Infrastructure and Housing

The London Intelligence – Issue 5

Infrastructure and Housing


Public transport passenger numbers continued to fall in the last quarter, with 660,000 fewer people riding the tube than the previous year. House prices growth in the last quarter was modest, as transaction volumes continue to slow down, and rental prices have flattened.

tube ridership, hopper fare, bus journeys
Transport for London

Public transport ridership across London continues in line with what is now a two- to three-year trend. In the 12 weeks to the end of May, journeys on the underground fell 0.6 per cent – in excess of 660,000 fewer than the previous year, or a drop of nearly 8,000 per day. Bus ridership, over the same period, fell 1.8 per cent.

There is debate over why this is happening. Many point to factors such as changing working patterns, the rise of ride-hailing services, and changing lifestyle habits as long-term factors affecting patronage. Other short-term shocks, such as mainline rail disruption, as well as perceived declining service quality and reliability, may also be contributing.

House prices

house prices, house prices in london
Acadata / Land Registry

According to price-paid figures, house prices grew a modest 2.8 per cent in the year to May 2018. Revisions of previous months’ data show that price falls appear to have been over-stated, with modest but slowing growth over the last two years. Recent analysis has suggested that affordability in London is being stretched because of the high deposit threshold, Brexit uncertainty causing a slowdown in international investment, and stamp duty changes cooling transaction volumes. While experts do not think a full scale collapse in London’s market is likely, sluggish or negligible growth in prices is expected until at least next year.

Borough differences in house prices

house price by borough
Acadata / Land Registry

The picture is not equal across the capital – with (unadjusted) borough price changes varying between Hackney at the top end (+11.7 per cent) and Southwark at the bottom (-11.0 per cent). South west London prices in particular have taken a large hit, while the north east of the city and some prime areas appear to show the fastest growth.

Transactions, by type

housing transactions
Acadata / Land Registry

Transaction volumes in London continue to slow down as consumer and investor confidence drops, and affordability pressures rise. In the quarter to March, under 20,000 homes across London were bought and sold, representing a 16 per cent drop compared to a year previously. This was the lowest number of quarterly transactions since mid-2009, as properties on the market are taking longer to sell.

Analysis suggests new-build homes have seen a particularly stark drop-off, which is consistent with flat transactions (the majority of London new builds) falling by more than 20 per cent over this period. Detached homes were more robust, with volumes only falling 3.5 per cent.

Rental price index

rent rises, rental price, rents
Office for National Statistics

Indices of rental prices show private sector rents in London remaining virtually flat for the whole calendar year, compared to average monthly growth of 1.9 per cent across the country. With wage growth picking up, it may signal a slight improvement in affordability for some of the capital’s renters. Indeed, a new study suggests that renting in London is now cheaper (on average) than paying for a mortgage, with monthly payments nearly 50 per cent lower – although likely due to difference in property types and pooling of resources for ownership.

Rent changes, by property type

rental price, rents, rental change,

Rental price-paid data from Dataloft shows a cool, but varied, market across the capital. In contrast to previous quarters, rents have fallen only marginally, by an annualised 0.1 per cent in Q2 2018, perhaps indicating the rental market is heading back towards price growth as new supply into the market slows. There is variation across property types, with only two-bed flats showing an annual increase (of 3 per cent). One-bed flat prices were almost flat over the year, while detached and semi-detached houses saw the largest fall, of 3.6 per cent.

Rent changes, by zone

rental price changes, rent rises, rents, london travelcard, zone 1

The direction, and pace, of change across different areas in London varies. Prices paid in zone 1 – typically used as a proxy for prime – fell 5.9 per cent over the year, while much smaller drops were experienced in zones 3 and 4. Small increases occurred in outer London’s zones 5 and 6, while zone 2 again experienced the highest growth, of 1.8 per cent, as renters balance the trade-off between location, price and quality.

Planning pipeline

residential planning decisions, planning departments
Ministry of Housing, Communities & Local Government

London’s housing pipeline remains relatively stable, showing no signs of picking up with the introduction of more ambitious housing targets. Indeed, three consecutive quarters of falls in decisions and granted permissions (-4.3 per cent and -2.5 per cent respectively for Q1 2018) may point to uncertainty and a cooling of the market beginning to affect private housebuilders.

Over 145 large residential schemes were decided on, with a quarter of these not granted by local planning authorities. This may indicate that many councils are coming under pressure to ensure high levels of affordability in new developments.

Q1 2018 saw the lowest quarterly number of minor residential planning permissions granted – under 1,700 – since mid-2015. Research suggests the ease of getting planning permission varies massively across the capital.

In addition to planning barriers, the recent Letwin Review interim findings found that buildout rates (how many units are completed each year) can be a particular problem for larger sites – with some figures suggesting tens of thousands of residential planning permissions in London remain unbuilt after three years.

Read our blog on this

Starts and completions

new builds, completions
Ministry of Housing, Communities & Local Government

Following a record 2017 for new build housing completions, the year to March 2018 saw a fall to just under 24,000 homes completed, which is still high in the context of the last few years. Despite this positive news, other sources suggest that a record high proportion (46 per cent) of completed and partly built homes remain unsold, pointing to cooling of buyer demand in the capital, which may lead developers to slow down construction.

New build starts, which have fallen dramatically over recent years, may be showing signs of increasing again. Over 18,000 were started in the year to March 2018, although the figure may have been affected by the cold weather period in March. Starts in outer boroughs in particular are beginning to noticeably pick up.

Regardless of cyclical variations in the property development market, London still has significant and persistent unmet need for housing, as indicated by the growth in number of people per dwelling, which has risen since the 1990s, while falling in the rest of England, and now stands at more than 2.5 – as high as it was in the late 1970s.