Taylor Wimpey on the capital's "fundamentally broken" development market

Taylor Wimpey won't be buying more land in London once its current pipeline is complete, chief executive Jennie Daly told The Times' The Business podcast this week.

The economic case for doing so "has evaporated," she added, citing costly policies such as a requirement to build second staircases in buildings over 18 metres, late-stage reviews, the fact that off-plan investors have been taxed out of the market and the risks stemming from the planning system. Planning policy is improving, but progress isn't being borne out by decisions at a local level. 

“Baseline viability is, I think, fundamentally broken,” Daly said.

Land buying

Daly's decision comes six months after Berkeley Group, which as recently as February was responsible for about 15% of homes under construction in the capital, called a halt on buying land in London.

These are listed, high-profile developers, so they draw attention, but others share their view: developers started 2,876 new private homes in the second quarter, about 13% of the number required to meet government housebuilding targets, Molior said in July.

Still, there is a sense among the more optimistic developers that this summer will mark the market's nadir. Building is being held back by a combination of planning uncertainty, costly regulations and weak demand. The government has made some progress on the first, though more needs to be done to get the message through to planning committees. The new first-time buyer scheme 'Your First Home' will go some way in alleviating the demand issue in more affordable areas, and we're likely to see more land buying activity if the government gets the price caps and income thresholds right. 

However, hitting official housebuilding targets feels like a remote possibility without incentivising off-plan sales to some degree. Replacing stamp duty with a tax that doesn't penalise moving would be a good start, and the Housing, Communities and Local Government (HCLG) Committee has called on the government to begin looking for alternatives. "This sky-high transaction tax is now the main barrier to housing delivery in urban areas," Berkeley Group executive chairman Rob Perrins told The Times last month. 

Exceptionally rarefied

There are rare occasions when developers find themselves on the right side of decisions to make planning policy more restrictive. This week marked the launch of St John's Wood Square, a 120-home, Squire & Partners-designed super-prime development in north-west London.

Planning rules adopted by Westminster Council in 2021 introduced a 200 sq m limit on new homes. St John’s Wood Square secured consent in 2015, making it the last scheduled development of its scale able to deliver apartments averaging 300 sq m.

“We’re in a unique position where our homes will be exceptionally rarefied, in a very discerning market,” Gareth Stow, CEO at St John’s Wood Square told The Residence Report (p.18). “It’s probably the last super-prime scheme in London of any scale.”

Westminster City Council introduced the policy as part of an effort to ensure “land is efficiently used.” The council said the policy would still allow for “generously sized homes” for the prime market, while balancing demand against the city’s wider housing needs.

Less than 3 per cent of completed new homes across the boroughs of Westminster and Kensington & Chelsea, which make up the bulk of prime central London, are larger than 200 sq m, according to data provided by Molior London. Among recent developments offering homes above that threshold are Qatari Diar’s Chelsea Barracks, The OWO Residences by Raffles, developed by the Hinduja Group, and Almacantar’s The Bryanston.

Flat prices

Fixed-rate mortgages below 5% have largely vanished from the market in the past fortnight, postponing what were tentative improvements in housing market activity. Measures spanning new buyer enquiries, agreed sales and near-term sales expectations all softened in the September RICS Residential Market Survey, published yesterday. 

Respondents have grown more pessimistic in the near-term, but expect the market to stabilise at the twelve-month time horizon. Lloyds this week said house prices remained unchanged in September following a 0.3 per cent fall in August. That leaves house prices flat for the year. Respondents to the RICS survey expect more downward pressure on values over the next three months.

Across the rental market, a net balance of +23% of survey participants reported an increase in tenant demand over the month – the third consecutive acceleration. Landlord instructions remain deep in negative territory. 

In other news...

Chrysler Building taken over as New York luxury office market booms (FT), £1bn German investment to deliver 4,000 affordable homes across the UK (gov.uk), and finally, UK Conservative leader pledges to abolish inheritance tax on family homes (Reuters).