London Housing Crisis Collides With Outdated Planning System

London’s chronic housing shortage may have no end in sight.

The United Kingdom capital is falling dramatically short of its homebuilding goals as a decades-old planning system, rising construction costs and political resistance stall development, according to the Wall Street Journal. The city targets 88,000 homes annually but started construction on just 4,170 units in the 2024-25 fiscal year, even as its population grew by roughly 100,000 people.

London would need another 1.1 million homes simply to match the Western European average for housing per capita, according to the Centre for Policy Studies. The shortfall is pushing first-time home prices to roughly $672,000 USD, about 10 times the average annual salary. Renters, meanwhile, spend 42 percent of their income on housing costs.

Developers argue the biggest obstacle is the city’s planning regime, much of which traces its roots to postwar policies designed to curb urban expansion. Unlike zoning systems used elsewhere, projects are evaluated individually by local boroughs, where subjective criteria and political opposition can derail proposals after years of review.

One example is Shoreditch Works, a mixed-use East London redevelopment that would bring about 80 homes alongside retail and public amenities. Developers spent four years preparing more than 9,000 pages of planning documents before local officials rejected the proposal, citing concerns that demolishing two aging office buildings would erase an “interesting period in industrial history.”

The project has been reworked and is awaiting a decision from Mayor Sadiq Khan’s office.

The bottlenecks extend well beyond a single project. Residential refusal rates across the U.K. have climbed from roughly 20 percent in 2000 to more than 30 percent in 2024, according to the University of Warwick, while London has more than 281,000 homes with planning approval that remain unbuilt because projects became financially unworkable.

Construction employment has fallen 21 percent since 2017 and more than 5,000 homes across roughly 50 sites were halted late last year after contractors failed or financing collapsed.

The Labour government introduced measures to accelerate approvals, including fast-tracking projects with at least 20 percent affordable housing, but developers say years of additional fire safety, environmental and planning requirements continue to weigh on feasibility.

Berkeley Group, London’s largest homebuilder, recently warned it was scaling back activity because of what it called an “unprecedented increase in cost and regulation,” even as the city’s housing shortage deepened.

— Holden Walter-Warner