Tower block developers are scaling down London projects over higher costs

Tower block developers are retiring from London as the cost of doing business in the capital rises, increasing the mayor’s challenge of tackling the city’s chronic housing shortage.

Developers submitted applications for 72 buildings of 20 floors or more last year, 13 percent fewer than in 2020, according to an annual survey of tower construction in the capital by New London Architecture, a think tank and real estate firm Knight Frank.

A dwindling supply of housing in tall buildings threatens to leave City Hall far from its ambitious goal of more than 50,000 new homes each year.

The number of applications for tower blocks has been declining since 2018, the year after a fire in Grenfell Tower in west London killed 72 people and triggered an investigation into the safety of high-rise blocks.

Last year, construction began on 29 tall buildings, the second-lowest number since 2013 and only worse than pandemic-hit 2020.

In addition to the disruption and uncertainty caused by lockdowns and coronavirus, “construction cost inflation has had an impact on new applications and startups,” said Stuart Baillie, head of urban planning at Knight Frank.

Line chart of the number of new developments over 20 floors showing that planning applications for new towers in London are falling

The shift in supply chains as a result of the pandemic and the recent Russian invasion of Ukraine have pushed up the price of building materials and labor sharply.

Developers face additional costs as energy efficiency and safety rules are tightened. “There is a sense of increased risk in committing to projects with these new policies [which are] really started to affect the viability of certain developments in central London areas, ”said Baillie.

Another challenge is fierce competition for development land as a result of the boom in e-commerce during the pandemic.

“One of the pressures we see now is that industrial land has become so valuable due to the demand for logistics. [warehouses] that there has been a complete reversal. A few years ago, we lost all this industrial land because housing was so expensive. It has now been reversed, said Peter Murray, president of the NLA.

In addition to cost pressures and space competition, new homes are being hampered by some local authorities.

In the main, however, London’s boroughs have been willing to give the green light to new developments that bring them closer to achieving their housing goals. The 98 full planning permits granted last year are the highest annual number ever.

But these permits pertain to applications made as far back as 2018, and the number of new applications replacing them has dropped.

This is partly due to the fact that prices in London’s flat market have stopped rising at the pace they kept between 2010 and 2015, according to Tim Craine, head of research at Molior London, which monitors developments in the capital.

Sadiq Khan, the mayor of London, has sought to boost construction in the city, but has focused his efforts on ensuring that developers add affordable housing to the capital’s stock – an additional cost that has deterred some who complain. that their projects are no longer viable.

“The speculators are gone, and if something goes wrong in the development process now, prices will not rise to get you out of trouble. That’s my guess as to why the start is falling,” Craine said.

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