Scary statistics came to light this week courtesy of upmarket estate agent Savills.
Housebuilding in London is likely to peak this year, its research shows, before dropping off rapidly as housebuilders find demand for (and juicy margins from) high-end new-build homes begin to dwindle.
The figures chime with a ranking of global cities by house price growth by Savills’ bitter rival, Knight Frank, which showed the capital has fallen out of the top 50 for the first time in years. Indeed, Bristol, Manchester and Birmingham now all have faster house price growth than the capital. It is a far cry from the beginning of last year, when London was at number 20 in the ranking.
But the capital continues to be embroiled in a housing crisis. So what is the problem? It is partly down to a mismatch in price points. The Savills figures suggested while homes costing less than £450 per square foot make up almost 60 per cent of demand, that price point only accounts for 15 per cent of supply. Meanwhile, there is a massive oversupply of homes costing more than £1,000 per square foot. That will hardly solve the housing crisis.
In an ordinary market, the two sides would reconcile themselves, with housebuilders cutting the prices of their over-supplied homes to a level buyers find palatable. But in a sector with as long a lead time as housebuilding, that is more difficult: housebuilders which themselves paid well over the odds for prime land during the boom years of 2012 and 2013 are now finding pricing new homes anywhere near the level of demand will leave them with much lower margins – or none at all.
Of course, the housebuilders got themselves into this mess by paying through the nose for land. They must now find creative ways to ensure they can sell the homes they have begun.
But the public sector can also help by releasing more land for cheaper homes. Transport for London, to its credit, is working with developers to build affordable homes around stations. But the government must find more ways to bring forward low-cost land, such as building on some parts of the green belt (for example near train stations), to meet that crucial demand.