London’s residential development industry is facing significant challenges, with housing starts at record low levels in recent months. Even though national activity levels are also at a low ebb, the capital stands out as an outlier.
Montagu Evans’ first residential land survey highlights that the introduction of the Building Safety Act, particularly the Gateway 2 approval process for taller buildings, is playing a major role in these trends. Viability and planning concerns are also contributing to the current pause in activity.
This report explores these findings in detail, providing valuable insights into the factors shaping the market.
THE BACKGROUND: UK housing data
The past year, 2024, saw only 107,710 starts on new housing in England, the lowest figure on record except for 2008 and 2009, at the height of the global financial crisis, when only 106,890 and 85,610 homes were started, respectively.
But these nationwide figures obscure how bad the situation is in London, where work started on just 6,330 homes. This is not only 62% below the 10-year average (compared to 30% for England as a whole), but also represents the worst year on record, including during the Global Financial Crisis and the Covid-19 pandemic.
Perhaps most worryingly, it is 36% below the next worst year on record, back in 1990, when the housing market was going through its most dramatic post-war crash. It is even 36% below the 2019 figure of 12,420, which was a 24-year record low. Bear in mind that the annual target for new home completions in London is 88,000 a year or 22,000 per quarter.
As shown in the graph below, the first quarter of 2025 saw only 1,110 starts in London, meaning that the total for the 12 months to the end of March was just 3,990 – the lowest figure for any 12-month period on record, and by some margin.
Our analysis of the data shows that London’s problems also began earlier than in the country as a whole.
The chart above shows rolling annual housing starts for England (excluding London) and London, on separate axes so that the trends can be easily compared. Both were on an upward trend until the GFC, but it was much more marked in the capital. And unlike in the rest of the country, this generally continued even through that difficult period between 2007 and 2012.
However, since around 2015, apart from a short-lived boom after the end of Covid restrictions, the trend in London has been downward. In the rest of the country, apart from during the pandemic, it remained on an upward trajectory until much later (2023) and has not fallen as sharply or as far; indeed, the most recent set of data appears to suggest it has reversed.
Reports from London residential development data specialists Molior suggest that the figure could fall even lower in Q2; their visits to 800 development sites showed that only seven had seen construction starts, meaning the figure for the first half of the year could be just 2,000. The only chink of light is provided by planning application activity, which seems to be showing signs of increasing.
INSIGHTS FROM THE RESIDENTIAL LAND SURVEY
So, what are the reasons for starts falling to such a low level? Montagu Evans’ first Residential Land Survey, carried out in March and April of this year and involving 56 developers, housebuilders and registered providers mainly active in London and the South East, gives some indications of what the problems are.
When asked what was causing delays to projects, the most common issue was the Building Safety Act (48% of respondents), followed by Viability (46%) and Planning delays (36%). Weak buyer demand (16%) was also a factor for some.
The main issue with the former appears to be the Gateway 2 process, which requires detailed plans for buildings over 18m to be submitted to the Building Safety Regulator before work can start.
Recent figures from the Health & Safety Executive show that of 187 applications submitted through the Gateway 2 process, only 20 have been approved and 18 rejected, meaning 149 remain undecided.
These blockages – and the impact of the need for a second staircase on viability – perhaps explain why 73% of the respondents said they were focused on “medium-rise flats” or six storeys or less, which avoid the need for such detailed scrutiny.
However, there are few sites available where this development would be appropriate, particularly in inner London. So, this may explain why the slow progress on existing sites and the difficulty in finding new appropriate ones have been particularly marked in the capital.
Viability, named by 46% as a barrier, is a problem across a wider range of locations and development types, and reflects the market being hit by three factors: an increase in construction costs, significantly higher debt costs, and weaker buyer demand caused by higher mortgage rates. In London, in particular, the additional regulatory, design and construction costs now associated with taller flatted blocks is a further issue.
There does appear to be some mild downward pressure on pricing, too, complicating viability further. ; while the largest slice (54%) say prices are not changing, more (25%) say they are slightly decreasing than increasing (13%). However, only 16% explicitly named weak buyer demand as a barrier, behind the longstanding complaint of planning delays (36%).
