Where lies London – the capital poor capital?
Comment from Mark Byles, Director, Development Consultancy
In last year’s Spring Statement, one of the most striking omissions was London. Despite its economic significance, London’s housing and development challenges were largely overlooked in favour of policies geared toward unlocking development in other parts of the country. The decision to focus on Green Belt release instead of addressing the capital’s complex viability constraints suggested a strategic shift away from prioritising London’s growth.
A year on, and as the 2026 Spring Forecast nears, the question remains – where lies London?
It’s a mixed picture but it’s been clear that, behind the scenes, London has struggled to get the kind of capital intervention required to address its challenges. The past year has seen a lot of energy focused on high rise buildings and improving the regulatory process around the Building Safety Act (BSA) Gateways. This was essential to address and has resulted in improving market sentiment and un-sticking the pipeline of some new homes but real issues remain for the capital’s housing landscape.
A triumvirate of collapsing Section 106 acquisitions, schemes built with no buyers of the affordable stock and viability pressures pulled down affordable housing delivery across the capital throughout 2025.
Emergency measures were brought forward for consultation to make it easier to reduce the affordable quota (which perhaps cut against the public challenge) and suggestions were put in place as to how developers could work with RPs in order to improve take up. Council’s have been directed to engage more proactively on s106A applications to allow conversion of affordable units to private units but have introduced a mandatory six week airing of uncontracted units on the Homes England clearing service prior to progressing negotiations.
Guarantees and new lending tools were announced via a National Housing Bank which may potentially be helpful, especially to new and small-scale for-profit RPs, but with it not formalised yet and by its nature as a ‘National’ Housing Bank, its offerings will not solely be focused on London.
The new Affordable Housing Programme is soon to be accepting bids over its new 10-year life and this injection of additional grant to subsidise delivery of affordable homes will hopefully begin to trickle down into greater sector activity in 2027.
The main change that’s probably been most favourable for the supply of affordable housing has been suggesting additional CIL relief on private accommodation if the minimum affordable housing percentages set out in the consultation are proposed at planning application stage. The cashflow implications of CIL have been its greatest challenge, coming so early in the development process and whilst modifying the timing of payments would have been more beneficial, the reduction in upfront capital requirements for developers is welcomed.
London is the UK’s economic powerhouse, contributing 22% of GDP and 28.5% more productive than the UK average at 2023. Its highly skilled workforce attracts global businesses and investment with its universities some of the best in the world. Housing development in the capital to support this growth predominantly is of a dense nature and apartment-led with significant capital expenditure required before income can be generated.
The elephant in the room is that viability has worsened throughout the life of the London Plan. The introduction of the Building Safety Levy (the timing of the charge within a cashflow suggests the Government knows that later payments in the cashflow benefit development) soon will affect viability appraisals further, as will the continued high cost of construction and delivery, alongside the well-reported absence of buyers. Molior data, as of January 2026, revealed just 8,436 new homes were sold in the capital during 2025; a far cry from the 22,000 units required to be sold each quarter to meet government targets
In an attempt to further stimulate the supply side by bringing down the cost of delivering new homes, the London City Hall Developer was created with £322m of unrestricted grant-funding allocated to deliver unlock housing delivery in the last Budget. A 2021 manifesto commitment from the Mayor, it has taken five years for this endeavour to receive any funding. In London this amount is not nearly enough, it may make a difference to a small number of strategic schemes but isn’t enough to really turn the dial and enable the delivery of the volume of homes promised by the end of this parliamentary term.
It is usual at this point in the market that supply and demand style stimulus is injected as we have seen historically from the Housing Infrastructure Fund to Help to Buy. It’s clear, evidentially, from the previous rounds, that bringing in demand style stimulus increases asset prices which decreases affordability – a particular challenge in London. Some are asking whether there’s a case for ‘Help to Buy 2’ or similar given the constraints on affordability, particularly at the lower end of the market but it may offer some assistance, particularly in the current absence of international buyers.
What is clear however is that the market alone cannot deal with the challenges it faces and whether intentionally or not, London seems to have been viewed as ‘secondary’ by the Government which, given the wider economic agglomeration that occurs from investing in London compared with most destinations outside of it, is cutting off the legs of growth in the UK.
As we outlined this time last year, London’s housing delivery problems are very different from those of the rest of the country’s. Looking ahead into 2026, expansion of the City Hall Developer feels essential, releasing the grant funding and starting the bidding process so actual sites can change is critically important. The outputs on the emergency measures consultation are also eagerly awaited to bring certainty to the planning system and bids will be placed for the new Affordable Housing Programme.
Will we see material change happening in 2026? We consider that as last year was lost to the Gateway process, this year may well be constrained by lack of capital in the capital, but by the time the Spring Statement arrives in 2027 we may see the reported encouraging rise in construction starts recorded by Molior in Q4 2025 (2,294 starts) continue to gather pace. However with a feverish political landscape and London elections in May of this year, the question will then again be, where does London lie?
Talk to our team
If you would like to discuss how London’s shifting policy landscape – from viability pressures and CIL reform to affordable housing delivery and capital intervention – affects your schemes, our development consultancy, planning and agency teams would welcome a conversation. Get in contact with mark.byles@newsteer.co.uk.