‘Massive’ slump in house sales and construction with worse to come, London Assembly hears

‘Massive’ slump in house sales and construction with worse to come, London Assembly hears

Housebuilding in London continues to decline, with new home starts on site down 60 per cent on 2015 numbers and slowdowns in land acquisition, planning applications and sales suggesting the “worst is yet to come”, experts have told the London Assembly’s housing committee.

Sales this year are down more than a third on 2022, with the domestic market in particular drying up, coinciding with the March 2023 end of the government’s Help to Buy policy support for purchasers.

“That couldn’t have come at a worse time. We’ve seen a massive drop off in new build sales,” said Katy Warrick, head of London residential research at property agents Savills.

The committee heard that in the aftermath of Brexit and the Covid pandemic, the housing sector had been beset by cost inflation, skills shortages and high interest rates.

In addition, the impact of planning constraints and new regulations, including City Hall rules requiring a second staircase in blocks above 30 metres in height and government rules announced in July adopting the same requirement for those above 18 metres.

As a result, housing schemes have become increasingly unviable, particularly at the more affordable end of the market, Assembly members were told. “Going high” to get more units on to a site has become too expensive, as well as being unpopular with neighbours.

Demand for new homes has been hit by inflation and high mortgage costs too. “The average Londoner is now really struggling either to get a mortgage or pay it,” said Warrick, and this has been piling demand pressure on a dwindling and expensive private rented sector.

Meanwhile the larger housebuilders and investors are looking outside London, where land costs are lower and returns more certain. At the same time, construction companies are increasingly at risk of bankruptcy as they face price rises for cement, timber and glass of some 35 per cent, according to figures presented to the committee.

High-rise specialist Henry Construction Projects collapsed earlier this year, leaving 50 stalled building sites in London alone, and between 2019 and 2022, 1,350 London-based construction sector businesses have become insolvent. And as of September this year, there were 65 stalled sites in the capital, representing more than 9,000 homes.

The squeeze on small companies is threatening Sadiq Khan’s London Plan ambition for a quarter of his 52,000 new homes annual target to be delivered on small sites, the committee heard, while news this week that Southwark Council had put three schemes, including more than 200 council homes, on hold because of soaring costs underlined the pressure on affordable as well as market sale schemes.

What are the solutions? Suggestions included reviewing the Green Belt to allow development on it, particularly around transport hubs, plus subsidy to unlock large schemes along the lines of City Hall and Homes England government funding as has already been provided for major developments at Silvertown in the Royal Docks and Brent Cross Town.

But more imaginative approaches going beyond fixed grants per unit are needed too, including public private partnerships and longer-term equity arrangements to share risk and return, the committee heard.

“The environment we are in, we can’t just get out of it through grant. We need to be more creative about the solutions,” said community-led and affordable housing expert Michaela Bygrave. “We have a broken housing market but we are just finding ways to keep it propped up. We need to address the fact that housing is unaffordable for the vast majority of Londoners.”

Watch the housing committee meeting in full here. X/Twitter: Charles Wright and OnLondon.

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