New research from JLL has found that during Q4 2015 there were 5,260 unit starts across central London, but that figure stood at 1,840 and 1,830 during Q1 and Q2 of 2016 – a 65% decrease.

JLL found that this had resulted in the number of units under construction falling for the first time in four years as the figure dropped to 33,920 units in Q2 compared to 34,300 in Q1.

Neil Chegwidden, director in JLL residential research, said the slowdown in construction activity and the outlook for further development in London was a concern and saw five key factors behind the slowdown.

“The first is that the sales market was already beginning to ease during the latter half of 2015, while the second is that construction activity following the global credit crisis had to slow at some point after reaching record levels.

“The market was then stung by the 3% additional home stamp duty tax announced in November 2015, which came on the back of the stamp duty reform in 2014.

“The market was then distracted by the EU referendum.”

Neil felt that this combination of factors was having a damaging impact on housing supply right across London.

The central London development sales market was, however, seeing a rise in demand and interest, but there remained challenges as launches and transactions have slowed due to stamp duty changes along with the Brexit vote.

Neil was encouraged by the sales market improvement, but stressed that supply was an issue.

“This should be of great concern to Sadiq Khan and his team and emphasises the need for sensible, workable and long-term supply solutions.

“This was needed in any case, but these latest statistics hammer home that action is needed.”

James Murray, deputy mayor for housing and residential development, admitted that the report was a stark reminder of the scale of the challenge of building homes for Londoners.

"We know that boosting the supply of new homes will take time and means all levels of government need to work with the industry to offer greater certainty and support.

“Sadiq is committed to working with the government, London boroughs, homebuilders, developers and others to make sure we get building more new homes of all types in the capital.‎"

‘The brakes would need to be applied at some point’ 

Development Finance Today sought the reactions of London property professionals and Bob Sturges, head of PR and communications at Fortwell Capital, explained that London enjoyed a new-build boom following the 2008 financial crisis.

“But it was obvious to informed observers that this couldn't be sustained indefinitely and that the brakes would need to be applied at some point.

“That point was reached at the beginning of this year. 

"Not only was the central London market becoming visibly over-supplied, but prices in certain areas, and for certain types of property, had become detached from reality.”

‘It is not surprising that the number of new-build starts has cratered’

Sam Howard, COO at Regentsmead, felt that the central London housing market had seen the perfect storm of higher transaction taxes, economic uncertainty and political turbulence during 2016.

“When you take into account higher stamp duty, additional 3% levy on second homes, tighter mortgage lending and crucially the double whammy of overseas buyers facing domestic economic troubles and the UK voting for Brexit it is not surprising that the number of new-build starts has cratered.

“Throw into the mix some tension between the government’s national Starter Homes policy and plans by Sadiq Khan, the mayor of London, to demand that 50% of new homes in the capital are ‘affordable’, [and it] explains why developers are holding back until the outlook is clearer.”

Looking at how to kick-start new-build projects, Sam added: “To increase new-build starts, developers need to be given the confidence that they have the right mix of funding, national and local government policy and economic and political stability.”

‘New-build numbers will bounce back in central London’

James Bloom, managing director of development finance at Masthaven, felt that London would always be a desirable place to live.

“Given the constant demand for new homes, we expect construction to improve over time.

“Construction in central London will improve over the long-term with the weakening pound, and there is also potential for improvement with stamp duty reform in the future.”

Meanwhile, Bob felt that one day the industry would look back on this period of reduced activity as a welcome reality check and despite some suffering, others will take a chance to explore new markets.

"New-build numbers will bounce back in central London.

“Overseas investors – unwelcome to some – are already being encouraged by the devalued pound.

“But we have to be realistic: space is limited, demand high, planning rules cumbersome, and finding funding more of a challenge than of late.

“A new mini-boom should therefore be discounted for now."