Ahead of the 18th Annual London & South East Resi Conference in March, we sat down with Katy Warrick, Head of London Residential Research at Savills, who has spoken at this conference for more than a decade. As a foremost expert in the London Resi Market, we asked Katy for her thoughts:
Q: What are the current challenges and opportunities in the London and SE residential market?
A: The London residential market faces significant challenges, particularly in terms of housing delivery. The delivery of private and affordable housing has been falling, with the number of new homes starting construction down by about 60%. Planning permissions are also falling by a similar amount, and while applications have started to tick up slightly, the overall pipeline is significantly lower than needed. Currently, nearly 36,000 homes are being built each year, but the Government’s Standard Method for calculating housing need suggests that 88,000 homes are needed each year in London. This massive gap highlights the desperate need for more housing.
Developers are facing several challenges in the market. The cost of debt is a major issue, affecting both development finance and purchasers, who may be financially constrained due to higher debt costs. Planning uncertainties and the time required for planning approvals are also significant hurdles. Build costs have risen significantly over the past couple of years, impacting the viability of schemes. This affects London more significantly than other regions, because flats are more expensive to build than houses, with high-rise being the most expensive. 95% of homes built in London are flats, compared to just 5% in the Midlands and North of England. Additionally, some contractors have gone bust, causing delays and increased costs for developers who need to replace them. Supply chain disruptions and new regulations around fire safety and building safety are further complicating the situation.
Despite these challenges, there are opportunities in the market. Interest rates are coming down, which could boost demand and improve development finances. The industry needs to come together to find solutions to the various challenges it faces. Collaboration and innovation partnerships are crucial to navigating these issues and ensuring the successful delivery of housing projects.
Q: How has the industry responded to the new Government and how can they incentivise development?
A: The industry has responded positively to higher housing targets and the introduction of the grey belt concept, which is particularly interesting for London. However, the challenges remain significant, with schemes often not viable in their current form. More money pledged for planning departments and for training planners is a positive step. The industry is also looking for assistance for first-time buyers, as the upcoming increase in stamp duty is not helpful.
Q: Where do innovation partnerships and JVs now fit in?
A: Innovation partnerships and joint ventures (JVs) are more crucial than ever. We are seeing a significant increase in partnerships, even among traditional developers who previously operated independently. These partnerships help share risks and bring together different skills, money, and land to get things done. Examples include the MADE Partnership between Homes England, Barratt, and Lloyd's, and the new homes accelerator task force driven by MHCLG both targeting to unlock large scale sites. These initiatives are positive steps towards addressing the delivery issues in the market.
Q: What is the role of rental living in an evolved residential development market?
A: Build-to-rent (BTR) is an established tenure and an important part of any large scheme in London. Offering more choices and developing the sector in a well-managed way is crucial. However, BTR faces the same challenges as other developments and as a result we’ve seen limited forward funding deals done in the past year. But investor appetite remains strong, evidenced by investment into operational assets and we expect forward funding activity to grow as interest rates fall further.
Beyond BTR, we are also seeing continued growth of the co-living sector in London, with almost 6,000 homes operational and a further 15,000 in the pipeline. It offers a more flexible and community focused product that compliments existing rental options, increasing housing choice and importantly adding another route to deliver new homes.
Q: What can we expect from the conference this year?
A: The conference will feature policymakers on various panels, providing insights on how they plan to solve London's problems. Lisa Fairmaner from the GLA, who oversees the New London plan, will be a key speaker. It will be interesting to hear her updates.
As always, the conference will also offer great networking opportunities for attendees and provide opportunity to find JV partners and connect with funders and developers willing to take an imaginative, collaborative approach to solving the housing challenges in London.
To hear more from Katy, as well as leading developers, local authorities, the Government’s Chief Planner, and Homes England, along with leading sector advisors, sign up to London Resi 2025, which takes place on 4th March. To learn more please visit www.londonresidevelopment.com