The sharp drop in new home construction in London — from around 60,000–65,000 homes under construction at any given time between 2015–2020 to just 15,000–20,000 by early 2027 — reflects a combination of economic, policy, and market pressures that have made building new homes far more difficult and less financially viable. Here are the main reasons:

1. Higher interest rates and borrowing costs

The Bank of England’s rate hikes since 2021 have made development loans much more expensive.

Developers face higher costs on both construction financing and mortgages for buyers, which suppresses demand and makes many projects unprofitable.

2. Construction cost inflation

Costs of materials (steel, concrete, timber) and labor have risen steeply since the pandemic, driven by supply chain issues, Brexit-related shortages, and global inflation.

Margins have been squeezed, forcing developers to delay or cancel projects that no longer make financial sense.

3. Weak housing market and lower demand

House prices have stagnated or fallen in parts of London while sales volumes have slowed.

With buyers struggling with affordability, developers are hesitant to start large projects when they’re unsure they can sell the units quickly or at profitable prices.

4. Planning and regulatory hurdles

The UK’s planning system remains slow and complex, especially in London boroughs with local opposition to dense development. Promises for reform relaxing planning restrictions are muted but we await concrete actions?

Affordable housing requirements and environmental regulations (like nutrient neutrality or sustainability standards) have added costs and delays.

5. Decline in Build-to-Rent and overseas investment

Institutional investors and overseas buyers—once major backers of London developments—have pulled back amid uncertain returns, political risk, and global economic shifts.

The Build-to-Rent sector has cooled as financing costs rise and yields compress.

6. Political uncertainty

With an election expected and possible changes to housing policy or rent controls, developers are cautious about committing to new long-term projects.

In short:

By 2027, the housing pipeline will be dramatically smaller because financing is expensive, costs are high, demand is weak, and regulation is tight — a perfect storm that’s freezing much of London’s housing development activity.