London managed to build just 7 per cent of the new homes it required last year, a fresh signal that Sir Keir Starmer’s flagship pledge to deliver 1.5 million homes across England by the end of the parliament is in serious trouble.
According to a new report from property consultancy JLL, the capital delivered only 6,325 homes in the twelve months to March 2026, against an annual need of 88,000 — leaving a yawning gap that property professionals warn cannot be closed without urgent policy intervention. JLL’s London housing challenge analysis puts private-sector starts down a remarkable 84 per cent since 2015.
The reasons are familiar to anyone who has tracked the capital’s residential market over the past three years: stretched buyers, departing landlords, ballooning service charges and a planning system that continues to throttle delivery.
Buyers boxed in by rates and the loss of Help to Buy
Higher-for-longer interest rates remain the single biggest drag on demand. Mortgage affordability has tightened sharply, and renters trying to scrape together a deposit are losing ground to rising rents.
The squeeze is particularly acute on new-build stock. JLL’s figures show prospective buyers are now paying a 26 per cent premium per square foot for a London new build compared with an equivalent second-hand property, a gap that, in the absence of Help to Buy (which closed to new applicants in 2023), first-time buyers are simply struggling to bridge.
The picture is consistent with the wider national slowdown Business Matters has reported on previously, with house-building output in 2024 down by a fifth on the previous year.
Landlords and overseas buyers head for the exit
The investor market, historically the bedrock of off-plan sales in zones one and two — has effectively collapsed. Tax increases on buy-to-let landlords and the sweeping changes ushered in this month under the Renters’ Rights Act have driven a wave of disposals.
Just 4 per cent of landlords told JLL they were even considering adding to their portfolios. As we explored in our recent feature on how the Renters’ Rights Act is rewriting the business case for buy-to-let, the abolition of Section 21, the move to rolling periodic tenancies and tougher compliance burdens have fundamentally altered the economics of residential letting.
Overseas investors, traditionally heavy buyers of central London new builds, have also retreated: numbers in prime central postcodes are down 53 per cent on 2015.
The knock-on effect on developer cash flow is severe. A decade ago, more than half of all new homes in the capital were sold off-plan, the crucial pre-sales that unlock development finance and underwrite future schemes. In 2025 that figure was just 11 per cent. Housebuilders are now sitting on more than 22,000 unsold London homes, including 3,600 completed units lying empty and a further 18,737 still under construction.
The cost crunch hitting the supply side
The demand-side problems are being compounded by an equally acute squeeze on supply. The Home Builders Federation’s latest “Viability Crunch” report found that the cost of building a single home has risen by £76,000 since 2020, equivalent to roughly a fifth of the average UK house price.
Around 40 per cent of that increase, the HBF says, stems from new taxes and regulation, including the forthcoming Building Safety Levy, Future Homes Standard and Biodiversity Net Gain requirements. The remainder reflects material and labour inflation, much of it linked to post-pandemic supply chain disruption and the long shadow of the Grenfell tragedy on safety compliance.
Workforce constraints are also tightening their grip, with the construction skills shortage already threatening the 1.5 million homes target Business Matters has reported on at length.
The service-charge sting
A less-publicised but increasingly punitive factor is the relentless rise in service charges, which lenders now bake into affordability calculations.
JLL’s analysis found that average service charges for blocks with basic amenities, lifts, cleaning, communal lighting, have climbed 43 per cent since 2020. For developments boasting concierge services, pools and gyms, charges have leapt by 89 per cent. For first-time buyers attempting to stretch to a £400,000 flat in Battersea or Wembley, a £5,000-a-year service charge can be the difference between a yes and a no from the mortgage desk.
Marcus Dixon, head of UK living and residential research at JLL, was unsparing in his verdict, arguing the current policy mix is actively choking off delivery. He has called for the abolition of stamp duty on primary residences as a starting point.
“Without policy change on buying costs, we’ve simply made new homes unaffordable for buyers, a situation that will need to change if we are serious about increasing housing delivery,” he said.
JLL points out that UK property taxes account for 3.7 per cent of GDP, the highest share of any advanced economy, a level of fiscal drag that, at the margin, makes the difference between a viable scheme and a stalled one.
The implications stretch well beyond Whitehall’s targets. House-building is a critical driver of SME activity, from local subcontractors to building products suppliers and small-scale developers. A capital delivering only 7 per cent of its housing need is a capital starving thousands of small businesses of revenue, while at the same time pricing the workers those businesses rely on out of the city.
If Labour wants to keep its 1.5 million homes pledge credible, ministers will need to address the cost-of-buying problem and the cost-of-building problem in tandem. London’s figures suggest the clock is already running out.
Read more:
London housing slump leaves Labour’s 1.5 million homes pledge looking out of reach
