London needs 50,000 new homes a year
With London’s population set to grow by one million by 2021, researchers at Savills studied the income profile and affordability of people who live or work in the city.
They concluded that the biggest demand comes from households on incomes of less than £50,000 a year and that bulk of new homes (57%) must be aimed at the lower end of the market.
Only 6% of demand is for new prime at £1,000 to £2,000 per square foot, catering for households earning over £75,000 per year.
In London Demand – Housing London, Savills reports that homes are needed across all tenures. Over a third (31%) of the requirement is for affordable homes (including anything not at market price), 27 per cent for market sale, but the biggest requirement (41%) is for homes available to rent.
Susan Emmett, Savills residential research director, said: “Last time London’s population peaked at 8.9 million in the 1930s we were building around 60,000 homes a year.
“Back then, the city was visibly overcrowded and there were slums to clear. Today our housing crisis is not as visible, but the signs are there behind closed doors.
“Unless we are careful, the shortage of homes will start to impact on London’s ability to compete. We will start to see businesses think twice about coming to a city where they can’t afford to house their employees.”
The bulk of London households earn no more than £50,000 a year, and they represent well over half (57%) of total demand.
This group can access only the affordable or lower mainstream sectors of the market – typically up to £280,000 or a monthly rent of £1,200 for a two bed flat. This equates to a maximum market value of £450 per square foot.
Over a third (37%) of demand lies in the mid and upper mainstream, with the bulk (12,500 units) for properties with values in the £450-700 per square foot range, equivalent to around £570,000 for a two bed flat.
At this level, a household income would need to be at least £50,000 per year. In the upper mainstream, where values range from £700 to £1,000 per square foot, demand is a much lower 6,000 units.
Further up the market still, demand for new prime properties in the £1,000 to £2,000 per square foot range represents just 6% of total demand, or just 3,000 units a year.
Notably, this level of demand, which comes largely from investors, is matched by anticipated levels of supply and no shortfall is anticipated.
While a number of large schemes are planned or under development, London’s current five year pipeline equates to an average of just 28,500 new homes a year, suggesting an annual shortfall of 21,500 new homes a year or 107,500 by 2018, Savills says.
Unmet demand for new homes will be most concentrated in the affordable and lower mainstream sectors, accounting for around 70 per cent of the total annual shortfall of 21,500.
The expected supply shortfall is much lower for those with household incomes over £50,000. This mismatch of supply and demand underpins the Savills forecast, released last week, that London’s mainstream will marginally outperform the prime markets over the next five years.
Emmett said: “Developers have focused on the top end of the market since the credit crunch, but it is clear that the very deep seam of demand – and therefore the bomb proof opportunity for developers – lies at the lower end of the market.”