London's Housing Challenge: Looking Ahead in 2026

London's housing delivery has declined significantly, with private sector housing starts falling 84% since 2015. Only 5,547 private homes commenced in 2025, compared to 33,782 a decade earlier according to data compiled by Molior London.

London's housing delivery has collapsed due to three interconnected crises that have fundamentally undermined development viability and market demand. Construction costs have soared, driven by inflation in materials and labour, the impact of the Building Safety Act, and reduced competition amongst contractors who are now building significant contingency into their pricing.

Market demand has weakened. Overseas investors, who previously underwrote large schemes through pre-sales, have retreated due to Brexit impacts, Covid disruption, and government measures like the SDLT surcharge. Domestic demand has also collapsed as mortgage rates rising to 4-5% have severely constrained affordability for first-time buyers, whilst sales rates have plummeted from over 25,000 annually in 2015 to just 5,933 in 2025 (Q1 to Q3). Currently, 23% of last year's completed homes remain unsold.

The end of Help to Buy, which supported 27% of private completions during its lifespan, removed a crucial demand driver, whilst build-to-rent development has virtually ceased with only 37 starts in the first six months of 2025 compared to a 10-year average of 5,600.

The Government and Mayor of London published a policy paper in October 2025 to address housing delivery challenges through various intervention proposals.

A new fast-track planning route is proposed for developers to provide 20% affordable housing rather than the current 35% requirement. Available until March 2028 or adoption of the New London Plan, whichever occurs first. A gain-share mechanism ensures additional profits from improved market conditions support increased affordable housing provision.

Developers may receive up to 50% relief from borough-level Community Infrastructure Levy charges for qualifying residential schemes. The proposals also seek to relax London Plan standards, providing flexibility on dual aspect requirements, dwellings per core ratios, and cycle storage obligations, particularly in outer London boroughs.

The Mayor seeks enhanced referrable powers to examine applications over 50 homes where boroughs intend refusal, plus authority over developments exceeding 1,000 square metres on green belt and Metropolitan Open Land.

Implementation follows a structured approach despite the "emergency measures" description. A six-week consultation period began 1 November, 2025, with changes requiring secondary legislation (not currently scheduled) and adoption of new London Plan Guidance.

The planning route and Community Infrastructure Levy relief will remain available until March 2028 (or New London Plan adoption, whichever occurs first). The proposed expansion of mayoral 'call-in' powers (for developments of 50 or more units) is intended as permanent.

Success will depend on swift implementation and the constructive and consistent application of the proposals by London boroughs.

Marcus Dixon (Head of Living and Residential Research, JLL) also notes: “At 88,000 homes a year, London’s housing needs target is the highest of any region, with the capital also having the widest gap between recent delivery and housing need. A combination of viability, planning, and demand side constraints means construction volumes continue to fall. Planning reforms are part of the solution, but to see the step change in delivery needed we’ll need to address demand side constraints and reassure developers there is a market of a sufficient size to absorb the homes they deliver.”

Further to the London-specific policies the Government continues to aim for growth; the Planning and Infrastructure Bill received Royal Assent in December ’25, a new draft NPPF was published for consultation on 7 January 2026, and the Government has confirmed that smaller developments (up to 0.2ha) will be exempt from BNG requirements.

Proposals to limit information requirements for ‘medium’ sites of 10-49 units, in addition to exemptions from the Building Safety Levy and the potential to use cash contributions in lieu of affordable housing are also being considered and will be consulted upon in due course.

Cumulatively, the Government hopes these planning policy measures provide a kickstart to development in London. The Mayor of London will also consult on the latest draft London Plan in Summer 2026, setting out the framework for development in the Capital to 2050.

To discuss any of the matters discussed above or any other planning matter, please contact the team.