Government Signals Intent for London Property Price Adjustment
Housing Minister Matthew Pennycook has made a significant intervention in the property market debate, suggesting that London house prices "probably need" to fall to improve affordability across the capital. The minister's comments come as the Labour government prepares to unveil a comprehensive new housing strategy aimed at dramatically increasing supply.
Volume Competition and Market Adjustment
In an interview with the Financial Times, Pennycook outlined the government's approach to tackling the housing crisis. "We want to encourage developers to compete on volume," he explained, emphasising that this strategy would help ramp up housing supply and make homes more accessible to Londoners.
The minister pointed to specific market dynamics that need addressing: "There are people in London that bought land at the top of the market for too high a price and are now sitting on it." He suggested this situation necessitates a market adjustment in London, with the government looking toward "the levelling out of prices and then over the real medium to long-term perhaps their gradual reduction."
Fundamental System Challenges
Pennycook criticised the current housebuilding model, describing it as a system that "locks in an upward ratchet of land and house prices." He argued that the private market in its current form cannot independently produce sufficient housing to meet overall need, even with high competition levels.
"How we get more volume out of the system is one of the fundamental challenges we face," the minister stated, indicating that the forthcoming housing strategy would feature:
- A greater role for the state in housing delivery
- Alternative business models for developers
- A renewed focus on affordability as a priority
London's Construction Crisis Deepens
The minister's comments arrive against a backdrop of concerning construction statistics for the capital. New housing starts in London have plummeted to their lowest levels in years, with just 4,170 housing starts recorded in the 2024/25 financial year - the poorest performance of any UK region.
Multiple Factors Crippling Building
A recent Centre for Policy Studies report described the situation as multiple factors "like straws on a camel's back" combining to break building in London. The analysis identified several key obstacles:
- Challenging macroeconomic conditions affecting viability
- Stringent regulatory requirements increasing costs
- A sluggish planning process causing significant delays
The report warned that "the government and the mayor need to urgently remove the obstacles to building homes in London - before an already bleak situation gets even worse."
Planning Permission Backlog Revealed
Perhaps most strikingly, the CPS research revealed that despite being nine years into Sadiq Khan's tenure as Mayor of London, four-fifths of home completions last year received planning permission under his predecessor Boris Johnson. Even more concerning, 53 per cent of housing starts in the past year also originated from planning permissions granted during Johnson's administration.
This statistic highlights the dramatic collapse in construction rates since the beginning of the 2020s and suggests systemic issues within London's planning and development ecosystem.
Regulatory Impacts on Viability
The CPS report identified specific policy changes that have affected development viability:
- Higher affordable housing requirements introduced under Mayor Khan
- Substantial construction cost increases from tougher fire safety regulations
- The two-staircase requirement for buildings over 18 metres in height
Additionally, the creation of a new building safety regulator has introduced further delays, with the body reportedly rejecting 92 per cent of applications while taking an average of 36 weeks to consider each submission.
As the government prepares to launch its new housing strategy, these challenges present a complex landscape for policymakers attempting to balance safety standards, affordability targets, and the urgent need to increase housing supply across the capital.
