This is a very lightly edited version of an article originally published last month at Prop Views. Its author is managing director of real estate advisers Urban Sketch Ltd and has long and varied experience in London local politics, planning and housing supply.
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Two weeks ago, London focused furniture company David Phillips went into administration. The business, roughly 25 years old, cited the ongoing downturn in the housing and construction market. I had worked successfully with David Phillips on mobilising several build to rent schemes. It was a great business and an important part of the complex ecosystem of companies that aid the delivery of good quality homes for sale and rent.
That ecosystem, once so bright, is being rapidly dissembled, the victim of a series of poorly thought through policy interventions and perhaps well-intentioned but politically motivated attempts to spur affordable housing that have backfired.
Only 3,950 new homes were sold in the first half of 2025, according to housing data company Molior – just nine per cent of the government’s half year delivery target for London.
Molior predicts that by 2028 the industry can expect just £90 million of completion funds to flow through per week rather than the £1 billion it should expect. This is not the bottom. It is likely to get worse. High density brownfield sites for residential flatted schemes, once the bedrock of the London market, are no longer viable. There appears as yet to be no meaningful attempt in government to address the issues.
Why has London stopped building? The first thing to say is that it is not because of NIMBYs and defective planning committees alone, although neither are very helpful.
The system was always precarious – a delicate balance of pragmatic trade-offs by local authorities and developers accepting risk of discretionary decisions because the returns were there. Sometimes they did well, sometimes they did not, but there was always an opportunity to recover returns during the elongated development process.
Those returns have been whittled away over the last five years. On the demand side, erosion has come in the form of Stamp Duty, soaring mortgage rates, tax changes on overseas investors and Buy To Lets, the loss of Help to Buy and the impact of higher risk free rates on Build To Rent yields.
On the supply side, more taxes mean more costs to carry. Two forms of Community Infrastructure Levy (CIL), Section 106 contributions, carbon offset levies, biodiversity net gain and now the soon to be adopted Building Safety Levy (BSL). It doesn’t end there: a landfill tax hike is also being mooted to firmly nail the coffin of brownfield housing development.
Then you have new regulatory requirements around fire safety. Buildings have lost around three to five percent of net saleable floor area from the addition of secondary cores and evacuation lifts. Less revenue, more cost and on an appraisal the impact is around 20 per cent on land value (or if you had already bought your site before the changes, your entire profit).
That’s a big ouch made worse by the fact you still have to pay CIL and the BSL on all that extra space. The newly implemented Gateway system, rather than facilitating safer developments, has merely become a check post causing serious delays to delivery, exacerbating the shortage of housing.
It’s been five years since James Murray left the role of London’s deputy mayor for housing to sit sits on the green benches. He departed with a legacy of additional planning requirements which now cannot work alongside the tax and building safety changes of the last three years.
“Genuinely affordable” housing was good party politics for Murray and adopted by the Sadiq Khan mayoralty when he came to office. It suggested previous administrations had somehow got a bad deal from developers. With limited grant available to pay for social housing, City Hall decided to put further onus onto the private sector by introducing a set of profit capture mechanisms, or late stage reviews, for all development proposals which didn’t hit 35 per cent both in terms of tenure and mix.
This meant the Mayor proposed to take the majority of profit over a certain percentage. His upside is unlimited and difficult to price. He has no downside and he has no capital at risk. That sits squarely on the developer: to assemble, fund and project manage a development where profit is fixed for all time but you are exposed to catastrophic losses. The result? Investors required far higher returns because the London planning system is so obscure. Such complexity has also disempowered local politicians and planners from making judgement calls.
Is there much distinction between a local politician who opposes new housing and a local politician who supports new housing as long as it is social housing? If the state is not willing to pay for it and the private sector cannot afford it, there is actually little difference between the two positions. Both end up at the same place – nothing gets built. That is what is happening across London.
A mistaken belief that the private sector could and should pay for everything and anything has led to an exodus from the capital and to other, less politicised, asset classes. The housebuilders were the first to go, then the investors, both foreign and domestic. The housing assoications have consolidated and looked to their own estates for improvements rather than take development risk.
Multifamily Build To Rent, which should be motoring in a rental crisis, now creates negative land values, unable to provide anywhere near 35 per cent affordable due to higher debt costs. The sector that is functioning is single family housing – much less risk and far, far away from London.
Co-living and student development are still there. But London cannot rely on this alone and even these tenures are under huge pressure due to the building safety regulations and the risks around the Renters Rights Bill. There is no golden goose to be found in them, just an avoidance of negative land value.
The simple truth is that housing development is not a bonanza of goodies, yet successive governments and the mayoralty have mistakenly thought otherwise. It can offer something, but if the planning system is too demanding the consequence is that we all get nothing.
Urban renewal, housing agglomeration and regeneration yield long term benefits to society and the economy, but they are often not immediate cash cows and many times they need state subsidy or at least co-investment. Limited government resources have meant the default position is that the private sector is always there. But it has turned out to have alternative options.
There are huge tracts of land in London, much of it brownfield. You look at the bigger cities and the land is there. A “brownfield first” approach can carry a very significant part of the housing numbers where people want to live.
Unlocking it requires a move away from a discretionary, poorly resourced and land tax heavy broken system. Simpler rules, which are based on zones to which developers and investors are enticed and encouraged to put their capital at risk to improve the built environment is now the only way back. Politicians, both national and regional, need to get real about the viabilities of sites in London and elsewhere. Over the course of the past decade, governments and Mayors have extracted more and more value to the point where there is little to none left.
The public sector does not have the cash to build, so it must find ways to encourage others to take the risk. That means simpler, fairer rules and an end to the war on profit that has stopped this great city from building.
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