London’s housing market remains close to a standstill, with new-build construction starts at historically low levels: only 2,103 homes started construction in Q1 2026. The constraints are well understood. High construction and financing costs, alongside regulatory uncertainty, continue to restrict supply, while affordability pressures suppress demand. This stagnation persists despite substantial political and financial support for housing, including a £39 billion social and affordable housing programme, a ten-year rent settlement for affordable housing and the creation of the National Housing Bank with £16 billion of capital.
The central constraint on delivery is viability. Rising build and labour costs, safety and regulatory requirements, land and financing costs, and longer holding periods have increased the cost of bringing schemes forward. At the same time, sales values are flat or declining and cannot simply rise to absorb those costs, while higher mortgage rates, deposit requirements and more selective overseas capital continue to constrain demand. Molior’s analysis indicates that these pressures are now affecting large parts of London, including schemes that already have planning permission.* A development may therefore have consent and a policy-compliant tenure mix but remain unfinanceable because projected values and sales rates do not support the cost and risk of delivery.
Demand-side support can improve absorption, but it cannot close the viability gap on its own. Developers fund phases against expected sales, rental income, debt-service costs and the time required to convert stock into cash — not against long-term housing need. Slower absorption increases interest and overhead costs, delays infrastructure and reduces land value. On London’s large, phased schemes, even a modest change in sales pace can determine whether a project proceeds, is redesigned or stalls. Measures that support purchasers are therefore necessary, but they must sit alongside interventions that address the underlying mismatch between development costs and achievable values.
The policy response must therefore work on both sides of the viability equation. Supply-side action should include a more coherent approach to developer contributions, sufficient capacity within the Building Safety Regulator (BSR), and targeted grant or investment where the market cannot support delivery. Demand-side measures should complement this action by widening the pool of purchasers, improving sales rates and giving funders greater confidence that schemes can proceed. They should not be presented as a substitute for tackling the underlying viability pressures facing development.
The Government’s recent announcement of Your First Home — a new scheme to support first-time buyers purchasing new-build homes — is therefore welcome, with further detail expected at the Budget. Its impact in the capital will, however, depend on the eligibility criteria. Unless income and price thresholds reflect London’s higher housing costs, the scheme risks having limited reach where support is most needed.
London’s distinctive housing market also means that demand-side intervention cannot focus solely on first-time buyers. Delivery depends on a diverse mix of tenures and products, including market sale, shared ownership, affordable rent, build-to-rent and specialist housing. Weak demand in any one segment can undermine scheme viability and, in turn, the wider housing pipeline.
The London Social and Affordable Homes Programme should therefore be deployed to maximise deliverable supply across this range of tenures. Local authorities need a significant and predictable share of grant to bring forward council-led schemes, reduce temporary accommodation pressures and support regeneration. Housing associations must likewise retain sufficient access to funding to sustain development capacity, unlock mixed-tenure schemes and provide specialist and supported housing. Rather than imposing a rigid institutional split, allocations should reflect deliverability, additionality and each provider’s ability to translate grant into starts, while maintaining a clear commitment to social rent and a balanced pipeline across London.
Against this backdrop, the Government should consider a broader package of demand-side measures to support activity in London. Interventions should reach beyond first-time buyers to unlock demand across a wider range of purchasers and tenures. Three immediate priorities are set out below.
- Increase Shared Ownership income caps
As the Government develops the income and price thresholds for Your First Home, it should also review Shared Ownership eligibility. Raising income caps to reflect housing costs — particularly in higher-value markets such as London — would enable more households to access home ownership and expand demand for new-build homes. A broader eligible market would give developers greater confidence in sales, strengthen the viability of schemes and support additional housing delivery.
- Cut Stamp Duty Land Tax (SDLT) on new-build properties
The longer-term objective should be comprehensive reform of SDLT. In the short term, however, a time-limited package of incentives for new-build homes could help restart market activity and support the supply of high-quality housing. The measures should reach a range of purchasers by:
- Capping SDLT at 1% for all first-time buyers
- Capping SDLT at 1% for downsizers
- Removing the 5% investor surcharge for new-build rental homes
Capping SDLT for first-time buyers and downsizers would support mobility in the owner-occupied market, while removing the investor surcharge would encourage investment in new-build rental homes. Together, these targeted measures could unlock demand currently held back by transaction costs.
- Provide greater regulatory clarity to maximise the benefits of the ‘Freedom to Buy’ mortgage guarantee
A further supporting measure would be greater regulatory clarity for the Government’s existing Freedom to Buy mortgage guarantee. The Prudential Regulation Authority should be asked to recognise the transfer of risk covered by the guarantee on the 80 – 95% portion of the loan, rather than requiring lenders to hold capital as though the full loan were an unguaranteed 95% mortgage. This could strengthen lender participation and improve the availability of high loan-to-value mortgages, subject to the detailed design being tested with lenders and developers.