Lack of building land will lift price of capital's family homes

12 April 2012

AN ACUTE shortage of new family homes in London is expected to send property prices soaring.

Only 1,100 houses are being built in the capital at the moment, with 155 of those in inner city boroughs, according to property consultants Drivers Jonas Deloitte. Just a third of the 155 properties will be sold on the open market.

More than three-quarters of new construction by developers is one- or two-bedroom flats, and only five per cent is houses, a historic low. Ten years ago a third of all new homes built were houses. In the boom years developers targeted buy-to-let landlords with small flats - and critics claim the recession has encouraged the shift in focus because apartments are more profitable to build than houses.

But the construction industry said the problem is now a lack of suitable land for houses and a shortage of potential buyers because mortgages are more difficult to secure. New communities secretary Eric Pickles has scrapped the previous government's policy of forcing councils to meet house-building targets.

The total number of new homes looks set to drop to 5,500 in London by 2012, according to Drivers Jonas Deloitte. Clive Pane, head of its development consultancy group, said: "This is a real crunch. There's going to be a real stoking up of house price growth in 2012-13."

The shortage of housing in London has pushed up property prices by 10per cent on average every year since the Second World War, but the next few years could see a rise in values above the long-term trend.

William Griffith, spokesman for housing campaign group Priced Out, said: "It's a sad fact that we now produce more flats than family homes. Government has found itself in a Faustian pact with shareholder-driven house builders on the back of the buy-to-let boom to produce flats that few people want to standards that are amongst the worst in Europe."

The group urged ministers not to back down on including buy-to-let investors and second-home owners in the planned increase in capital gains tax.

But Steve Turner of the Home Builders Federation said: "If we are to see the homes delivered we know the country needs, we need to see mortgage lending increase, more viable developable land made available, and regulatory demands currently being put on sites to be realistic and affordable."

An influx of Russian buyers is helping push the price of central London homes back up to peak levels. In the past two months the number of Russian applicants signing up to buy property in the capital has risen 112 per cent, according to estate agency Knight Frank. Prices in central London rose 1.4 per cent in May, the 14th consecutive monthly rise. Property is selling for 6.4 per cent below its peak in March 2008.

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