What's Happening?
A report by research firm Molior highlights a significant challenge in London's housing market, indicating that housebuilding is unviable in half of the city. The report states that development costs are too high to build profitably in areas where sales values are below £650 per square foot. Despite having planning permission for 281,000 homes, only a fraction are likely to be built due to these financial constraints. The report also points to the Building Safety Regulator's scrutiny as a barrier to high-rise developments, further complicating the situation. Molior forecasts a steep decline in housing starts, with only 15,000 to 20,000 homes expected to be under construction by January 2027 unless government intervention occurs.
Why It's Important?
The findings underscore a critical issue in London's housing market, where high development costs and regulatory hurdles are stifling new construction. This situation threatens to exacerbate the city's housing shortage, impacting affordability and availability for residents. The report suggests that government action, such as reducing development costs and reforming stamp duty, is necessary to stimulate demand and make housebuilding viable. The viability crisis could lead to increased rental prices and further strain on the housing market, affecting both developers and potential homeowners.
What's Next?
The report calls for urgent government intervention to address the viability crisis, including measures to reduce development costs and reform stamp duty. Without these changes, the number of homes under construction is expected to decline sharply, leading to a potential housing shortage. Developers may continue to offer discounts and rent unsold units, but these actions are unlikely to resolve the underlying issues. The government will need to consider policy changes to support the housing market and ensure that new developments can proceed.
Beyond the Headlines
The viability crisis in London's housing market could have broader implications for urban development and planning policies. It highlights the need for innovative solutions to address high development costs and regulatory barriers. The situation may prompt a reevaluation of housing strategies and encourage the exploration of alternative models, such as modular construction or public-private partnerships, to increase housing supply and affordability.
