Then again, to even get to the BSR stage, new homes need to navigate the 500+ page London Plan which is full of rules and mandates. There are stipulations requiring balconies, bans on new homes on well-connected industrial land, and mandates to have windows on multiple walls which make many traditional apartment layouts, such as multiple homes branching off long corridors, impossible.
Unaffordable
Any one of these on their own is innocuous, even noble. But each one adds to the cost of building and taken together, they help to make an average new build unaffordable for the average Londoner.
To see the scale of the problem, consider that of the new homes finished last year in developments of 20 or more units, 80 per cent got their planning permission under one of Boris Johnson’s London Plans instead of Sadiq Khan’s plan, which has been in place from 2021. Even of the homes starting construction, 53 per cent owed their planning permission to Boris. We can’t keep living off of planning approvals from a mayor who left office nine years ago.
London needs more homes. The capital is expected to provide a quarter of the Labour government’s 1.5m home target. Yet with construction starts running at less than five per cent of the goal, the national target will not be met unless the government urgently speeds up building in London.
There have been reports that the new housing secretary, Steve Reed, is aware there’s a problem and may force Sir Sadiq down from the ideological commitment to ‘affordable’ homes that has been making new homes, of all tenures, unviable. Yet given the abysmal numbers in London, Reed will need to go further and faster than even this. This shortfall has national implications and needs to be treated as the national crisis that it is.
Ben Hopkinson is head of housing and infrastructure at the Centre for Policy Studies