Stealth taxes faced by would-be builders have made London the most expensive city in the world to build, writes David Hirst in today’s Notebook
Letting London build
The Greater London Authority has previously said that, “by some accounts”, the capital is the most expensive city in the world in which to build, and unfortunately these costs cannot be put down to external, economic forces alone.
Together, the huge array of levies, quotas and review processes that face would-be builders amount to stealth taxes on developers: added costs that often make the building of much-needed homes unviable.
In the face of an entrenched housing crisis – and one that is unlikely to be solved by the less than 5,000 building starts now expected in London in 2025 – this is a situation in nobody’s interest: not London’s tenants, trapped in an unforgiving and highly competitive rental market; not investors, sat on the sidelines with enormous amounts of capital ready to go to work; and especially not a government that desperately needs to come good on its ambitious pledge to build 1.5m new homes.
While much of this regulation is well-intentioned, it is holding back the private capital that can and wants to make a difference.
From our discussions with some of the world’s biggest real estate investors, we know that they are all too well aware of the scale of the opportunity available in the UK to deliver purpose built, high-quality homes to a market in desperate need of more housing. But unfortunately, it’s immediate development viability issues that are causing them to hesitate – and to turn to other cities across Europe and beyond with lower barriers to building.
Rather than simply tinkering around the edges, we need to see the adoption of a pro-development mindset – only then might we begin to see meaningful change, and a removal of the barriers to building that really threaten London’s growth.
The rental market’s hot trend: co-living
Co-living offers flexible leasing arrangements, extensive amenities and a ready-made community. It’s little wonder then that existing schemes have already proved so popular, particularly among young professionals.
While that might sound like a particularly niche target market, demand in London for such spaces has been pegged as high as 640,000 units. Compare that to the just 6,000 co-living units currently in the market.
Where other prospective residential schemes are not currently economically viable, co-living – with its high-quality, high-density homes – has proven to be a uniquely effective route to delivering for both investors and tenants alike.
Those co-living developments already up and running in London boast incredibly high occupancy rates, typically above 95 per cent, and alarmingly long waiting lists. Many in fact are fully let within three months of coming to market.
Co-living is playing its part: a bright spark in London’s otherwise pretty gloomy residential scene. It provides London’s many renters not only with more homes but also more choice.
Now it’s up to government to unlock and put together the other pieces of the residential puzzle. Unshackled, and given the right conditions, things can start to happen – and fast.
A peep into the future
Earlier this year, Mitheridge completed the extensive redevelopment of Zodiac House, better known as the iconic Apollo House in Channel 4’s Peep Show. Previously an office block, the building sat empty for over 30 years. Now, following its acquisition by Croydon Council, it will provide temporary accommodation to some of the borough’s most vulnerable families, alongside a community centre, retail space and public square.
Putting brownfield to use
Over the last decade, the amount of brownfield land across London has been rising, expansive enough now to fit over 460,000 homes, at the same time as the capital’s housing crisis has only been getting worse.
For developers willing to get their hands dirty, this represents a fantastic opportunity to deliver schemes that can inject new life into local communities and preserve some of their most iconic landmarks. Not to mention a reduced environmental impact compared to demolition and new build developments.
At Mitheridge, for example, we this year completed the redevelopment of Zodiac House in Croydon – turning a disused office block into 73 new homes – and recently received planning permission to transform Wandsworth’s former gasworks into 620 homes, complete with workspaces, new parks and a music campus. In Brixton and Hackney, we’re also in the process of turning old industrial units into co-living schemes with workspaces, reserved for local businesses.
Much of London is space poor, but that doesn’t mean it isn’t opportunity rich. Solving the housing crisis means searching for those diamonds in the rough.
David Hirst is a partner at Mitheridge Capital Management