Will the expected London housebuilding package rescue the stalled development industry?

Pretty much every dial on the dashboard is flashing red in London’s residential development sector. It is well known that completions of new homes have been dropping for the past three years – Greater London Authority data shows numbers sliding from a high of nearly 40,000 in 2021/22 to just over 33,000 in 2024/25, against a government target that 88,000 homes should be built in the capital every year.

But it is the data on starts that is particularly alarming. Greater London Authority (GLA) figures suggest that work on just 3,447 homes began in the first half of the current financial year. This compares to 27,210 starts for the full year in 2024/25 – itself already a 15-year low.

Government data, based on information from warranty providers, supports these startingly low numbers, suggesting that just 4,010 starts were made in the year to June 2025. While the government admits this dataset does not pick up every single start, it is used to identify trends.

And this number is a fifth of the level seen just two years ago, and is by a country mile the lowest 12-month period on record – going back to 1990. Equivalent numbers during both the covid pandemic and global financial crises were well over double this level.

Development has really stalled. It’s really quite dramatic and quite drastic. It’s a perfect storm 

Maggie Rafalowicz, director, Campbell Tickell 

In a report published last week, London development data specialist Molior said that one in six residential schemes in the capital are now on hold – with viability and weak demand cited as the key challenges. Maggie Rafalowicz, director at housing consultant Campbell Tickell, says: “Development has really stalled. It’s really quite dramatic and quite drastic. It’s a perfect storm.”

Now, riding into the eye of this storm is central government. Housing secretary Steve Reed set out his stall clearly and early to “build, baby, build”. And with viability targeted as the overriding issue for private developers, sources suggest that the Ministry for Housing, Communities and Local Government (MHCLG) is looking in the most obvious place: reducing planning obligations, most particularly for affordable housing.

Last week a leaked memo was published suggesting that MHCLG wants to see the London-wide 35% affordable housing target rate at which schemes get “fast-track” mayoral approval reduced to 20%. Housing Today understands that this measure is likely to be part of a package of deregulatory changes, to be announced within weeks, which the ministry is currently discussing with the London mayor.

Unsurprisingly, not everyone is convinced that this is the right approach. So, what exactly is being considered, and what impact could any changes have?

Weak demand drives development standstill

Few are arguing that there isn’t a problem. As well as the drops in GLA and nationally-recorded starts, the number of new energy performance certificates (EPCs) registered in London – another proxy for completions – fell by 12% in the year to June to 30,529, a 10-year low.

Molior’s report says that the number of homes currently under construction has dropped to 40,000 from a typical level of 60-65,000 in the past five years, and that this will plummet to fewer than 20,000 by the start of January 2027 if remedial action is not taken.

The reason, it says, is weak demand which has left builders needing to reduce sales prices – while rising costs have left them unable to do so. “Sales rates are weak across all local markets and at every price point,” the report says, adding that this is “directly contributing to fewer construction starts”.

Meanwhile, data from Savills for the Land, Planning and Development Federation shows that sites in the South and East of England are now selling an average of less than 0.3 homes per week – equivalent to the levels expected during a recession.

The picture is particularly severe in London because of the combination of a decade of flat prices while regulatory burdens and delivery costs have grown exponentially. Molior reports that, while trends vary by location, “prices have been flat for 10 years and are now falling”, with prices in W3, for example, lower now than in 2015.

The increased regulatory burden is not simply a question about affordable housing, but also the cost of factoring in new building safety standards like second staircases, increasing CIL payments, rapid construction inflation, and additional London Plan design requirements on sites where sale values have not budged an inch since the land was purchased.

Developers made lots of money when prices soared, so regulators responded by added in lots of regulatory requirements. They all wanted to capture a share of that pie

Anna Clarke, director of policy and public affairs, the Housing Forum

Anna Clarke, director of policy and public affairs at membership group the Housing Forum, says: “Developers made lots of money when prices soared, so regulators responded by adding in lots of regulatory requirements. They all wanted to capture a share of that pie.

“Regulators could get away with that when prices were rising. But, now the market is stagnant, it’s very, very hard for them to row back on those regulatory requirements.”

