London’s Homebuilding Crisis: An Overview of the Research

2) OVERVIEW

Housing starts in London have collapsed: According to Molior, only 3,248 homes began construction over the first nine months of 2025, equivalent to just 11% of the recent average and under 5% of the government’s target. Affordable housing delivery has fallen back even more sharply.

This is a crisis with huge implications for the living standards of Londoners, the economy of the capital, and the robustness of its construction industry and supply chains. Given the city’s central role in both housing delivery and the national economy, it needs urgent attention at both central and local government levels.

What are the reasons for this collapse?

• Regulatory delays: Building Safety Act and Gateway processes have created bottlenecks, with only 9% of tall building applications approved since 2023.
• Viability challenges: Construction and debt costs have surged, while residential land values have dropped. Regulatory burdens and inflexible affordable housing quotas make schemes unprofitable. Land values are now not high enough to convince owners to sell, and in some cases are negative.
• Weak demand: Overseas investors have retreated, domestic buyers face affordability constraints, and unsold stock is building up. Prices have not fallen in response to lower demand as developers have tried to keep sites profitable. This is not giving the wider market the confidence to proceed.
• Affordable housing crisis: Grant funding is insufficient, quotas are too high, and Registered Providers lack the capacity to take on s106 units. As so many sites in London are mixed tenure and in flatted blocks, affordable housing is tied to private delivery more than elsewhere in the country.
• Market shift: Developers currently prefer lower-density suburban projects, which in London are prevented by green belt constraints; incentives, not regulation, are needed to induce more urban development.

The multifaceted nature of the crisis poses a deeper question: is London’s residential development model broken? Does it need to be rethought from the ground up?

London’s failing development model

London’s current development model has only really existed since the 2000s and relies on rising land values, high affordable housing quotas, and off-plan investor demand. This paper argues that this is now broken owing to economic, regulatory and market changes.

Private development has become unviable owing to increased costs, weaker demand and regulatory delays. Affordable housing faces similar problems; grants no longer make construction viable, Registered Providers are not taking on new stock, and in any case, provision in mixed-tenure schemes would be held back anyway by private sector issues.

The Government has introduced some welcome temporary measures aimed at kickstarting activity in London. These will be much more impactful than many in the market are assuming; while modest individually, acting together, they strongly support viability. There is still a need for a wider rethink of how London’s planning system delivers and regulates housing development if government targets are to be met in the longer term.

ten Recommendations for Policymakers

Our recommendations for the longer term include:

1. 1. Accelerate Gateway and planning processes.
   2. Relax the requirement for late-stage viability reviews.
   3. Reinstate Section 106BA reviews for viability reassessment.
   4. Offer relief from the Mayoral CIL as well as the local CIL.
   5. Extend recent measures to co-living and student accommodation to encourage more affordable housing delivery.
   6. Utilise public sector investment to unlock pension fund capital and accelerate plans for a National Housing Bank.
   7. Introduce some form of buyer support.
   8. Release low-quality green belt land for gentle density housing around stations.
   9. Further review design rules and space standards to permit higher density in Inner London, in particular.
   10. Update income ceilings for affordable housing access.

London Housing Model

Policymakers must recognise that in a world of higher interest rates, more attractive alternative investment options, and a weaker economy (at least in the short term), London property and land values can no longer be mined to the extent they were in the past, or expected to absorb the impacts of more costly and stringent regulation.

Attempts to do so will lead to even more stalled development in the future and a continued crisis in affordable housing provision, which in the capital is so linked. This is not just about viability; low land values will not incentivise owners to sell to developers, particularly in areas where alternative uses compete.

There will still be planning gain, which can justifiably be used for affordable housing and other social goods. But now and in the future, these may not be as large as in the past.

Instead, the new model must:

The new model must

• Be far more flexible and adaptable Given that market shifts may be more pronounced in the future given volatile economic conditions.
• Be far more rapid Given that in such conditions speed becomes more, not less, important to developers, as future values are more uncertain. Higher interest rates have increased the time value of money, meaning delays are more costly and more damaging to viability.
• Provide financing for some form of affordable housing or viability fund This can be used to support the industry, or even individual sites, during market downturns.

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  London’s Homebuilding Crisis: Policy Challenges, Market Pressures and Solutions

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  London’s Homebuilding Crisis: An Overview of the Research