London faces decade of housing shortages

Demand will continue to outstrip supply for homes in London by at least 36% a year for the next decade, according to the latest research.

The capital needs 37,000 new homes a year for 10 years to keep pace with demand – but developers can only offer around 24,000, leaving a shortfall of 14,000 homes every year, calculates property consultants Knight Frank.

The figures, based on new modelling of census data, suggest the shortfall is worse for Central London postcodes rather than taking a citywide average.

“Our figures suggest that overall undersupply will continue to be a feature of the Greater London market – the shortfall in planned housing is around 36% over the next ten years. In Central London, which incorporates many of the prime central London postcodes, the shortfall rises to 55,” said Grainne Gilmore, head of residential research at Knight Frank.

Gilmore also warns that developers who do not price homes realistically will suffer, even at the top end of the market.

Good news for landlords

The report spells good news for buy to let and house in multiple occupation investors, as developers are concentrating on more expensive property with a price tag well out of the range of the average buyer.

While banks and building societies are still squeezing credit for buyers and movers, renting a home is the only option for many.

Liam Bailey, the firm’s head of residential research said: “The strength of sales over the past few years has made developers concentrate on the prime and super-prime segments of the market. With values surging across the London, it has been tempting for developers to put upward pressure on prices.

“The problem comes when this strategy is applied to sites with secondary characteristics – this leads to unrealistic pricing, and to unsuitable buildings being brought forward for development.

“Developers should temper their expectations according to the nature and location of each site. The biggest shift may need to be to the current mindset that they need to build, in every part of London, bigger units to maximise pound per sq ft values.”