David Lunts, the GLA’s former executive director for housing and land, says there appear to be few good options for the GLA in trying to devise a response given that private “demand has completely collapsed”, and where, unlike in the 2008 financial crisis, the social housing sector is not in a position to take up the slack. “I have sympathy with the GLA. They’re between a rock and a hard place on this,” he says.

Every lever to tackle the housing emergency

Nonetheless, some solutions must be attempted. Housing Today understands that discussions between the GLA and the Ministry of Housing, Communities and Local Government (MHCLG) are ranging more widely than simply reducing the 35% threshold for the “fast-track” affordable housing route, which the leaked memo said could fall to 20%.

According to several sources claiming knowledge of the discussions, also on the table is the idea of getting rid of what are known as “late-stage reviews” of projects in the planning process – checks which effectively allow the local authority another bite of the cherry to get more affordable homes if the scheme ends up being more profitable than initially predicted.

In addition, there is the prospect of the package potentially dropping the mayoral Community Infrastructure Levy, which last year raised £156m from London projects, and the idea of clearing out additional London-specific residential design requirements that are seen to add significant cost, such as for generous bike storage and for all homes to be dual aspect (meaning they have windows on more than one side of the home).

One industry source close to the discussions told Housing Today that this would not, however, be presented as a free hit to developers: the offer of reduced obligations would be conditional on developers committing to significant progress on site being made by 2030.

Asked about the package, a government source said that “housebuilding in London is clearly in crisis”, and pointed out that Labour had increased the capital’s affordable homes programme funding compared with the previous government. “No final decisions on the package have been made,” they said.

“But, with so many Londoners stuck in temporary accommodation or on housing waiting lists that take years, we have to look at every lever to tackle the housing emergency we have inherited. That is why we are working with the mayor on getting the capital building again, including the social and affordable homes that Londoners desperately need.”

The proposed package: what’s on the table

Housing Today understands that the changes, when they are announced in the next few weeks, will most likely come in the form of a written ministerial statement in Parliament from the housing secretary – despite the fact that all the existing policy which requires changing is held in London Plan guidance documents. The industry source told Housing Today that Sadiq Khan, who made a key manifesto pledge to deliver high levels of affordable housing, is understood to be insisting that any change will have to be presented as being made by central government, not by City Hall.

The changes will aim to unblock stalled sites and give the mayor stronger levers to approve homes and bring thousands of homes forward more quickly

GLA spokesperson

Asked about this, a spokesperson for the GLA said the mayor met recently with the secretary of state to discuss “a package of reforms to boost housebuilding in the capital”. The spokesperson did not comment on the form the changes will come forward in, but added: “The changes will aim to unblock stalled sites and give the mayor stronger levers to approve homes and bring thousands of homes forward more quickly as we continue to build a better, fairer, more prosperous London.”

Industry reaction: cautious optimism

Developers are positive about the noises coming out of government. Paul Rickard, chief executive of small homes developer Pocket Living, says: “Yes, we’re positive about this. The government has got to pull every lever to get development going, and the fact the mayor is willing to look at this is really important.”

However, Nick Cuff, managing director at development adviser Urban Sketch, says the government and the mayor may have to contemplate an even more severe drop on the fast-track route than down to 20% to get schemes going. “Currently sites for residential are just no longer able to outperform the value of their existing use, so they don’t come forward.

“The drop does need to be to below 20% to get most sites out of negative value. If they are taking the political hit for it, it feels like they should at least make it meaningful,” he says.

The severity of the viability crisis is such that Anthony Lee, head of UK development viability at BNP Paribas, says he is seeing schemes coming forward where the calculations suggest a 0% affordable housing contribution – in other words, no affordable housing contribution at all – is necessary to make a scheme viable.

Cuff and others are supportive of the rumoured reductions in design standards. The Housing Forum’s Clarke says: “Instead of [the GLA currently] simply requiring things like extra ceiling heights and dual aspect, we need to have a real discussion about the trade-offs from these additional design standards.

“The reality of requiring extra is a desperate shortage of social housing. It seems odd to be requiring high aspirations for a limited lucky few, in a way that’s getting in the way of others getting any housing at all.”

Late-stage reviews: the investment barrier 

One element of the package most desired by the development community is movement on “late stage reviews”. Originally introduced to stop applicants being able to cream super profits off projects after claiming poverty during viability appraisals, developers now claim that such mechanisms are making hundreds of projects effectively uninvestable.

