The Spotlight on London Demand examines the challenges London will face with an ever growing population. Download here.

London has higher levels of demand for housing compared to the rest of the UK and affordability is the biggest factor determining where people live within this city where house prices vary massively.

Land Registry data shows that the borough of Bexley has an average house price value of £250,000, whilst in Kensington and Chelsea the average cost of a home is over three times that at £840,000.

Our analysis shows that the greatest demand for housing is at the bottom of the market. 70% of households earn less than £50,000 a year and a quarter of London households live in social housing, a total of 860,000 households.

Savills estimates that there is demand for 28,500 new homes a year in the bottom of the market and that, given current levels of building, we face a shortfall of 15,000 in this bracket. At least half of that requirement is for affordable housing.

However, long council waiting lists and low levels of supply means that tenants who may originally have qualified for social housing are overflowing into the private rented sector. Given the pressure on welfare budgets, this movement of tenants from social into private rented is unlikely to be reversed.

We estimate that there a total requirement to build 13,000 new homes a year in what we call the Lower Mainstream market (values below £450 psf). However, building even more homes in outer London locations where prices are below £450 psf, would ease the pressure on affordable housing.

Market segments

By contrast, there is a potential oversupply of homes priced between £1,000-£2,000 psf at the top end of the market. Although we have identified a requirement of about 3,000 a year in this segment, the current pipeline of developments matches this demand. We do not anticipate a shortfall in this segment.

Here we have assessed the following market segments, based on average £ per square foot of capital values, to help explain how the characteristics and drivers of demand differ by price point.

Taken from
Spotlight: London Demand