With costs rising dramatically and development values decreasing many projects are simply no longer viable,  John Mulryan of Ballymore reflects on the New London Agenda.

Developers of medium to high density housing in London are navigating a string of changes across 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 reported in its July analysis that around 70 schemes – a record figure – are currently stalled across the capital. Private housing construction starts during 2022 were 50% of 2015 levels, but we expect the numbers for 2023 to take a further hit, with Q3 being the worst quarter for housing starts since 2008.  

 

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 of the potential large-scale, complex projects needed to regenerate neglected areas of the capital are increasingly unviable. We recently undertook an exercise where we reviewed one of our projects in London Docklands which secured planning consent five years ago. 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 – excluding inflation. Alongside this, our industry has faced significant increases in construction and materials costs driven by the various inflationary pressures we have seen over the past few years.

 

Over the past decade or more Ballymore has attracted billions of pounds of international investment to London. We have deployed that investment not only to deliver homes but also to enable areas in need of regeneration to shape a very different future, such as at London City Island in Docklands, now providing a base for English National Ballet. For global investors today, the changed economic and business environment has made London and its residential sector a far less attractive prospect for investment.

 

Changes to building regulations have brought some essential improvements, including the requirement for the second staircase in higher rise buildings and climate change mitigation. But over the past five years or more, there has been gradual regulation creep in other areas of design. Simple examples include the requirements for apartments to be dual aspect and to incorporate excessive cycle parking that in practice is not required. These are positive attributes but ultimately come with costs, with dual aspect adding complexity to building form and cycle parks taking considerable amounts of space on constrained urban sites.

 

Yet while major developers strive to deliver high quality homes and the 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 even the most basic living standards.

 

Debate is needed. The work the NLA does, in bringing together the public and private sector, is vital. Together as an industry through the New London Agenda we can share ideas and solutions, and consider ways of improving housing affordability, sharing best practice and ensuring that the pressing need for homes is not held back by financial constraints. This could help evaluate the value of requirements and build consensus where flexibility can be given. 

 

Unlocking delivery in the capital requires action on many fronts. With London in the grip of a housing crisis, it remains essential that supply of affordable and social housing is maintained. 

 

However the cost of building affordable housing in London excluding land is significantly higher than the value Registered Housing Providers are willing 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. The model 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 activity and developers. The introduction of a similar model for London could go a long way to resolving the current viability challenge, while also helping to address the housing crisis.

 

Policymakers could 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, but the forthcoming elections – for the London mayor and the Government – may provide an opportunity to look afresh.

 

We can all see the consequences of London’s housing challenges in poor quality living conditions, lack of supply and homelessness. Ultimately, we need to be building more homes across all levels of the market, but developers cannot deliver them if development is fundamentally unviable. That’s the overriding challenge that needs to be resolved.