How to solve London’s housebuilding slump
Data released last week shows London housebuilding is at its lowest level since 1990. In fact, historical data suggests this is the lowest rate of peacetime building per capita since records began during the Industrial Revolution.
London’s story is not only one of fires, bombs, dereliction and chaos, but also of persistent growth. The city emerged from the rubble of the Second World War and not only grew, but thrived. As other European capitals became museum pieces, replacing talent with tourism, London continued to attract creators, bankers, entrepreneurs, campaigners, artists, scientists, students, and all manner of ordinary workers, from all over the world. London is living proof that it is possible to thrive while being, to simultaneously paraphrase Danny Boyle, Sadiq Khan and Paddington Bear, a city for everyone.
So why should we worry? London has existed for thousands of years, housing aristocrats, merchants and ordinary people. In the millennia before the advent of the current planning system, London grew to accommodate everyone. But while the butcher and the baker found their home here, ordinary people in London today do not. Housing costs are too high, as anyone trying to rent or buy in London knows. Families are priced out, firms can’t afford to scale, and real wages are squeezed. For London to survive, it must be able to provide housing for its 8.9 million (and growing) residents.
But the latest data suggest that things are about to get worse. Despite London’s high prices, new housing starts and completions are both down. Starts are particularly concerning: they are lower than during the Covid slump, and lower than the post-2008 dip, triggered by the financial crisis. This should worry anyone looking to rent or buy. As the number of available homes decreases, a price war starts, and the richest win.
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What’s causing this building slump? The latest data cannot be explained by a single dramatic event like Covid. Rather, it’s a result of subtler trends, both recent and longer term. The most recent factors are, first, higher interest rates, which make building more expensive, and, for buyers, effectively make property more expensive without increasing the headline price. Second, higher building costs, due to squeezed supply chains. Both are global phenomena, and may not last much longer, as economists expect interest rates and inflation to fall this year.
But the third short-term cause is squarely within the government’s control: a new wave of building safety regulations, introduced after the Grenfell tragedy, have inadvertently made it extremely difficult to build new homes in London. The second staircase requirement is a case in point. Any new building six storeys or above must have an expensive second staircase, taking up space (and therefore revenue) that would have otherwise been there before. This means it is effectively illegal for London to build with the same density of Paris or Vienna, and building on smaller, disused brownfield plots becomes uneconomic. This sets London apart from other European cities which continue to build safe homes up at taller heights with single staircases, because they understand that the measure would have saved no lives in disasters like Grenfell. The new Building Safety Regulator is also failing to match the pace of the high-quality council building control that it has replaced, often making it unviable for developers to build in London.
This points to a longer term trend of planning policy increasingly benefiting existing landowners over those struggling to rent or buy in London. When the city’s population boomed during the Industrial Revolution, there were building standards to prevent the spread of fire but little limit on how much could be built in total. This led to some disruption from congestion – no-one would dig up the Euston Road to build a railway today – but it enabled London to offer shelter to the millions of rural labourers from Britain and Ireland looking for a better life, with access to jobs and new opportunities. Governments of all political stripes gradually made it harder to build: often with good intentions, to protect nature or ensure health, but sometimes for aesthetic or ideological reasons, or indeed pure self-interest.
As housing researcher Samuel Hughes describes in The Great Downzoning, early twentieth-century urban planners were ideologically opposed to density, preferring suburban sprawl of low-rise houses with gardens. If you fly into Heathrow on a clear day, you’ll see that most of London is precisely this. This matched prevailing intellectual fashion for suburbia, each home a castle with its own land and gate. However, Hughes’s research finds that the most significant cause of “downzoning” was not ideology, but the self-interest of landowners, who lobbied against density to protect their property values.
Then, while ruling out building up, central government also restricted London’s horizontal expansion, with the introduction of the Green Belt. Once again, this well-intentioned policy to preserve nature and green space has become a tool of Nimbyism, preventing much-needed homes in favour of environmentally sterile golf courses and industrial agriculture. The biggest beneficiaries are the owners of existing large homes, who enjoy Midsomer Murders lifestyles with an easy commute on publicly-subsidised rail lines into central London. The losers: pretty much everyone else who works, or would like to, in the capital.
Unable to build upwards or outwards, London’s housing costs have soared. The consequences are well documented: higher rents entrench inequality, favouring existing homeowners (and their children), and locking ordinary workers out of prosperity. This presents a problem for progressives. As Thomas Piketty argues, when long as returns on capital exceed real economic growth, owners of capital prosper, and inequality widens. That is precisely London’s post-war story: while wages have risen, they have not kept up with land values.
Opponents of the Yimby (“yes in my backyard”) movement argue London’s housing shortage is not the result of rules restricting planning or building, but other factors such as a shortage of skills or the unavailability of credit. To this, the City of London offers an interesting counterexample. While most of London languishes, the square mile has hit a 10-year high in planning applications. This building boom is the consequence of the City’s unique and historic governance structure that gives non-resident workers some voting rights, and the fact that the City itself is often the freeholder of the underlying land. Since the City of London can capture more of the economic benefit of development, and voters support growth, builders are much more likely to get approval, compared to borough planning committees.
Zohran Mamdani’s victory in New York offers hope for progressives, and for London. New York is an entirely different ecosystem to London, but Mamdani illustrates how we might break the false idea of a trade-off between good regulation and affordability. Mamdani’s promise to streamline bureaucratic rules on housing development is in service to his bigger goal: a New York that works for all. On the same election day, New Yorkers were asked to vote on other measures. These included five Yimby housing reforms endorsed by Mamdani to make building easier. These were particularly popular amongst the same progressive Mamdani voters, who increasingly understand that rules blocking new homes have a direct impact on their lives, creating a city with fewer housing options, higher rents and insecurity.
Mamdani is applying a similar approach to small business competitiveness: New York’s bodegas are subject to lots of red tape that a London corner shop owner would recognise, captured in a viral video highlighting how permit fees feed into “halalflation”. Mamdani is unquestionably progressive, but also willing to challenge rules and regulations when they are no longer serving ordinary people.
London must learn from Mamdani. We must be willing to challenge the status quo when it no longer serves the common good. London has become a city for the established: existing wealthy homeowners, wealthy buyers and high-income renters. It must rediscover how to be a city for everyone.
[Further reading: The housing market has already crashed]
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