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London鈥檚 Labour mayor, Sadiq Khan, was elected promising to make building more homes his 鈥渟ingle biggest priority鈥� in office. His manifesto derided his predecessor鈥檚 failure to build 50,000 houses a year, and promised to 鈥渂reak the home-building logjam鈥� and to make 50% of new homes affordable. Since being elected, he has presided over the creation of a hugely ambitious draft London Plan, targeting construction of even more homes - 65,000 a year.

But cold, hard reality is hitting home. The latest government housebuilding figures show Khan鈥檚 London is heading backwards 鈥� fast. Net additions to the housing stock 鈥� which include conversions and changes of use 鈥� were down by 20% in London in the year to April, dropping to 31,723. That鈥檚 under half the building rate promised in his draft plan. It鈥檚 also virtually the same number built in predecessor Boris Johnson鈥檚 final year in office. 

鈥淲e鈥檙e talking about more than doubling London鈥檚 housing output, so it鈥檚 difficult to envisage many boroughs doing anything other than failing the test鈥�

Matthew Spry, Lichfields

All this happened while housebuilding in much of the rest of the country continued to rise steadily (see graph, below). Increasingly, the figures show, England鈥檚 much-discussed housebuilding crisis is in fact simply a failure to build enough homes in the capital. According to the government鈥檚 recently introduced standard method for assessing housing need, the country needs to build 196,000 homes each year outside the capital. Last year it provided 190,472, with all Northern and Midlands regions exceeding their quotas. Not hitting the target 鈥� but well within spitting distance. 

But in the capital, the gap is now a yawning chasm. The standard method recommends 77,000 homes a year 鈥� two-and-a-half times real-world delivery. Many are now asking whether there is any chance of closing this chasm without a fundamental rethink that involves some big political sacrifices.

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Brexit effect

A large part of London鈥檚 current building problem is clearly down to the market, which has been buffeted by stamp duty reform and 鈥� of course 鈥� Brexit. Stamp duty has hit the market for homes above the 拢600,000 Help to Buy threshold particularly hard 鈥� these sales are a key driver of viability for new-build central London schemes in areas like Nine Elms. 

With nearly 20% wiped off the value of 鈥減rime鈥� central London property in the last four years, according to Savills, signs of the wider weakening market abound. Housebuilder Berkeley 鈥� legendarily adept at reading the market 鈥� has shifted its focus outside London after more than a decade of working only in the capital. Listed housebuilder Crest Nicholson last year closed its London office, and in October it said sales on London sites had 鈥渟lowed significantly鈥� causing 鈥渄ownward pressure鈥� on prices. Khan can fairly claim to have been unlucky in his timing.

Anthony Lee, head of development consultancy at BNP Paribas Real Estate, says the market is particularly challenged in areas where prices are highest. 鈥淒evelopers are struggling to sell as overseas investors, looking at Brexit, are sitting on the fence,鈥� he says. Likewise, Peabody chair Sir Bob Kerslake complains of a 鈥淏rexit effect鈥�. Numbers are likely to get worse, too, with just 19,000 housing starts last year, well below the 23,890 completions recorded (albeit these numbers don鈥檛 include conversions and change of use contained in the 鈥渘et additions鈥� figures above).

But beyond the market, there are also significant fears about where Khan is taking policy. Some say the introduction of a requirement for schemes to provide 35% affordable housing or else face lengthy review processes, are making developments unviable. BNP Paribas鈥� Lee says: 鈥淒evelopers are agreeing to these affordable housing levels just to get a consent 鈥� and then finding they can鈥檛 deliver.鈥� 

Others say the draft London Plan, though not yet formally in effect, is already holding things up. Dan Osborne, London planning director at consultant Barton Willmore, says councils are struggling to work out how to put the new policies around affordable housing into practice. 鈥淭he London Plan has put the cat amongst the pigeons. It鈥檚 very prescriptive and councils are taking a while to digest it. It seems like everything I鈥檓 working on is stalled in planning.鈥�

But there are also many supporters of Khan, who has won plaudits for cutting long-term deals with housing associations, supporting genuine social housing and the nascent build-to-rent sector, and accepting the need for ramping up development density. 

Peabody鈥檚 Kerslake says: 鈥淟argely the mayor is doing the right things; he鈥檚 recognised the ability of housing associations to cross-subsidise homes for sale is reduced, and has put money into social housing.鈥� Even Berkeley Group chair Tony Pidgley says: 鈥淚 don鈥檛 really blame the mayor 鈥� there鈥檚 not a lot more he can do,鈥� citing central-government-set stamp duty rates as the main policy blockage to more homes.

And in one sense, the fact of the building shortfall being so concentrated in the capital could be seen as a cause for optimism: solve the problem in London, and you go a long way to solving the problem for England as a whole. 

A spokesperson for the mayor of London said the fall-off in build rates was a symptom of developers having 鈥渂ecome addicted to soaring house prices,鈥� and questioned the value of simply building 鈥渕ore luxury flats鈥�. The spokesperson said: 鈥淲e are now seeing the comedown, compounded by the government鈥檚 chaotic mishandling of Brexit. These figures confirm why Sadiq [Khan] has the right approach by focusing on building new council, social rented, and other genuinely affordable homes.鈥�

Impossible

But if Khan has made progress on affordable housing, the reality is that on build numbers overall, his task is nigh on impossible. Even the previous version of the London Plan put through during Boris Johnson鈥檚 tenure, targeting construction of just 42,000 homes a year, was described as undeliverable by its official inspector. It was only approved because the inspector said the old 32,010 target fell so 鈥渨oefully short鈥�. 

