The ambitious target of delivering nearly 88,000 new homes each year in London remains a formidable challenge for the construction sector. As outlined by Brian Smith, head of cost management at AECOM, the reality of housing delivery falls significantly short, with contractors operating at near capacity while facing a drop in both output and new orders. To meet this target, a substantial increase in construction capacity is imperative.
Data from AECOM’s annual report reflects a critical turning point for contractors, revealing a decline in tendering activity. In 2024, the tendering rate fell to 60%, a sharp decrease from 72% in 2023. This downturn signals caution among tier one contractors, who are increasingly selective, having filled their order books for 2025. As many focus on quality over quantity, this trend risks impeding development across the city, especially in light of a broader context where planning applications have decreased by 22% and permissions by 34% in 2023.
The construction landscape has also been impacted by rising costs associated with labour and materials. A report noted that the upfront cost of meeting London’s housing targets is estimated at £2.2 billion, a significant financial burden made heavier by the requirements of the Building Safety Levy and other regulatory fees. Furthermore, the ongoing fallout from Brexit has left a marked void in the skilled labour pool, exacerbated by an ageing workforce approaching retirement with insufficient new entrants to take their place. These shortages give subcontractors unprecedented leverage, forcing developers to compete for a limited group of skilled workers who are increasingly aware of their worth.
Labour shortages pose a critical barrier, with the construction sector contributing 6% to the UK’s GDP and facing acute deficits that make fulfilling housing objectives seem increasingly daunting. Despite attempts to remedy this situation, such as the establishment of skills hubs and enhanced apprenticeship programmes, these measures have yet to make a significant impact. These challenges threaten to strain efforts to build a sufficient number of homes, with some reports indicating that homelessness is escalating as affordable housing supply diminishes.
In response to these issues, various initiatives have emerged, including proposals to reform regulations that impact small to medium-sized builders. Efforts to ease compliance with certain environmental regulations may provide these developers with a much-needed pathway to securing planning permissions faster. This initiative aligns with broader governmental aspirations of constructing 1.5 million new homes in England by 2029, as pressures mount to address London’s housing deficit.
On the ground, while there are reports of increased council-built homes started, market conditions continue to be challenging. Factors such as soaring construction costs—accelerated by inflation and heightened interest rates—are limiting the potential for new developments. For example, London’s housing associations have reported an 88% drop in affordable housing starts, further intensifying pressures on local councils that are spending millions daily on temporary accommodation for the homeless.
Despite these substantial hurdles, there remains a glimmer of cautious optimism among industry leaders. Recognition of a stabilising market has led to a belief that the construction outlook is improving, especially as the government commits to infrastructure projects. Contractors are encouraged to adopt proactive strategies including early engagement and risk-sharing, essential for navigating this evolving market landscape.
Ultimately, London’s targets for housing development, while ambitious, are not insurmountable. A focus on collaboration and strategic planning will be vital in transforming current challenges into opportunities for success. As the sector grapples with these dynamic pressures, the commitment to fostering new talent through training initiatives could be the cornerstone of achieving a sustainable and thriving construction future for the capital.
Reference Map
- Paragraph 1: [1], [2]
- Paragraph 2: [1], [2], [3]
- Paragraph 3: [1], [5]
- Paragraph 4: [1], [6]
- Paragraph 5: [2], [4], [7]
- Paragraph 6: [1], [5]
- Paragraph 7: [1], [4], [7]
- Paragraph 8: [6], [4]
- Paragraph 9: [1], [5]
Source: Noah Wire Services
