London won’t come close to 88,000 homes a year by 2029
London’s housing crisis exists on a spectrum, from the weary resignation of young professionals, first-time buyers and university students – to an acute, impossible state of affairs for those stuck in mouldy homes or unable to pay rent.
Few disagree that a housing crisis exists, and few can find good reasons to lament the government’s decision to try and do something about it.
Labour’s policy on housing, which has been defined by a loosening of red tape and a boost to supply-side funding, has been well received by housebuilders, housing associations and estate agents.
It will undoubtedly help housebuilding across the country, although those who think it will help to the tune of 1.5m homes by 2029 have become very quiet.
Those who think London will hit its target of 88,000 homes a year are quieter still.
Trends are currently moving in the wrong direction: Planning approvals in the capital have fallen two per cent year on year, and only four boroughs have met or exceeded their housing targets laid out in the 2021 London Plan, which aimed for 52,000 homes.
2025, in fact, is probably going to be a write-off for government targets in the capital; many councils have in fact ignored Labour and set targets in line with the 2021 plan, instead.
Why is it so hard to build in London?
It’s not just that land is more expensive in London (although that’s part of it) but that everything is more expensive.
Post-Grenfell fire safety regulations have added more loops to an already-loopy system, with any building above seven stories now required to have a second staircase.
A community Infrastructure Levy, Section 106 agreements and planning fees, plus still-high interest rates, have pushed many developments past the point of viability, and Labour’s changes to the planning system are not likely to solve these issues in the capital – particularly when you take the land prices into account.
London is “by some accounts” the most expensive city in the world to build in, according to the GLA.
The Centre for London has found that the upfront cost of building 88,000 homes in the capital a year – the Government’s target – is about 43 times higher than the equivalent target in the West Midlands; the thinktank put the cost per year for London at £2.2bn.
“It is more expensive to build a home in London… that’s just an unavoidable fact. But at the same time, the crisis is more acute in London,” Pocket Living CEO Paul Rickard said.
It’s worth noting that there is plenty the government has done for London housebuilders to be excited about: funding has been welcomed, and the unlocking of brownfield and greenfield sites is crucial for long-term building in the capital.
But it takes time for reforms and funding to feed through into higher completions, and the pipeline for new homes is low.
Affordable housing starts, for example, fell by 39 per cent country-wide in the year to March 2024, including an 88 per cent drop in London.
Savills has forecast that just 840,000 new homes will be completed in the next five years in the UK, falling well below the government target.
Rickard pointed to the importance of developing small sites and relying on SME housebuilders, although they’re often overshadowed by the listed giants.
Even if the homes do get built, will they get bought?
The assumption in London has always been that the answer to this question is yes, but the crisis in London is not just a crisis of space, but of affordability.
Right now, the house price to earnings ratio in London is around 8.22, meaning that on average, homes cost over eight times the average annual income in the capital. This is the highest ratio in the UK.
Buyers on the lower rungs of the ladder have responded to this by getting longer-term mortgages, moving out of the city, and relying on financial gifts from parents or grandparents.
For those who can independently – or mostly independently – afford to buy in the capital, growth in deposits and mortgages are racing against growth in wages: Nationwide found that first-time buyers’ mortgage payments accounted for, on average, 57.9 per cent of take-home pay in the first quarter of 2025. There is not that much further first-time buyers can stretch.
An increase in supply would help, but not that much: A large body of economic research has found that a one per cent increase in the housing stock leads to a two per cent fall in house prices, if nothing else changes.
London has 3.8m homes: 88,000 houses, if they get built, represent 0.23 per cent of this total; just over four years of hitting this target will reduce house prices by a measly two per cent.
Will the next London plan help?
The Mayor’s consultation for ‘Towards the London Plan’, which will set London’s strategic planning agenda for the next 20-25 years, closed on June 22.
The Centre for London has called for the plan to encourage the ‘densification’ of outer London, plus build up communication with the south east about the likely expansion of commuter towns and provide short-term support for those most directly affected by the crisis.
“Strategic planning decisions are vital, but this needs to be balanced with immediate action for those struggling now.
“As we in the city work in the background on long-term planning across the next two decades, we look to national government to make short-term policy changes particularly for those facing acute housing issues now,” Antonia Jennings, CEO at Centre for London, said.
“London’s housing crisis needs to be addressed from all angles… We’re moving in the right direction, with a clear prioritisation of housing from national and regional government. But we need to sustain this effort to begin to turn the tide on London’s housing crisis,” Jennings said.
A MHCLG spokesperson said: “We have inherited the worst housing crisis in living memory and all areas must play their part as we deliver 1.5 million homes.
“Our housing targets require London to deliver record levels of housebuilding and we are working in partnership with the Mayor of London and GLA to achieve a step change and deliver the homes London needs.
“We expect local areas to meet their targets so we can restore the dream of homeownership as part of our Plan for Change, with decisive action already taken through our major planning reforms.”