The variety of new properties being inbuilt London may halve within the coming years on account of rising building prices and improvement taxes, worsening an already extreme provide crunch, in keeping with the boss of the capital’s largest developer.
“[New-build housing] starts have halved since 2015 and could halve again . . . with the inflation in build costs that we have seen, it makes schemes very hard to bring forward,” mentioned Rob Perrins, chief govt of FTSE 100 developer Berkeley Group, which introduced on Wednesday that its full-year earnings had elevated.
According to Molior London, which screens building within the capital, work began on 34,000 non-public housing models in 2015, and 17,000 final 12 months. Those figures don’t embody inexpensive properties, the development of which has elevated lately.
A dwindling provide of latest properties is the results of builders backing out of the capital, deterred by a aggressive land market, cooling home worth development since 2015 and a directive from London mayor Sadiq Khan to construct extra inexpensive properties.
New challenges have emerged up to now 12 months: the price of some constructing supplies has elevated sharply due to provide chain disruption and Russia’s invasion of Ukraine, and the housing secretary Michael Gove has hit builders with new levies to pay for security measures on flats.
Those further prices are already inflicting some builders to drag out of initiatives and threaten to make future schemes unviable, mentioned Perrins. He added that housebuilders had been more and more dropping out in land auctions to warehouse builders, which have benefited from a increase in ecommerce through the pandemic.
“We’ve got sites we had hoped to bring forward in 2026-28. We have to think about how we make those viable . . . it’s very challenging. Property prices have risen but this [build cost inflation] can’t keep being passed through,” he mentioned.
So far, additional construct prices are being offset by rising home costs, he mentioned. Berkeley posted a pre-tax revenue of £552mn for the 12 months to the tip of April, a 6.4 per cent enhance on the earlier 12 months, whilst working bills rose 18 per cent to £157mn.
The firm, which claims to be liable for one in 10 new properties inbuilt London, mentioned home costs within the metropolis had been unlikely to fall regardless of rising rates of interest and inflation due to a power undersupply of housing.
“The economic and operating environment remains volatile with inflation, labour and materials shortages, interest rates and regulatory costs of development all having the potential to impact supply and demand,” mentioned Berkeley.
But “the ongoing undersupply of housing” meant that, even in such a difficult surroundings, demand was outstripping provide, added the builder.
Shares within the firm fell 2 per cent on Wednesday morning.