Pocket’s Rickard says the way they are structured, requiring payment up front once sales are agreed, means that equity investors feel they need to set money aside to pay the charges as part of their initial business case – pushing those project business cases underwater. “You just can’t forward-fund these late-stage review projects with equity investors. There is nothing in the market. The schemes are uninvestable.”

BNP Paribas’ Lee thinks this lack of investor appetite is due to a misunderstanding of how late-stage reviews work – but agrees this lack of appetite is real. “They’re just not investing in these schemes,” he says. Urban Sketch’s Cuff adds: “I’ve had multiple funds tell me they’re not willing to take on these schemes. It’s the majority.”

Will reduced requirements actually work?

Clearly, developers are hoping that some loosening of these requirements will form an important part of the package. But just because all these measures are likely to be welcomed by the developer sector, does not necessarily mean they will be effective.

In purely process terms there are concerns that if, as expected, any changes come forward in a written ministerial statement, rather than as amendments to London Plan guidance, this will blunt their potential. This is because the Planning and Compulsory Purchase Act is clear that planning decisions must be made in accordance with the “development plan” – either a local plan or the London Plan in this case – and that all other considerations, including written ministerial statements, should be regarded simply as material considerations to be weighed in the planning balance.

This implies that the existing London Plan documents would have greater weight in decisions. One planning lawyer told Housing Today that this would be a “messy planning solution. And it will end up in the courts.”

But it is not just the process effectiveness that is concerning people. The affordable housing sector of course worries about the impact on the delivery of affordable homes of reducing the quotient of affordable housing expected in private development, particularly were any new policy to continue for an indefinite period.

One G15 housing association chief executive said: “This is just a back-door way of bailing out developers and I’m not sure why the taxpayer should take the hit. Why should developer profit margins be preserved? Why shouldn’t they be taking a haircut?”

We don’t want the short-term response to result in a long-term lowering of ambition

Will Jeffwitz, head of policy at the National Housing Federation

Some London boroughs, such as Labour-run Wandsworth council, have already signalled their opposition to such a cut in the affordable housing obligations given the priority, they say, to preserve the delivery of affordable housing.

Will Jeffwitz, head of policy at housing association trade body the National Housing Federation, says it is vital that the GLA does not water down its commitment to tackling London’s huge challenges around affordable housing and homelessness.

“There’s a perfect storm right now – but this needs to be a unique temporary response to London-specific challenges,” he says. “If we lower the affordable rate too low, then we risk missing out on delivery of affordable homes.

“We don’t want the short-term response to result in a long-term lowering of ambition.”

Market reality check: demand vs supply

Developers, of course, counter that the status quo is not an option, because where schemes are stalled, 35% of nothing is nothing. But there is also an even more fundamental question mark over the effectiveness of what is proposed: whether it will even deliver more homes for private sale.

Molior, remember, said that the current market suffers from acute low private demand – it’s work showed just 208 homes were sold to private buyers in the last quarter in the capital, under half the rate of a year ago. Moreover, build rates, above anything else, Molior’s report shows, track rates of private sale.

BNP Paribas’ Lee says: “My concern is I’m not confident that even if schemes are made more viable on paper, they can actually sell more. The issue currently is really about selling private flats.

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“In fact, if you reduce the number of affordable homes, it simply exacerbates the problem of having to sell more homes for each scheme.

“Remember, while you might have a viability calculation on paper, unless you can actually sell homes, it’s not a real viable scheme,” he says. “I’m not convinced that reducing the fast-track rate is really going to make any difference to build-out at all.”

Of course, if no build-out increase happens, then you could simply see developers banking a set of much more profitable permissions, and sitting and waiting until better times to deliver them.

David Lunts agrees that this is a risk. He says that, if he were still at City Hall, he would be tempted to put an 18-month use-by date on any beneficial offers to developers. “It’s really important that, within whatever the package is that comes forward, there’s a real commitment to get on and build.

“If you do make changes, you need to include something that gets these homes delivered.”

The industry source suggested that MHCLG is considering requiring all schemes to have reached first floor slab stage by 2030 in order to benefit.

Whether this measure – and the others discussed above – make it to the final package, remains to be seen. And whether or not they will be effective, is even more uncertain.