Housing supply

Reforecasting London's housing supply

According to Sadiq Khan's new draft London Plan we should be building 66,000 homes per annum in London, up 24,000 on the previous delivery targets. But at the very time that the Mayor increases the housing target, delivery is starting to slow down.

Record delivery

When official GLA figures are released next year, we estimate there will be 41,000 new homes (net conventional supply) in the year to March 2017. This is based on the recently published DCLG figures which show 39,500 net additional dwellings (a slightly different measure of supply) over the same period. In the year to March 2018, we estimate that there will only be 34,500 new homes on the GLA measure, representing a -16 per cent decline on the 41,000 we expect during the year to March 2017.

Source: AMR, DCLG, Savills

Reality check

Completion levels, according to Molior and latest EPC1 figures, are slowing. Both indicators show a 5-6 per cent decrease in the annual number of completions at Q3 2017. At the same time, private housebuilding starts are increasing and are currently up 3 per cent on an annual basis according to latest Molior figures. So this suggests that the pinch point in the construction process is during the build out phase.

Anecdotal evidence implies this is due to a number of factors which appear to be limiting construction capacity. The sheer scale of construction activity across London means there is less resource available. Inevitably with increasing starts and slowing completions, the number of units under construction is rising.

There are currently 64,000 units under construction in London, 18 per cent higher than the 2014-2016 annual average. What’s more, as new build schemes become ever more complex, pushing the boundaries of quality and amenity offering to differentiate from the competition, building contractors’ ability to keep pace is being tested. Brownfield development sites themselves are also becoming more complicated to build on as the stock of easier cleared sites for single use diminishes. All of these issues are being compounded by rising material costs and labour shortages.

As a result, the average build period is increasing. Schemes or phases of developments that completed between 2014 and 2016 took on average 2.1 years to complete. Schemes that have completed in 2017 have taken seven months longer on average. This varies considerably by development size, type and price point with large prime schemes, particularly towers, seeing some of the longest build periods.

Source: Molior

Falling short

The Mayor’s higher housing delivery target is still far short of the 90,000 - 100,000 homes we need to be building every year in order to begin improving affordability in the capital and address the backlog of unbuilt homes. Yet how can this happen when the construction industry is already showing signs of strain?

While the overall increase in starts is encouraging, in the medium term, this will only put more pressure on the supply chain if these starts are not efficiently translating into the final built product. Investment into off-site Modern Methods of Construction (MMC) could be part of the answer to increase construction capacity. The Government has recognised the need to improve productivity and innovation in the construction sector and has announced a £170m funding package aimed at doing just that. But accelerating the adoption and roll out of off-site construction will require continued government support.

[1] Energy Performance Certificate Register data, DCLG

 

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