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London's Housing Crisis - How Much Do We Know?

20 Jul

There’s no denying the fact that London is facing a serious housing crisis. The capital currently has a population of over 8.6 million people, and this figure is expected to rise to 10 million in 20 years’ time. With our current rate of house building standing at 24,000 new homes a year (in 2014), the situation is simply unsustainable and more houses need to be built in order to meet the growing demand. The increasing demand and limited supply results in rising housing prices and rental costs, so much so that the average house price in London in May this year surpassed the £600,000 mark, more than double the average price in England at £298,000. Combined, these issues continue to place extreme pressure on the government to prevent homelessness and to ensure London remains an attractive location for talented professionals and investors.

Snapshot of the situation

Current population of London: 8.674 million (2015)
Estimated population of 10 million by 2036 (20 years away)
In 2014 24,000 homes were built in London
50,000 homes need to be built a year to meet demand
In May 2016 the average house price in London was >£600,000, compared to £298,030 in England as a whole.  

The solution to the problem 

Solving this issue is two-fold: reducing house prices and building more houses, although the latter is probably the only solution for the former. To tackle this, the campaign Fifty Thousand Homes has been developed through the coalition of over 100 business leaders and charities in the Capital. Some of the supporters include Shelter, Atkins, CBI and Optimity, to name a few. 

The principal objective of the campaign is to build 50,000 homes a year in London - the estimated number needed to house the 100,000 new residents in London annually. This will ensure that London remains a competitive and attractive global hub. A report by Turner & Townsend found that 41% of 25-39 year olds are highly likely to consider relocating to other cities to work and live to take advantage of lower rent and house prices. Such consequences would have a huge effect on businesses, with 38% of businesses surveyed in the report saying they are already concerned about the impact of the housing crisis on recruitment and retention of staff. For these reasons, the present government must make headway in tackling the present issue.   

All eyes on the London Mayor

In the recent London Mayoral elections, a primary focus in each candidate’s proposal was the London housing crisis. All eyes are now on Sadiq Kahn to see if his proposed solutions materialise. Like all candidates, he promised to meet the target of building 50,000 new homes a year, but exactly how he intends to do it is yet to be explained. 

During his campaign he mentioned various ways in which he plans to reduce rental costs and house prices in London. The first is to give Londoners president over foreign investors when bidding for new-builds. The feasibility of this idea has already been questioned, as developers have suggested they will build less flats if it becomes harder to sell to investors.  

The second method to reduce rental prices is implementing the ‘London Living Rent’. This scheme will cap rent at a third of the renter’s income. This will only apply to the ‘affordable housing’ component of any new developments, though, so it will not have a universal impact. While these two proposals are both favourable, we can’t hide from the fact that more houses need to be built.  

Just build more houses

The answer to this problem seems obvious: build more houses. But where? One option is to build up (high-rises) and the other is to build out. The key issue with building out is the vast space protected by the green belt. The green belt is an area of open land around a city, on which building is restricted. The London green belt covers an area of 516,000 hectares and is in place to control urban expansion, but currently this is exactly what London needs. A report released earlier this year by the Adam Smith Institute revealed that there was enough space in London’s green belt to build a million homes, all within a ten-minute walk of a train station. There is ongoing debate regarding the release of land from protection of the green belt, as planning officers fight to find a balance between land release and environmental protection. 

Is there a glimmer of hope?

Following the UK’s vote to exit the European Union, house prices in England, particularly in London, have fallen. According to the Royal Institute of Chartered Surveyors (RICS), new buyer enquiries fell by more than a third in June this year as a result of uncertainty. Prices are expected to continue to fall by 26% over the next 3 months as the market settles following the shock election result. However, with the current uncertainty in the market, mortgage-lenders are likely to be much more cautious with who they’re giving their money to. So, while house prices are lower, we’ll probably struggle more to get the money.

Time for a compromise 

As you can see, there is definitely no quick-fix for the current crisis facing the Capital, and there will have to be a compromise somewhere. Whether the compromise is that we lose some of the land protected by the green belt remains to be seen - but one thing’s for sure, if we want to see London continue to develop it’s going to have to grow either up or out. 

What is your opinion on the current housing situation in London? If you’re working in construction and are interested in roles involving housing developments, contact us today to find out what opportunities we have for you in the Capital.
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