East London excitement fuels growth of homebuilding in the Capital

25 January 2012

• But there is recent evidence that momentum has begun to slow
• Further falls in affordable housing development could dampen activity

Drivers Jonas Deloitte’s latest London Residential Crane Survey (Winter 2011) has highlighted that despite continued economic uncertainty, development activity across Greater London has continued to increase. This is most apparent in the East of London, where the Olympic Games may have acted as a catalyst for development, with these boroughs showing the highest levels of residential construction.

The report highlights that there has been a 40% increase in construction activity since this time last year. However, there is evidence that momentum has already begun to slow.  Economic uncertainty and regulatory changes mean that there has been a fall in the number of new schemes starting since the last survey. The report concludes that the recorded level of construction activity is unlikely to be sustained during 2012.

Anthony Duggan, Head of Research, Drivers Jonas Deloitte, said:

“The survey paints a fairly positive picture of the residential development landscape in Greater London – nowhere more so than in the East. There is clear evidence of a significant rise in overall construction levels at a time when economic conditions could have led to developers holding back. Our latest survey records over 11,000 units under construction in the East of London alone.

“However, 2011 has seen the lowest levels of completions in this cycle, with fewer than 8,000 new homes completed in the last year. While the current development pipeline is looking considerably stronger for 2012, we would caution that some schemes due to complete this year are, in practice, likely to complete in 2013 or beyond.”

The North and East of London saw the highest number of homes complete (950 and 1,050 respectively). The mix of completions is largely unchanged since the previous survey, with one and two bedroom flats dominating, and houses accounting for just 5%. 

The fall in affordable housing development – down to less than 40% of the units in new schemes recorded in this survey, from over 50% a year ago – is another factor that could potentially dampen future construction activity. Ongoing uncertainty about changes to the funding mechanism for affordable housing is likely to cause delays in homes being consented and completed.

The viability of future schemes is also likely to be affected by the proposed introduction of a Mayoral Community Infrastructure Levy (CIL), and in addition, some boroughs will adopt their own CIL charging schedules.

Mathew Evans-Pollard, Head of London Development said:

“Land owners and developers will need to ensure that they are fully aware of the forthcoming changes, especially the tight timescale for adopting CIL, to avoid potentially serious consequences.   

“As a result, developers may find it becomes harder to maintain construction activity at current levels as the year progresses.  Consequently, the outlook for units to be completed in future years would worsen, leaving the actual provision of new housing in London to drift further away from government targets.

“Even in the boom years prior to the recent downturn, London saw little more than half of the government’s desired 34,000 new homes complete each year.  The shortfall in units completed has only increased since then. Given the combination of the challenging economic backdrop, the introduction of the Mayoral CIL, and the changes taking place to the funding provisions for affordable housing, the likelihood is that construction activity will not be maintained at the current level during 2012”.

Duggan added:

“The existing shortage of housing in London is being compounded by increased demand and low levels of construction activity. The disconnect between supply and demand, coupled with strong pricing and a predicted dip in affordable housing provision, means that the private rental sector may be an option for longer than many potential homeowners desire.”

Ends

Notes to editor:
The London Residential Crane Survey details every scheme over 50 units under construction across Greater London. The research enables Drivers Jonas Deloitte to draw a clear picture of how development activity is spread across the capital, as well as providing an indication of housing delivery over the short and medium term. Maps, schemes and developers are detailed in the report.

London’s sub-regions: West, North, East, South-West and South-East.
Inner Boroughs: Camden, Greenwich, Hackney, Hammersmith & Fulham, Islington, Kensington & Chelsea, Lambeth, Lewisham, Southwark, Tower Hamlets, Wandsworth and  Westminster.
Outer Boroughs: Barking & Dagenham, Barnet, Bexley, Brent, Bromley, Croydon, Ealing, Enfield, Harringey, Harrow, Havering, Hillingdon, Hounslow, Kingston, Merton, Newham, Redbridge, Richmond, Sutton and Waltham Forest.

Drivers Jonas Deloitte Research
Drivers Jonas Deloitte’s commercial property research team is focused on producing regular publications and comprehensive bespoke reports for investors, developers and occupiers. Their output includes data analysis and commercial property research reports covering the major European markets through to the presentation and discussion of pertinent issues.

The Drivers Jonas Crane Survey series is the definitive survey of commercial and residential construction and is seen as a good measure of developers’ sentiment and future supply.

Drivers Jonas Deloitte provides comprehensive property consultancy, transaction and advisory services across the private and public sectors. The Real Estate group at Deloitte and Drivers Jonas Deloitte consists of over 1,000 professionals, with specialist real estate knowledge across all areas of business. The breadth of depth of the practice allows expert teams with specific skills to address clients’ needs. It is the largest real estate business in Europe. For more information, please visit www.djdeloitte.co.uk

About Deloitte
In this press release references to Deloitte or Drivers Jonas Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.

For more information, please visit www.deloitte.co.uk.

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