Housing starts in London plunge 65%

September 22, 2016 / Isla MacFarlane
Housing starts in London plunge 65%

According to the latest JLL research, the Central London Development residential sales market has started to brighten during Q3, but the outlook for London’s housing supply is increasingly worrying.

The number of new build starts and the number of new planning applications have declined significantly during 2016. During Q4 2015 there were 5,260 unit starts across Central London but in Q1 and Q2 this year there have been 1,840 and 1,830 respectively – a startling 65% slowdown!

As a result of this staggering slowdown, the number of units under construction has now passed its peak and is beginning a downwards trajectory. There were 34,300 units under construction in Q1 2016 but this dropped to 33,920 units in Q2, the first quarterly fall for four years.

Planning applications have also declined. The number of units sent for planning in Q2 2016 was 48% lower than Q1 and was 54% below the quarterly average from the previous three years. The slowdown is most notable in Core areas of Central London where just 680 units were applied for planning in Q2 2016, significantly shy of the 3,710 in Q3 2015. However, even in Outer Core locations the appetite of developers looks to be softening as 2,150 units were sent for planning in Q2 this year compared with over 5,000 in Q1.

“The slowdown in construction activity and more particularly the outlook for further development in London is of deep concern,” said Neil Chegwidden, Director in JLL Residential Research. “We believe there are five key factors behind the slowdown in starts. The first is that the sales market was already beginning to ease during the latter half of 2015 while the second is that construction activity following the global credit crisis had to slow at some point after reaching record levels. The market was then stung by the 3% additional home stamp duty tax announced in November 2015 which came on the back of the stamp duty reform in 2014. The market was then distracted by the EU referendum.”

“This combination is having a damaging impact for housing supply right across London, most notably in Central London and comes at the point when construction volumes were reaching levels that may begin to arrest London’s escalating supply crisis.”

In the Central London Development sales market, demand and interest has picked up during Q3 but the market remains challenging as launches and transactions have slowed following stamp duty changes and the Brexit vote. Unfortunately, the Brexit vote coincided with the usual summer slowdown but since late-August the interest in launches has increased with enquiry levels also up on existing live developments. This is positive news for the remainder of 2016 although demand levels are still down y-o-y when investors were more active.

The number of sales across Central London during H1 2016 was 4,650 units, down 12% on the 5,270 sales in H2 2015.

“This report is a stark reminder of the scale of the challenge we face in building more homes for Londoners – and it sets out how factors like the greater uncertainty following the EU referendum have made this challenge tougher still,” said James Murray, Deputy Mayor for Housing and Residential Development. “We know that boosting the supply of new homes will take time and means all levels of government need to work with the industry to offer greater certainty and support.

“Sadiq is committed to working with the government, London boroughs, homebuilders, developers and others to make sure we get building more new homes of all types in the capital.‎”

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