Developers of medium to high density housing in London are navigating a string of changes across the regulatory and economic environment, which are having a significant impact on delivery in the capital. With costs rising dramatically, and development values decreasing, many projects are simply no longer viable. Research specialist Molior London has reported that private housing starts this year so far are down two-thirds in a decade. With November rapidly approaching it seems likely that this gap will be even wider by the end of the year.
London desperately needs more homes where people feel safe and well, can build a family, start their career, or spend their later years in comfort – in locations where they want to live, work and spend their time. And, when we build at scale and high density, we can build not just homes but whole neighbourhoods — sewn with the seeds needed to cultivate community, jobs and opportunity.
Today, many potential large-scale, complex projects needed to regenerate neglected areas of the capital have become unviable. We recently reviewed one of our completed projects in London’s Docklands, Royal Wharf, where 3,400 homes were delivered as part of a new riverside community across 40 acres in just six years. Looking at regulatory change alone, our review found that the cost of bringing forward that scheme would now be as much as 20 – 25% higher – and that’s excluding inflation.
For global investors today, the changed economic and business environment has made London and its residential sector a far less attractive prospect for investment. Ballymore’s projects have attracted billions of pounds of international investment to the city. Transformed from a desolate former industrial site, Royal Wharf is now a thriving, diverse community for over 10,000 people. The pace, scale and ambition shows what can be achieved, and is a potential blueprint for future towns and cities. From townhouses to mansion blocks and point buildings – a mix of tenures and models suit a range of lifestyles and budgets. A high street adds life to the area, providing shops, workspace and services alongside a community centre and a two-form entry school, helping to establish a proper place — connected to the rest of London via the DLR and a new Thames Clippers pier.
Stepping up regulations
Changes to building regulations have rightly addressed vital issues including safety and climate change mitigation. Yet over the past five years or more, there has been gradual introduction of less essential regulation which adds cost and can take-up valuable space. Examples of this include the requirements for dual aspect apartments and the incorporation of an abundance of cycle parking. Whilst both positive, decisions about these should be left to the developer and funder, in response to individual site, and project, conditions and constraints. At the same time, while major developers strive to deliver high quality homes and amenities that can nudge places to thrive, permitted development rights are allowing former office blocks and other buildings to be converted to homes that fail to meet basic living standards.
Unlocking delivery in London
With London in the grip of a housing crisis, it is essential that supply of affordable and social housing is maintained. The cost of building affordable housing in London excluding land is significantly higher than the value Registered Housing Providers are willing (or able) to pay for these homes. This effectively means affordable housing becomes a tax on development, and there is no financial incentive for a developer to build affordable housing.
Inspiration can be taken from other markets. In Ireland, Dublin’s affordable housing requirement is set at 20% – against London’s 35% – but the way in which Ireland’s affordable housing model works has distinct advantages. This is based on the principle of developers providing land free of charge, and then being able to recoup the costs of design and construction from the government, with a small profit margin. This approach encourages developers to deliver more affordable homes, and during downturns in the market plays an important role in helping to sustain development.
Ahead of next week’s Budget, policymakers should reconsider taxation measures to ensure that the residential property sector, long a mainstay of the London economy, is incentivised, rather than stifled. Inevitably, such changes will require political will. We can all see the consequences of London’s housing challenges in poor quality living conditions, lack of supply and homelessness.
We are in danger of being distracted by conversations about a myriad of other factors that may impact on housing delivery, but at the core of the issue is viability, the costs of home ownership and funding and how it can be used. Ultimately, we need to be building more homes across the country, at all levels of the market and all tenures, but developers cannot deliver them if it’s not financially viable to do so. That’s the overriding challenge that needs to be resolved.