An analysis from global property firm Knight Frank in it’s latest report London Calling prices and activity, especially in prime central London, have bounced back much more quickly from the fall out of the financial crisis with prices in prime central London climbing nearly 60% since the post crisis trough.
It says that this performance, as well as London’s position as a global hub, has attracted attention from buyers and developers alike. It also points out that ,ore than half a million new households will be created in London between 2011 and 2022 according to new projections from the Department for Communities and Local Government, but delivery of housing currently in the planning pipeline is unlikely to keep up with this demand.
Although the estimated value of units currently in the planning pipeline which are likely to be delivered over the next decade is around £80 billion, based on current average borough values, the number of units will not meet the demand suggested by the creation of new households as London continues to grow.
One of the key factors underpinning any residential market is the relationship between housing demand and housing supply. The London market, like the rest of the UK, has been affected by a lack of supply of housing for many years. The financial crisis exacerbated the downturn in house building, with the number of private residential units being completed in the capital dropping by nearly 30% between 2009 and 2010.
At the same time, the population continued to grow and the number of people living in the capital has risen by 20% over the last two decades.
Using official data, industry figures and Knight Frank market intelligence, the analysts have measured supply and demand over the coming decade. ‘Our inaugural London Development Report last year showed that there was an overall under supply of housing compared to demand across the capital, and that this trend would continue,’ said Grainne Gilmore, head of UK residential research.
By analysing figures and taking into account new data from the last Census, the research team looked at the four central London boroughs of Kensington and Chelsea, Camden, City of London and Westminster, and found that an extra 41,860 households are expected to be created between 2011 and 2021, giving an annual average uplift of 4,186. It estimates that demand for private sector homes will be around 3,218 a year.
The team also examined the pipeline supply of schemes currently in the planning system. There are some 2,000 development schemes labelled as ‘pre-planning’ across London, meaning they have yet to enter the planning process.
The report says that if all of the initial plans for these developments come to fruition, they could deliver 650,000 extra homes. But as yet, there is no guarantee that these schemes will be delivered.
It also points out that while there are more than 2,000 schemes in the planning system or currently under construction, some of the bigger schemes could take decades to complete. Schemes which include permission for 1,000 or more units make up 35% of the development pipeline currently in the planning system.
‘Our data indicates that over the next 10 years, some 277,240 residential units will be completed in Greater London. Around 177,340 of these will be private sector housing. This overall development figure is an increase from our 2012 forecast for delivery of 240,000 residential units,’ explained Gilmore.
‘In central London, around 19,700 units are expected to be delivered over the next decade, with 14,590 in the private sector. However, these overall forecasts will mark a rise from recent housing delivery in the capital. This has raised concerns about an oversupply of housing. Our analysis indicates that the supply of new housing will fall some way short of demand as indicated by the growth in new households in the capital. If the annual uplift in households in 2022 is assumed to continue on the same trajectory as the previous decade, then there is an indicated undersupply in housing of more than 40% across the capital between now and 2023,’ she added.
But the report p[points out that the delivery of new build properties will vary from borough to Borough. The planning data suggests that Newham and Greenwich will see the highest levels of new units completed over the next decade. In terms of supply by value, Tower Hamlets is out in front. Hammersmith and Fulham is next on this list, with a potential £6.8 billion of new build housing in the pipeline over the next 10 years.
Calculations based on current average house prices suggest that the total value of private sector housing which could be completed between now and the end of 2022 could be as high as £7 billion.
The estimated value of pipeline delivery which could come to market between now and 2022 in the four boroughs of central London is around £11.5 billion, with the total figure for London adding up to £80 billion.
‘We are not ruling out the possibility of supply outstripping demand in some local areas based purely on local data. But the ease with which people can re-locate within London means that the headline figures are probably a fairer judgement of housing supply and demand in the capital,’ Gilmore concluded.