The need for housing in London continues to grow and supply constraints are an ongoing issue.

Economic Backdrop

The rate of economic growth in London has exceeded that of the UK overall for most of the last two decades. The chart below shows regional trends in average real Gross Valued Added (GVA) growth before the global financial crisis (1998–2007), during the crisis (2008–09) and since the crisis (2010–16). London’s economy recovered most quickly from the global financial crisis, driven by a resurgent business services sector. PwC forecasts that, in the short term, London’s growth will be closer to the national average, pointing to constraints such as transport congestion (which will be eased by the imminent opening of Crossrail) and the lack of affordable housing that is more pronounced than in other regions.

Although some indicators are pointing to a slowdown in the rate of growth, overall the economy – in the UK and in London specifically – has performed more strongly than anticipated in the aftermath of the EU referendum. In its Medium-term Planning Projections published in November 2017, the Greater London Authority (GLA) forecasted that London’s Gross Value Added will outpace that of the UK overall, growing by 2.1 per cent in 2017, slowing slightly to 1.8 per cent in 2018, before picking up to 2.6 per cent in 2019.

The London employment market remains strong. The number of jobs in the capital was at a record high in 2016, at 5.8 million, with this number projected to continue to grow.


Supply and Demand

Whilst most indicators show an increase in new housing completions in London over the last two years, the number of new housing starts has fallen (see chart below) and remains well short of projected need.



London’s population reached a new peak in 2015, having grown by 135,000 between 2014 and 2015. GLA projections indicate growth of 874,000 between 2015 and 2025, and a further 528,000 between 2025 and 2035, which would bring London’s population to just over 10 million.

There is a very clear disconnect between demand and supply of housing. GLA analysis of Office for National Statistics (ONS) data shows that, over the last 20 years, the number of jobs in London has grown by 40 per cent and the population by 25 per cent, but the number of homes by only 15 per cent (see chart below).


The most recent draft of the GLA’s London Plan states a need to build 66,000 new homes in London per year through to 2030, a considerably greater figure than has been built over the last 20 years.

Less than half of the homes needed each year have been built over the past 20 years. With London’s population set to grow by an average of 100,000 people a year, despite Brexit, London's housing supply problems look set to remain.


The rise of renting

GLA analysis of ONS and PwC data indicates that private renting is rising rapidly and is projected to reach similar levels to owner occupation by 2025 (see chart below). There are now more than a million private renting households in the capital.


Affordability of housing is an issue across the UK, and is particularly pronounced in London. ONS analysis indicates that the ratio of median house prices to median gross salary is almost 12.9 in London, significantly greater than the already high figure of 7.6 for England and Wales. This figure has increased from less than 9 in 2009.

However mortgage availability and willingness to lend are strong, and while mortgage rates increased in September 2017 following the 0.25 percentage point increase in the Bank of England’s base rate, they are still at historically low levels.

The increased move to rental housing is partly driven by affordability issues but increasingly also by a willingness and desire to retain flexibility, particularly through renting good quality new homes, a rising number of which are purpose built for tenants. ONS data indicates that growth in private rental prices in London was relatively modest at 0.4 per cent in the 12 months to December 2017. However Savills anticipate that as wages return to growth in the context of high employment, rents will grow at a faster rate.

There have been several changes to the buy-to-let tax regime in recent years, including a 3 per cent Stamp Duty Land Tax (SDLT) surcharge on second homes or investment properties, the gradual removal of mortgage interest tax relief, changes to capital gains tax and the introduction of mortgage affordability stress tests. These have caused individual UK investors to be more circumspect, although overseas investors have remained active in the market, with the depreciation of sterling since the EU referendum a favourable influence.

Any reduction in individual buy-to-let investor demand is more than compensated by a surge in institutional capital looking for long term investment in rental housing. According to professional services and investment management firm JLL, in 2017 London received total inward investment of over £25 billion, which was £14 billion more than any other global city. Due to a lack of housing supply and the increased demand for private rental homes more and more of this investment is being directed to residential property. This trend underpins the Group’s strategy of focusing on build to rent developments in the coming years.


There is a clear recognition across political parties of the urgent need to build more homes in the country overall, and specifically in London. Long-run trends in population growth and the cumulative impact of years of undersupply point to an ongoing need for high quality new homes at an affordable price for both purchase and rent. This market dynamic is driving the Group’s desire to increase output and therefore to help address London’s housing shortage over the coming years.