The London residential development market showed signs of renewed momentum during Q2 2026, with planning permissions increasing and construction activity improving across much of the capital. However, beneath the headline figures, delivery challenges remain significant.
Planning activity strengthened during the quarter, with 4,624 units granted permission across London, representing an 8% increase on Q1. Outer London accounted for the majority of this growth, with permissions rising by 85% quarter-on-quarter to 3,632 units, while Inner London permissions fell to 992 units.
Construction starts also continued to improve, particularly in Outer London, where activity now exceeds 2024 levels. Completions rose during the quarter following a slower Q1, although completions continue to outpace starts, highlighting the growing risk of future housing undersupply if delivery is not accelerated.
Despite these encouraging indicators, viability remains the defining challenge for the market. House prices are down 2.32% year-on-year, while build costs have increased by 4.43% over the same period, creating continued pressure on development appraisals and particularly affecting brownfield opportunities.
Policy uncertainty has added further complexity. Delays to the Social and Affordable Housing Programme awards, uncertainty surrounding updates to the London Plan, NPPF and viability guidance, alongside the implementation of the Renters’ Rights Act, are all contributing to a more cautious development environment.
Looking ahead, the market will be watching closely for greater policy clarity and confirmation of housing-related funding programmes. While planning activity demonstrates that schemes continue to progress through the system, improving viability remains critical if London is to translate permissions into new homes at the scale required. The preservation of key housing initiatives, including the Affordable Housing Programme and National Housing Bank, could help support delivery as the market moves into the final quarter of the year.