The reality is that London housing completions have never hit even 40,000 a year since the Second World War, according to the GLA, let alone 65,000. Consultant Stephen Hill, director at C20 Futureplanners, says: 鈥淲ith London you always come back to the big gap in perception of the scale of the problem. We鈥檝e never done these numbers we鈥檙e talking about. There鈥檚 a mismatch between expectations and the means of delivery.鈥�

Yet Khan鈥檚 65,000 homes-a-year draft plan rules out looking to the green belt to find space for these homes. It justifies the number by talking up development density and assuming a far greater build rate, on small sites in particular, than has ever previously been achieved. Ian Gordon, emeritus professor of human geography at the London School of Economics (LSE), says it assumes build rates will increase five-fold. 鈥淭here鈥檚 no real evidence to support this; it鈥檚 just a finger in the air,鈥� he says, something the LSE鈥檚 official response to the consultation on the plan describes as 鈥渨holly incredible鈥�. Matthew Spry, senior director at planning consultant Lichfields, agrees the plan relies on 鈥渉eroic assumptions鈥� of what is possible.

Pressure cooker

But given the government鈥檚 introduction this month of its 鈥渉ousing delivery test鈥�, which penalises local authorities that don鈥檛 hit their housing targets, the consequences of over-ambitious targets for London boroughs are suddenly quite grave. Lichfields鈥� Spry estimates that by 2020, four out of five boroughs will fail the test, making their plans officially out of date, and thereby opening them up to speculative development under the 鈥減resumption in favour鈥� contained in national planning policy. 鈥淟ondon authorities have a really big challenge down the line,鈥� Spry says. 鈥淚t鈥檚 like a pressure cooker, something has to give. 

鈥淲e鈥檙e talking about more than doubling London鈥檚 housing output, so it鈥檚 difficult to envisage many boroughs doing anything other than failing the test.鈥�

While this may have some benefits for developers, the broader impact could still be negative if boroughs consider there鈥檚 just no point spending the effort in drawing up a local plan. Richard Crawley, programme manager at the Planning Advisory Service, says: 鈥淚t potentially brings planning and plan-making into disrepute. Why should a borough put energy into the local plan process if they don鈥檛 get any benefit from it?鈥�

Many planners have a two-word answer to all these woes: green belt. Under pressure from rival Zac Goldsmith in the mayoral election, Sadiq Khan pledged to strengthen protection for green belt land surrounding the capital, much of which is contained in London boroughs, and he has stuck to his word. But critics say much of this totemic land is in reality of low environmental quality, and would be much better used meeting the need for homes. Berkeley Group鈥檚 Pidgley says: 鈥淭here should be a proper review of it. Where it鈥檚 proven to be beneficial as green belt, fine. But in special circumstances housing should take priority.鈥� 

Organisations as diverse as the left-leaning IPPR think tank and free-market Adam Smith Institute have also in recent years come to the conclusion that a strategic review of green belt is needed. Kerslake, who chaired a London Housing Commission for the IPPR, says: 鈥淲e argued green belt should be looked at. Of course it鈥檚 a political challenge, but it should be on the table. Even a fairly modest adjustment would give significant boost to supply.鈥�

Even more fundamental, perhaps, would be an acceptance that London itself is never going to meet all its housing need. Khan鈥檚 draft plan talks about co-operation with surrounding councils, but nevertheless states that it 鈥渁ims to accommodate all of London鈥檚 growth within its boundaries鈥�. 

But Lichfields鈥� Spry says there is another way: 鈥淎 much more realistic strategy would be to try and deliver in London a number in the mid-40s, then say 鈥榯here is 20,000-30,000 homes a year of unmet need, and this is how we deal with this in the wider South-east鈥�.鈥�

Beggar my neighbour

Khan can鈥檛 force neighbouring districts to build more, but they do have a duty to co-operate where he can prove London鈥檚 need can鈥檛 be met. Indeed, this solution is exactly that proposed by the London Plan inspector in 2014 鈥� but Khan hasn鈥檛 gone down this road. Kerslake鈥檚 Housing Commission recommended beefed-up powers to force co-operation on this precise point, but in the absence of that the LSE鈥檚 Gordon says discussions with neighbouring authorities have hit a brick wall. 鈥淢y sense,鈥� he says, 鈥渋s the surrounding authorities are asking Khan to make the same sacrifices as they are 鈥� in terms of green belt 鈥� if they are to be persuaded to take more homes. A substantial obstacle is the lack of a gesture in terms of moving on green belt.鈥�

C20 Futureplanners鈥� Hill says a national strategy is needed to address these cross-boundary issues. 鈥淭he absence of a national plan is a real weakness.鈥�

In all of this, of course, the principal effect is felt by Londoners, who have to endure sky-high rents and house prices on average 12 times income. With the housing delivery test, London boroughs themselves are now under threat too, while housing secretary James Brokenshire鈥檚 recent letter to Khan savaging his plan suggests the mayor is unlikely to get much help from that source. Given the numbers, solving London鈥檚 housing problem now has a national significance that implies more radical action is required.