London’s housebuilding has collapsed over the past five years. Construction activity has fallen by more than a third, with projections suggesting it could drop by three-quarters by early 2027.
With the government committed to delivering 1.5 million homes, Housing Secretary Steve Reed and Mayor Sadiq Khan have announced a series of emergency measures to boost building in the capital.
The numbers
Building work started on just 3,248 new homes in London in the first quarter of 2025. Between 2015 and 2020, around 60,000 homes were under construction at any given time, but that figure has now fallen to just 40,000, with the latest projections suggesting it will drop to between 15,000 and 20,000 by early 2027. And twelve of London’s 32 boroughs recorded zero housing starts in the first quarter.
Why building stopped
There are a number of factors behind the collapse. Construction costs climbed sharply after 2020, with inflation, higher interest rates, and tighter fire safety regulations following Grenfell all pushing up costs. Building in London has always been more expensive than elsewhere due to limited space, a tendency towards taller buildings, and the need to often demolish existing structures beforehand. But the requirement to include 35% lower-cost housing in schemes to qualify for fast-track planning approval made many projects unviable. Developers simply couldn’t make the numbers work.
What changes
The emergency package will substantially reduce costs. The threshold for lower-cost housing drops from 35% to 20% and Government subsidies will cover up to half the cost of those units. Councils can also waive infrastructure charges – the Community Infrastructure Levy that funds roads, schools and local services. These charges are calculated per square metre and vary from around £70 per square metre in outer boroughs to over £800 in prime central London areas. On a typical mid-sized development, this can add up to several million pounds, and there is no upper limit. At the same time, Khan will have new powers to approve schemes of 50 homes or more that local authorities refuse.
£322m Developer Investment Fund
In addition, under the new rules, developers who include 20% affordable housing in their schemes will no longer need to submit detailed financial assessments proving the project will still be profitable, as they had to at 35%. City Hall has also established a £322m Developer Investment Fund to help cover the cost of building affordable units.
It means, for developers, the arithmetic has changed entirely, and projects that have lain dormant because the numbers didn’t stack up may now become viable. The measures are time-limited, as it is an emergency intervention, and there will be an automatic review before Khan’s term in office ends in 2028.
And Justin Young, CEO of RICS, says the initiative makes it clear that this government is serious about getting London housebuilding moving again.”
The constraints that remain
Danny Pinder, Director of Policy at the British Property Federation, has also welcomed the changes but points out their limitations: “This crisis is driven by a myriad of factors across the tax and regulatory landscape.”
