- Labour signals shift towards affordability
- Construction slump sharpens pressure on policy
- State set to play bigger role in housebuilding
House prices in London will “probably need” to fall, according to housing minister Matthew Pennycook, as the government pushes ahead with plans to deliver 1.5m new homes across the UK.
Pennycook said Labour wants developers to compete on building volumes rather than land values, in a bid to increase supply and make housing more affordable. Speaking in an interview with the Financial Times, he reportedly said there are landowners in London who bought sites at peak prices and are now holding back development.
“There will probably need to be a market adjustment in London,” he reportedly said, adding that prices may first level out before seeing “their gradual reduction” over the medium to long term.
The comments come as the government prepares to set out a new housing strategy that would give the state a larger role in delivery, alongside what Pennycook described as “alternative business models” for developers.
He argued that the current housebuilding system “locks in an upward ratchet of land and house prices” and fails to deliver enough homes. “The private market as it’s currently constituted will not on its own initiative… produce sufficient housing to meet overall housing need,” he reportedly said.
The pressure is most visible in London, where new construction has slowed sharply. Housing starts in the 2024/25 financial year fell to just 4,170, the lowest level of any UK region.
Planning bottlenecks and rising costs
A recent report by the Centre for Policy Studies described a “perfect storm” of economic pressures, strict regulation and slow planning decisions that have weighed on development in the capital.
The report said tougher affordable housing requirements introduced under London mayor Sadiq Khan have made some schemes unviable, while higher construction costs linked to fire safety rules have added further strain. Buildings taller than 18 metres are now required to include at least two staircases, raising costs significantly.
Developers must also submit proposals to a new building safety regulator, which the CPS said has rejected up to 92 per cent of applications, with average decision times of 36 weeks.
The think tank noted that despite Khan being nine years into the role, around four-fifths of homes completed in the past year had planning permission granted under his predecessor Boris Johnson. More than half of recent housing starts were also approved under Johnson, underlining how sharply construction activity has fallen since the early 2020s.
The CPS warned that unless barriers to building are eased, London’s housing shortage could deepen further, adding pressure to already stretched affordability.
