London house prices ‘need’ to fall amid supply increase, housing minister says
House prices “probably need” to fall in London, the housing minister has said, after insisting that the government’s 1.5m home building target could still be met.
Matthew Pennycook said Labour wants to encourage developers to compete on volume in order to ramp up housing supply and make homes more affordable.
There are “people in London that bought land at the top of the market for too high a price and are now sitting on it,” Pennycook said, adding: “There will probably need to be a market adjustment in London”.
“We will be looking at the levelling out of prices and then over the real medium to long-term perhaps their gradual reduction.”
The remarks, which were made in an interview with the Financial Times, come as the government prepares to lay out a new housing strategy in which there will be a greater role for the state as well as “alternative business models” proposed for developers.
Pennycook complained the current system of housebuilding “locks in an upward ratchet of land and house prices”, insisting that the government wanted to instead prioritise affordability.
“The private market as it’s currently constituted will not on its own initiative, even if it’s highly competitive, produce sufficient housing to meet overall housing need,” he said.
“How we get more volume out of the system is one of the fundamental challenges we face.”
London construction slump
The new housing strategy comes after new construction projects in London slumped to their lowest level seen in years.
A perfect storm of challenging macroeconomic conditions, needlessly stringent regulation and a sluggish planning process has helped push construction rates down to just 4,170 housing starts in the 2024/25 financial year, the lowest rate of any region in the UK.
“Like straws on a camel’s back, [these factors] have combined to break building in London,” a report by the Centre for Policy Studies (CPS) said.
“The government and the mayor need to urgently remove the obstacles to building homes in London – before an already bleak situation gets even worse.”
The CPS found that despite being nine years into Sadiq Khan’s tenure as mayor, it remains the case that four-fifths of London home completions last year received planning permission under his predecessor Boris Johnson.
Worse still, even a majority (53 per cent) of housing starts in the past year also received planning permission under Johnson, highlighting the scale of the collapse in construction rates since the beginning of the 2020s.
The CPS report found that higher rates of affordable housing requirements set under Khan made a number of projects unviable, as well as huge increases to construction costs imposed by tougher fire safety regulations, which has required buildings of more than 18 metres in height to have at least two staircases.
Proposals for new buildings also have to be submitted to a new building safety regulator – which has rejected as much as 92 per cent of applications while taking an average of 36 weeks to consider each one.