Setting the scene
There is no singular cause of the London housing collapse. Therefore, there is no single solution to recover.
Working with practitioners across the London development sector we have produced a timeline tracking what has happened to housing development over the last decade. Many of the interventions alone had merit but when aggregated together, combined with an array of Black Swan events, the picture forms of an impossible situation for housing development particularly for complex high density schemes.
The story really begins at the end of the Global Financial Crash (GFC). The Government has launched a series of measures to recover the sector following a wave of insolvency. Banks are stabilised by Government loan injections and planning flexed through a package of recovery measures such as the likes of Section 106 BA.
From 2011, we start to witness that recovery as the sector begins to resuscitate balance sheets. A wave of new entrants enter the London development market, many from the Far East and the United States attracted to London’s potential and perceived political stability.
But the recovery comes with a new conditions. Post the GFC, banks will not lend at the same levels they had done before. Much more equity is required. Debt will not go up the risk curve as it had done pre-2008.
Banks now require 40%-50% presales to enable draw down of debt on medium to high rise residential schemes. Development has a capital problem. It must find a solution.
With the recovery well under way as we enter the 2013-15 period you might say a Faustian bargain is established between London developers, political elites and the world. If London wants urban renewal and growth it must accept pre-sales from both domestic and international buy to let investors.
This pact holds for a period, but the politics cannot hold. Fast forward to 2015 and the interventions begin:
Summer 2015 – George Osborne introduces Section 24 in the Finance Act to dampen buy to let.
Policy:
- Section 24 mortgage interest relief removal tapered from 2017-2020
- Interest relief restricted to 25% and then ratcheted up to 100% restricted and replaced with a 20% tax credit.
Intent: Cool investor demand
Outcome: Landlords initially not affected due to taper but stop expanding, some exit. Rental supply begins to tighten although slowly at first. But institutional replacement through the nascent build to rent sector is too slow and held up by the planning system
👉 Early pressure builds in the rental system, Rob Perrins, CEO at Berkeley recently estimated that circa 20% of buyers of the housebuilder’s apartments came from this market segment.
Autumn 2015 – Autumn Statement, stamp duty surcharge announced, comes into force April 2016
Policy:
- 3% stamp duty surcharge on second homes/buy to let purchases.
Intent: Deter speculative investors and “level the playing field” for first time buyers.
Outcome: Immediate increase in transaction costs for investors. Market witness a short-term spike in purchases ahead of April 2016 before a drop. The gradual withdrawal of micro private landlords from the market accelerates
May 2016 – Mayoral shift and London second homes comes under intense scrutiny
Policy:
- Election of Sadiq Khan signals a clamp down on investors with the commissioning of research by the LSE into overseas ownership, second homes and empty homes in London.
Intent: The political class at both a national and regional level now perceive housing affordability as a distribution problem not a supply problem.
Outcome: This enables a window for policy to encourage stronger interventions on ownership, tenure and planning contributions. The LSE research actually finds that most investors don’t keep homes empty and the research is quietly shelved.
2017-2018: Draft London Plan + Viability SPG
Policy:
- Strong push for viability to be plan-led, not negotiated
- Fast track and genuinely affordable homes introduced alongside late-stage reviews
- Formal move to EUV+ as the benchmark land value but only for residential
Intent: James Murray, London’s former Deputy Mayor, seeks to embed affordable housing into land values by introducing a rigorous land value capture regime across London.
Outcome: At this point viability shifts from negotiation to enforcement through a new viability team at City Hall. Market is still buoyant and affects are not immediately felt, GLA doesn’t introduce a monitoring regime to evaluate this policy shift.
2020–2021: Covid lockdown + demand distortion
Policy / event:
- National lockdowns
- Stamp duty holiday and demand side fiscal injections.
- Ultra-low interest rates
Intent: Support economy during lockdown as Chancellor Sunek brings in a swathe of demand side measures with the economy deflating.
Outcome: Demand pulled forward aggressively. House price inflation accelerates. Developers and land markets recalibrate to higher values
👉 The system is temporarily supercharged
2021: London Plan adopted
Policy:
- Formalisation of 35% and 50% strategic target
- EUV+ firmly embedded as the BLV methodology
- Late stage reviews which are upward only are strictly enforced
Intent: Mayoral approach now about enforcement and using private sector to deliver social rented accommodation across the Capital. Intermediate tenures are de-prioritised.
Outcome: the approach is now fully institutionalised and consistently applied. Lichfields research on small sites warns City Hall that SMEs can no longer price land for general supply of housing. City Hall banks on taller and denser to deliver its social housing requirements.
2022–2024: Cost inflation after shock and then Ukraine war
Policy/Event:
- Global supply chain disruption following the ending of lockdown
- Energy price spike from the Ukraine war.
