London’s Homebuilding Crisis: Policy Challenges, Market Pressures and Solutions
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5) Solutions
The Measures Announced So Far
The scale of the crisis has now been recognised by the government. On 23rd October, the Housing Secretary and the Mayor of London announced a package of policies aimed at kickstarting residential development. These include:
- A new ‘time-limited’ planning route – a ‘fast track’ – where developments on private land that commit to at least 20% affordable housing (of which 60% must be social rent) will not require viability testing. This figure will increase to 35% on public land or industrial land where the space is not re-provided. The measure will also apply to build-to-rent schemes where 30% of units are at London Living Rent.
- A 20% increase in the grant for social rented units.
- Temporary relief from Borough Community Infrastructure Levies (CILs).
- Removal of planning guidance maximising dual aspect units and constraining the number of units per floor.
These measures appear modest individually and have led to some disappointment in the market. However, our calculations show that acting together, they substantially increase viability, particularly for schemes in lower-value areas where deliverability has been weakest. Their impact should be substantial in the medium term.
However, a wider rethink of the housing model will be needed if London is in any hope of delivering in line with recent trends, let alone its targets.
It is also important to note, too, that none of the above measures apply to Purpose Built Student Accommodation (PBSA) and Co-Living – the two uses that are currently most viable in the capital, and have the greatest potential to deliver affordable housing in the short-term.
So, What Else Needs to Happen?
London is a very different housing market from the rest of the UK. Land values and end values are higher, but so are build costs; high-rise buildings and smaller flats account for a higher proportion of delivery; and affordable housing is expected to be delivered on a scale unmatched elsewhere in Britain.
Moreover, over the past few decades, London has accounted for a higher proportion of UK delivery than has been historically typical, making it far more critical to national housing goals – a situation that is not sustainable given market shifts and regulatory burdens.
Together, this means that London needs a different policy approach than the rest of the country, one that is essential if its contribution to overall national housing goals is to be reinstated. Our suggestions include:
- Accelerate the Gateway processes. This is absolutely critical, as this is the main source of delay in London. Resolving it might not lead to a huge jump in starts – given that other factors are dampening developer appetite – but it would support activity and mean more sites are ‘shovel ready’ when conditions improve. One potential option is to break the Gateway 2 processes down into phases, so that construction can start at an earlier point.
- Be even more flexible on affordable housing requirements. Ultimately, there needs to be a recognition that land values have fallen and can no longer sustain policies that were developed in different market conditions – and perhaps even an assumption that land values and prices can only rise. In short, the minimum requirements need to be cut back drastically, even if this is only temporary.
- Relax Requirement for Late-Stage Reviews. Late-Stage Reviews were introduced in 2017 to reassess viability and potential affordable housing contributions on schemes of 10 units or more after consent had been granted. This was successfully challenged in court, but still applied to larger developments that involved phases over several years or had delayed starts or completion dates. As this applies to many London schemes, it is a further risk and potential source of delay, disincentivising developers and funders. The measure was introduced at a time when the market was buoyant; given that this is no longer the case, the requirement should be relaxed.
- Reintroduce Section 106BA. Section 106 BA, BB and BC were introduced to the Town and Country Planning legislation in 2013. They allowed for a review of affordable housing requirements within five years of consent, based on viability. This was, to all intents and purposes, removed in 2016. Reinstating these clauses would seem sensible given the huge market shifts of the past few years. Encouraging and allowing such reviews could be key to making stalled sites viable.
- Reliefs to MCIL levies. The reliefs announced by the Government only apply to local authority CIL levies, but the high level of Mayoral CIL (MCIL) can be a major factor holding back development. Some form of temporary relief would help to make schemes more viable, particularly as MCIL is designed to increase in line with inflation even when pricing falls. It is understood that the MCIL is an important contribution to the funding of the Elizabeth Line, so this might have to be tied to future payments if and when the market recovers.
- Provide more support for build-to-rent. Policymakers have always been reluctant to back build-to-rent; they fear the electoral cost of not backing homeownership or in being seen to support corporate investment in people’s homes. But there is a huge appetite for the residential sector still among large-scale investors, and rental housing is important for a huge swathe of middle-income Londoners.. Applying less stringent affordable housing criteria to such developments, at least in the short term, would make the sector a more viable proposition for institutions. It is worth noting that the Government is keen to push local authority pension funds – including the London Pensions Fund Authority – to invest in housing and other forms of regeneration. This could be key to unlocking more housing sites in London.
- More public sector investment for affordable housing. Housing grant could be focused on schemes that are close to viability to enable both private and affordable housing delivery. But there are more radical approaches to unlocking capital, such as the use of public pension fund capital as set out above. This could be supported by the Government’s plans for a National Housing Bank, which need to be accelerated. The National Wealth Fund might be able to invest in affordable housing if it were reclassified as infrastructure. This funding could unlock private units as well if part of the same development.
- Introduce some form of buyer support. The end of Help to Buy has reduced the number of people able to access a mortgage, even if they can afford payments easily. However, it was a controversial policy, given the issues around valuation and risk. There are alternatives which could be more palatable, including reliefs on stamp duty or a modified Help-to-Buy requiring a larger buyer cash deposit.
- Release Low Quality Green Belt. Ultimately, the market is currently pushing away from high-rise urban development and towards more conventional housing. This needs to be catered for if housing delivery is to continue. This need not be unsustainable sprawl; there are huge opportunities to deliver ‘gentle density’ family housing (terraces, low-rise flats) on low-grade land around stations in the green belt. There are, fortunately, signs that the Government and the GLA are moving in this direction, not least in the designation of ‘grey belt’ – but this process needs to be accelerated.
- Allow more density in Inner London. While the market in Outer London is implying that more suburban development is demanded than planning permits, the reverse is true in Inner London, where there is the potential for greater height and smaller units, at least when activity recovers. Regulations could be relaxed beyond the measures recently announced. Such units often suit the younger, childless end-users, particularly in the rental sector, who are likely to spend relatively little time and home and do not envisage staying in the properties for longer than a few years.
- Apply new policy measures to Purpose Built Student Accommodation and CoLiving. The relaxation in affordable housing and viability tests should be applied to these tenures. As these uses are currently in high demand, they have the greatest potential to deliver units of all tenures – if given more flexibility. Furthermore, many local authorities have had ambivalent attitudes towards these uses, but they could offer even more in terms of delivery if given more encouragement.
- Update ceilings for accessing certain forms of affordable housing in line with London incomes. The ceiling household incomes of £67,000 for London Living Rent properties and £90,000 for Shared Ownership have not been updated since 2017. Between 2017 and 2024, median incomes in London rose by 29%. This alone suggests that the caps should now be circa £85,000 and £115,000 respectively.
- London’s Homebuilding Crisis: What Needs to Happen?