Market Update: Business leaders call for housebuilding push to boost London economy – Full Analysis

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Business leaders have called for measures to unblock London housebuilding, including delaying a new safety-related levy and streamlining regulatory approvals, as concerns grow about the performance of the capital’s economy. 

A “growth commission” from BusinessLDN, a lobby group, warned that the housing market in the capital is “close to a standstill”, with new construction per resident far below the levels set in New York and Paris. 

Construction starts in London fell more than 80 per cent over the past decade, according to housing research firm Molior, with work beginning on just 5,547 homes last year. 

Only 15,000 to 20,000 new homes will be under construction at the start of 2027 in London, according to Molior’s data. That compares with between 60,000 and 65,000 homes under construction at any given time between 2015 and 2020. 

The collapse has come despite the Labour government’s pledge to build 1.5mn new homes in England over the course of the parliament, with London aiming to build 88,000 new houses a year.

Housebuilding mirrors the broader status of the UK capital’s economy, which is sputtering with the highest and fastest growing unemployment of any region of the country. 

Among the ideas to kick-start construction are pausing and reconsidering a new Building Safety Levy that from October will be imposed on new residential buildings in the form of a tax paid for by developers.

The group says the industry has already contributed billions of pounds towards measures to improve safety. 

The group also wants temporary pro-housebuilding measures introduced last October by the government to remain in place longer than the planned two years — ideally for five — and go further in some instances.

These include lowering the threshold for affordable housing delivery and exempting certain housebuilders from paying the so-called community infrastructure levy, another charge. 

“The capital has gone from leader to laggard on productivity growth and like the rest of the country, growth in the city is stalling,” said Helen Gordon, chief executive of residential landlord Grainger and chair of the BusinessLDN Growth Commission. The capital and the country are in “urgent need of stronger growth”, she added.  

Rising construction and financing costs are forcing developers of all sizes to reassess the economic viability of their plans.

Meanwhile, regulations introduced in the wake of the Grenfell disaster have led to a backlog of applications. To address this, the report calls for ending bottlenecks at the Building Safety Regulator, which was created in 2022 and which requires high-rise developments to pass a three-stage approval process spanning planning, construction and completion.

The report says delays have lessened at one stage in the process but challenges still remain at another.

Housebuilders have in recent months asked the government to stimulate demand by reducing stamp duty tax or introducing new help-to-buy programmes — calls echoed by BusinessLDN in its report — but so far the government has balked. 

Matthew Pennycook, housing minister, recently told the FT the government was having “live discussions” about what it might do.

In addition, the report calls for establishing new permitting rights for temporary accommodation and allowing certain housing projects to be classified as a “nationally significant infrastructure project.” That designation would funnel schemes through a fast-tracked planning process, making it easier to deliver housing at scale.

London’s economy has been struggling, with official statistics revealing a particularly sharp increase in unemployment. London’s unemployment rate stood at 7.6 per cent, the highest of any UK region, in the final quarter of 2025. 

Among the other proposals in the report are the creation of a new Office for Tax Competitiveness to identify where the UK’s revenue-raising rules are denting the country’s attractiveness, as well as the creation of a roadmap to scrap stamp duty on share transactions and demands for reform to the business rates system. 

A spokesperson for the Ministry of Housing, Communities and Local Government said it was “working with the mayor of London to significantly ramp up housebuilding in the capital”, adding: “Green shoots are already showing thanks to our overhaul of the planning system across the country with an 18 per cent annual increase in housing starts last year.” 

A spokesperson for the mayor of London said they were “making swift progress on a package of pro-housing emergency measures”, but blamed the previous government for the “botched introduction of the Building Safety Regulator” which had “delayed construction across the capital”.