Development review Q4 2021
The end of 2021 saw housing supply broadly continuing in line with recent trends at national level and in London, having now recovered to pre-pandemic levels but, unlike second hand market activity, not surpassed them.
In planning, the results of the Housing Delivery Test were published and, while a significant minority of LPAs face sanctions, the real-world impact will be lessened by Green Belt designations and other constraints on development.
Weekly energy performance certificates for new homes provide the most up-to-date indicator of new housing supply and are shown in Figure 1. December saw the typical seasonal rush to complete homes before the year end, but overall delivery over the second half of 2021 was slightly below the same period in 2019 or 2020.
Figure 1 – EPCs for new build, England, weekly
Figure 2 shows new build activity (again represented by EPC data) plotted against total transactions, both indexed to the end of 2019. Both fell by around 15% due to 2020’s lockdowns but, while overall transactions now sit 26% higher than they were pre-pandemic, the supply of new homes is around 3% lower.
Figure 2 – Total transactions vs. new supply
Source: DLUHC, HMRC
216,490 homes were added to the housing stock in the 2020-21 financial year according to the latest net additional dwellings data – the ‘official’ record of new housing supply. While this is not a timely measure, it is an accurate one and also provides information on which routes were used to deliver the increase (new build, conversions, permitted development etc.). This figure is 26,000 homes lower than 2019-20 due to the closure of sites in Q2 2020 due to Coronavirus restrictions. New build homes made up a large majority of delivery at 194,000, with smaller contributions from conversions (3,900) and change of use (23,800).
The map below shows total net additions as a proportion of existing homes. On this measure the areas with the highest relative levels of delivery were the City of London, Tower Hamlets and Salford.
Figure 3 – Net additional dwellings as a proportion of existing stock
The housing delivery test uses the net additions data to measure the performance of local planning authorities in terms of delivering new homes, with sanctions for not meeting the 95% of need threshold. The latest results show that 227 areas passed the test, with 51 facing the strongest sanction of the presumption in favour of sustainable development – i.e. being more open to planning applications outside of the Local Plan process. However, the real-world consequences are likely to be less significant as many of these 51 LPAs are protected by constraints on development such as Green Belt, AONB or National Park.
Figure 4 – 2021 housing delivery test results
London’s new build market performed strongly across all three main metrics, according to Molior’s Q4 data. Sales maintained the momentum of Q3 with a small increase, underpinned by demand from Build to Rent investors, who bought around a third of the 5,300 units sold in total. There were also large contributions to the sales figures from international launches, Help to Buy, and housing associations (buying private units to switch to affordable).
Starts and completions saw large quarterly increases. Starts were at their highest level since 2018, suggesting increasing confidence among developers following an uncertain two years.
Table 1 – London development data, Q4 2021
The annual time series data is shown below in Figure 5, with all three metrics picking up on this basis after dipping during the pandemic. Overall, around 56,000 units are currently under construction across the capital, in line with last quarter but around 15% fewer than in 2017 and 18.
Figure 5 – quarterly development trends, London
Energy Performance Certificates for new dwellings are another measure of completions, with the latest data shown in weekly form in Figure 1. Q4 continued much like the earlier part of 2021, in line with 2019 and the parts of 2020 where sites remained open. In total there were around 40,000 new homes completed in 2021 according to this measure.
Figure 6 – EPCs for new build, London, weekly
Borough Level Data
The table below shows development activity by borough for 2021 from Molior (sites with 20+ private units only), along with Help to Buy Equity Loan volumes to Q2.
Table 2 – London Borough Development Activity, 2021 full year
Source: Molior, DLUHC