The supply of new homes in London is coming under increasing pressure, according to a new report by Savills.
The impact of the pandemic meant that new construction starts dropped to an eight-year low in 2020, while at the same time sales of new build properties finished the year 1 per cent higher than 2019 levels.
This was driven by the stamp duty holiday and Help to Buy.
Construction starts fell to 17,856 in 2020, a drop of 9 per cent from 2019 and just over half of the number of starts seen at the peak in 2015, as developers prioritised completing current projects rather than beginning new ones.
New applications and permissions granted have continued to reduced, by 20 per cent and 17 per cent respectively compared to 2019 levels.
Savills says this suggests there is unlikely to be a drastic recovery in new starts in the near future.
The estate agency expects this to translate into higher completion levels over the next three years, but the slowdown in starts since 2018 will constrain long-term housing delivery in London.
It points to the lates Ministry for Housing, Communities and Local Government data, which shows 41,720 new homes were delivered in the year to March 2020.
While it represents an annual increase of 13.9 per cent, the figure remains over 10,000 homes short of the London Plan housing target and is less than half the 93,500 homes required in the government’s new calculation of housing need.
Savills says: “Although London’s supply is forecast to increase in the medium term, the continuing fall in starts, permissions and applications means future housing delivery in London will remain some way short of targets and need.”
The agency says that despite the efforts of some local councils, affordable housing delivery is not on track to meet demand.
While starts on affordable homes reached a record high of 17,256 in 2019/20, Savills says that completions remain someway below what is required, with just 7,775 affordable homes completed in 2019/20, well below the strategic target to ensure that 50 per cent of all new homes in London are to be affordable as set out in the London Plan.
In the mainstream market – which Savills classifies as homes costing less than £1,000 per square foot – there was a 12 per cent increase in sales in 2020, driven by the stamp duty holiday and continued support through Help to Buy.
The 17,218 mainstream sales in 2020 was the highest were the highest since 2015.
But there were only 14,781 mainstream completions in 2020, which was their lowest level since 2015.
However, Savills notes that with a strong pipeline of over 42,000 homes under construction, it anticipates completion levels will pick up over the next two years.
In the prime market – where properties are worth more than £1,000 per square foot – with starts and sales fell by 42 per cent and 36 per cent respectively, following a lack of international demand.