In response to this picture, most respondents (52%) are looking for sites that can be immediately developed, whereas 36% are seeking land for the medium term (2-3 years). This polarisation means that sites are sought either on an unconditional basis or with planning risk.
In short, viability, demand and planning issues appear to be affecting all forms of development, although they appear to be less dramatic for suburban-style family housing. The build-to-rent market has also moved towards these types of schemes rather than urban flats.
London’s more severe problems relate to the combination of building safety issues with these factors – the capital’s housing pipeline is disproportionately in larger sites and in higher-rise formats.
So while activity in London has been low for some time, it is now no exaggeration to say it is in a crisis. Unless this reverses quickly, it does long-term damage to supply chains, making it harder for the industry to bounce back when conditions improve.
The Government has said it is introducing steps to increase the speed of decision-making within the Building Safety Regulator, but this is likely to take time to have an effect. There are, however, reforms to planning underway that may also help improve the situation.
The impact of planning legislation
Their Government is clearly taking the crisis seriously and is bringing in more measures, including those outlined in the Planning and Development Bill, which will help to ease planning delays and bring more land forward for development. Higher levels of funding for Local Planning Authorities will gradually feed through to faster decision-making.
London Mayor Sadiq Khan has announced that he will “actively explore” whether homes can be built on appropriate sites in the green belt, and there are signs that the GLA will be more flexible on affordable housing requirements, a major contributor to viability issues.
Consultation on Towards a New London Plan has just ended. This iteration of the plan sets out the potential direction of travel for the new London Plan, which is expected to be published for consultation in 2026. The plan covers a 10-year period during which 880,000 new homes are targeted for delivery, which is significantly higher than previous targets. The emerging plan considers a range of areas where this growth can be accommodated, including a brownfield first approach, Opportunity Areas, Central Activities Zone, town centres/high streets, industrial land, urban and suburban London, particularly along transport corridors, review of green belt and utilisation of grey belt land. To encourage greater densification of development, the emerging plan also commits to a review of density and bespoke design policies such as the dual aspect requirement, with reliance instead upon national standards or building regulations.
To support and encourage this level of delivery, the emerging plan will look to streamline planning decisions and improve the consistency of decision-making across the Boroughs. A review of the threshold approach to affordable housing is also proposed, potentially alongside greater emphasis on the delivery of social rented homes and utilisation of alternative forms of affordable housing such as Key Worker.
Lower inflation and debt costs will also help to ease the situation, although ultimately, in some locations, the only thing that will unblock new housing is a higher level of grant funding.
Residential:Connected: AN Offering to Navigate These Challenges
As alluded to in our mid-year market update, despite the challenges, the sector remains resilient, underpinned by strong demand fundamentals and ongoing opportunities for innovation and growth. The need for the right expertise and connected strategic approach is important to help landowners, investors, and developers successfully navigate this evolving landscape and capitalise on emerging market trends.
A connected approach to Residential could prove to be the answer, with the ability to navigate this complex landscape requiring a deep understanding of market trends, emerging risks, and strategic opportunities in a connected way that is easy to navigate and find the needed expertise. Residential sector connectivity allows organisations to work closely with landowners, investors, developers, and local authorities to navigate these complexities, ensuring resilience and long-term success in an ever-changing market.
At Montagu Evans, we utilise this approach with “Residential:Connected”, which revolves around seamless integration of our experts, ensuring our clients can easily access the specific expertise they need; driving the creation of resilient and thriving Residential communities. Learn more here.
The Montagu Evans Residential Land survey covered 56 businesses active in the land market, with 70-84% active in London and some 66% active in the South East. It represented a mix of those involved in build-to-rent (61%) and private sale (64%), with many also involved in student accommodation (45%). The survey work was carried out in April and early May 2025. Learn more about our research & insight services.
*This research has been prepared for general information purposes only. It does not constitute any investment, financial or other specialised advice or recommendations, and you should not, therefore, rely on its contents for such purposes. You should seek separate professional advice if required.