- Bank of England seeks to chase inflation with successive interest rate rises.
Outcome: Construction costs rise 30–40%.. Build contracts become unstable and insolvencies ripple through the supply chain. Main contractors like Henry go down causing supply issues across London market. Margins compress sharply. Interest rates increases lead to jump in cost of capital and uncertainty.
👉 The supercharged system starts to break
2023: Help to Buy extinguished
Policy:
- Equity loan scheme supports new build demand and first time buyers but has been operating for over a decade.
- Gradual withdrawal without replacement of any alternative first time buyer support
Intent: UK Government determines the scheme is no longer politically justifiable.
Outcome: Removal creates sudden demand gap. Developers have scaled business models around it and are in the main unable to exit schemes with the extinguishment of HTB alongside other traditional markets.. Absorption rates slow and in some cases grounds to a halt.
👉 Sales rates fall → schemes stop progressing
2023: Building Safety Act
Policy:
- Building Safety Act introduced in the wake of the Grenfell fire.
- Gateway 2 approvals means significant elongation and discretionary system of approvals with far more detail required earlier in the development design process.
Intent: Improve safety in buildings and learn lessons from the Grenfell fire tragedy.
Outcome: Longer timelines for delivery which means more cost. These increased costs also require more front end equity which is the hardest bit of the capital stack. Higher delivery risk also due to the discretionary nature of the system. Requirements lead to the almost end of SME development in the London market for schemes over six storeys.
👉 The system slows just as volatility rises
2023: Second stairwells + design impacts
Policy:
- Mandatory second staircases are introduced on all buildings over 18 metres following a surprise u-turn from the Government which had consulted on schemes of over 30 metres.
Outcome: Loss of saleable area with efficiencies dropping by over 5%. Redesign costs mean many schemes are rendered unviable. Threshold chasing to meet London Plan requirements is no longer an option, the land value capture regime begins to fall apart. The sector is caught off guard.
👉 Many London schemes move from marginal → unviable
2024 Biodiversity Net Gain introduced
Policy:
- Introduced under the 2021 Environment Act it requires all new development to have a minimum 10% biodiversity net gain.
- This is either onsite or by purchasing off site biodiversity units.
Intent: Reverse biodiversity loss and ensure new developments leave natural environment in a better state.
Outcome: Significant increase in cost and uncertainty with many development projects unable to price the risk. Leads to further pressure on viability and also on the wider planning system to assimilate a new statutory requirement.
Spring Budget 2024: Non-dom changes & capital signals
Policy:
- Changes to non-dom regime including the abolition of the remittance basis means non-doms no longer can shield foreign income
- Move to a residence based tax system from April 2025 with UK residents taxed on worldwide income and gains
Intent: increase tax fairness and raise revenue whilst reduce perception that London property is driven by offshore wealth.
Outcome: Negative signal to some parts of the global capital markets. Increased hesitation at the margin which effects volumes.
👉 Weakens one of London’s few remaining structural advantages
November 2025 Budget: Landfill Tax Reform and Remediation Pressure
Policy:
- Consultation to reform landfill tax system initiated in April 2025 with proposal to move towards a single rate by removing the low rate for inert wastre.
Intent: Government seeks to discourage land fill use and remove perceived loopholes and waste misclassification
Outcome: Despite intense lobbying from the housing sector, there is a five fold increase in tax burden on brownfield remediation. Developers warn that brownfield land is increasingly unviable, Government takes the view this tax can come off land values.
2024–2026: Temporary measures (symptom management)
Policy:
- Reduce affordable housing thresholds
- CIL relief
- Mayor call-in powers expanded in the wake of London Boroughs moving further to the political extremes
- Cycle storage, dual aspect requirements eased
Intent: Unblock delivery and positive signals from Government and City Hall.
Outcome: Helps some schemes proceed but too early to identify how many in the wake of the Iran crisis. The Government unable to make an assessment. Does not restore viability system-wide due to the cumulative changes over the last decade.
👉 Managing decline, not reversing it
If you made it this far, well done. One of two things really come out of this when you read it.
First, how the different tiers of Government fail to interact. London Government was moving in a different direction to central Government and they were both adding new taxes into the system whilst demand levers were being removed. The left and right hand were not in unison. A key question is how do we avoid such deviation in the future as the London experience has no doubt damaged the devolution agenda which should be a positive step for the UK.
The second is political cycles. How over a range of administrations, politicians and their advisers have not thought system wide. There is a lack of commercial understanding at the heart of policy making and this has an impact. Sometimes doing less is the best outcome rather than trying to regulate for every contingency. Balance is an elusive thing.
