London house prices to keep rising due to chronic undersupply

The London housing market will continue to experience significant undersupply in the coming years and will retain its robust stance, according to research by Deutsche Bank. The bank expects UK listed house builders with scale and history in the region to see strong returns in their London divisions. It also expects new entrants such as such as Taylor Wimpey and Crest Nicholson to experience significant growth through 2014 and 2015.

Although developers face similar problems with land buying across the UK, house price inflation in London since 2009 is well ahead of the rest of the country and Deutsche Bank expects earnings before interest and tax (EBIT) to maintain London's prime position in the housing market.

There is also a word of caution for pure developers who may face problems of land cost inflation reducing future margins. Those firms which will be able to access land with limited competition, due to factors such as intricacies of planning, will be able to make sustainable profits. The research cites companies such as Berkeley, Barratt, and Bellway as particularly well placed for sustainable margins in London.

The scale of the under build was shown by the Greater London Authority, which expects 34,000 new households per annum in London until 2033 while supply models suggest build rates of only 24 to 27,000 per annum for the next ten years. Despite house prices having risen back to peak levels the research suggests there will be single digit house price inflation in the coming years.