If you take a trip to the newly restored Battersea Power Station, you may notice amidst the upscale shopping and busy crowds that there are vast swathes of empty land nearby. On these vacant lots, the developers behind the Power Station planned to build hundreds of new flats. But they sit unused after the local council, Wandsworth, demanded more affordable housing than had previously been agreed.
That’s despite the fact that the earlier, lower amount was agreed because the developer contributed £200m towards a new Tube station and spent £1bn restoring one of London’s most decrepit landmarks. Now that has been delivered, Wandsworth are trying to up their demands again.
For a long time, new homes in London were treated as a magic money tree. Since property in the capital cost so much, there was a lot of value created by new construction — and the state was eager to grab its share.
However, the confluence of stringent new regulations, demands for sky-high levels of subsidised housing and a weak economy has completely changed the equation — leaving lots empty all over London.
The slowdown in building is reaching a crisis point. In the last financial year, construction began on only 4,170 homes. That’s less than 5 per cent of London’s 88,000 home target. It’s like a Premier League manager only picking up one point out of a possible 21. Yet instead of facing the sack, Sadiq Khan is reportedly thinking of running for an unprecedented fourth term as Mayor of London.
What’s gone wrong? The Mayor sets out his goals for housing within the London Plan. Over its 500 pages, the Plan includes 113 policies, all of which have several sub-policies with the goal of achieving “Good Growth”. These include serious obstacles to building, like banning new homes that replace single-storey warehouses on well-connected industrial land (in Battersea there are examples within a three-minute walk of the gleaming new Tube station), or failing to encourage more homes in the opportunity areas the Mayor himself identified.
There are also more frivolous rules, like mandating London boroughs to protect and plan for more traveller sites, and bans on new takeaways opening within 400m of a school.
Given the alarming lack of new homes starting construction, the London Plan seems more likely to enable no growth rather than “good growth”. All the more so because the Plan also encourages 35 per cent of homes to be subsidised below market rent, or up to 50 per cent of homes on public or industrial land. The cost of that construction doesn’t go away: rather, it is borne by the market-rate homes in the same development, pushing up their price and reducing the numbers built.
In other words, the high affordability requirements function like a tax on new homes. And when taxes go up, you get less of the thing being taxed. In cases like Battersea, high affordable targets can lead to no homes being built of any type.
All of this is why, of all the homes that finished construction in London in the past year, 80 per cent gained their planning permission not under Khan’s London Plan, released in 2021, but under one of Boris Johnson’s London Plans. Even for homes which have begun construction in the past year, 53 per cent were given planning permission under Boris’s policies.
That said, it is not just Khan’s London Plan that has led to the shutdown in housing starts. The chaotic creation of the Building Safety Regulator (BSR) also shoulders a lot of the blame. Founded in the wake of the Grenfell disaster by the last Government, the BSR was given the task of evaluating all buildings taller than six storeys. It started on this task by delaying 92 per cent of applications. Of the ones lucky enough to get a decision, nearly 70 per cent were rejected.
The BSR seemed to take the approach that the safest building is one that isn’t built. This is all the more maddening because the largest fire risk comes from older buildings and overcrowding, which new construction helps alleviate.
At the same time, all buildings taller than six storeys have been required to have two staircases. For buildings between 18 and 50 metres, this is not expected to save even a single life, while adding £1.8bn in extra construction costs.
The regulations from the London Plan and central government, the high subsidised housing requirements, and the BSR regime all make building more expensive. Any one of these challenges could be weathered because of London’s high cost of new homes. But combined, the individual straws have broken the camel’s back. With rampant construction inflation and high interest rates pushing up financing costs, building in London is simply not viable.
The Government and the Mayor need to urgently remove the self-imposed obstacles to building homes in London
London is already the most expensive region to buy a home in the UK. Last year its population went up by 90,000 people. If we keep building only 4,000 homes a year, the housing crisis will only worsen. That means more families priced out of home ownership, more Londoners stuck in temporary accommodation, and more young people unable to even move to the capital and its job opportunities. And when London fails to build, the crisis spreads, with housing costs rising in commuter towns, which further pushes people out.
That’s why the Government and the Mayor need to urgently remove the self-imposed obstacles to building homes in London, before an already bleak situation gets even worse. London needs dynamism or it will decline.
