The gulf between ambition and delivery in the London new homes market

Housebuilding policymakers in the UK tend to have a habit of setting very ambitious targets without providing the policy foundations to meet them. The draft London Plan sets a target of 558,451 new homes to be delivered between 2027 and 2036, which equates to roughly 55,845 homes each year. 

New data from Molior London illustrates how much of a stretch that is going to be. Just 1,440 private homes were sold in the capital during the third quarter, incredibly this is actually lower than Q1 2009, when the market was in the doldrums following the financial crisis. Unsurprisingly, developers are starting homes at broadly the same rate as they are selling them. Some 7,160 private homes started on site in the first three quarters, against approximately 7,070 new-home sales.

Credible assessments

Meeting the London Plan target would require sales, starts and completions of private homes to be running at about 35,000. Delivery is set to run at about 10,000 private homes a year – perhaps 15,000 with Your First Home, according to Molior's estimates.

So where will the other 20,000 to 25,000 come from? The London Plan includes a strategy to meet the targets and recognises the weakness of demand. It proposes incentivising development on brownfield land, promoting the delivery of more rented and affordable homes and adjusting affordable housing requirements to make development more viable – but there's little in there that will equate to another 20,000 private homes a year.

Barring a sharp fall in borrowing costs, it's hard to see the targets being met without more substantial policy changes. Reforming stamp duty or introducing measures to revive off-plan purchasing would help – though both are largely beyond the GLA's control – but the scale of the challenge would still be considerable. As Molior notes, London's strongest quarter for new-home sales was Q1 2015, when developers sold 8,600 private homes. Even at the height of that boom, sales fell short of the 8,750 needed every quarter to meet the new targets.

The targets are to some degree a welcome recognition of London's housing needs, but recent history suggests they have little value without a credible assessment of what it will take to meet them. Maybe the government will begin to look at the layers of taxes, affordable housing levy's and other costs that seemed acceptable to load on the sector in the good times? 

Boosting volumes

We still don't know the key details on price caps and income thresholds for Your First Home, but Bellway became the first housebuilder to estimate its impact on its own output yesterday. 

The company delivered 9,695 homes during the year through July, up from 8,749 a year earlier, according to its annual results. "Based upon our past experience with Help to Buy, the new scheme has the potential to boost volumes by around 10% and with the market recovery, provide a path back to at least 10,000 homes a year and the return on equity of 15%," CEO Jason Honeyman told analysts in a post-earnings call, per Reuters. 

In the nine weeks since 1 August, the company's private reservation rate per outlet per week, including bulk sales, was 0.50 – broadly in-line with the same period last year. The private reservation rate excluding bulk sales was 0.45 (2025: 0.48).

A consolidation process

Since Andy Burnham took office this summer, the government has sought to position itself as a beacon of fiscal discipline despite making several expensive promises. We'll get the proof via the Budget later this month, but similar messaging from successive governments is working. 

The IMF singled out the UK for praise yesterday as it published its latest World Economic Outlook warning about unsustainable levels of public debt. "As you know, the UK has already started the consolidation process and it is the country that basically stands out, along with India," IMF chief economist Silvana Tenreyro told BBC News.

The UK is one of the only major economies on course to stabilise levels of national debt and is also projected to have the lowest annual borrowing in the G7 in 2031. Chancellor John Healey intends to pay for all new giveaways in the Budget via spending cuts and higher taxes rather than borrowing, the FT reported this morning. Although the Budget is likely to remain silent on the issue of how to fund Burnham's regional spending plans, higher defence spending and inevitable future higher public sector pay claims. 

The government has refused to be drawn on whether it will raise taxes on banks, but separate FT pieces said Healey has rejected the proposal to equalise capital gains and income tax rates and will not cut mansion tax thresholds to £1.5 million. 

In other news...

‘La dolce vita’ 2.0: Rome is luring homebuyers with a revamp (FT).