London's 1940s planning rules stall 1.1 million needed homes

London's planning system, designed in the 1940s to curb the city's expansion, now blocks the 1.1 million homes the capital needs to reach the western European average of homes per capita.

London broke ground on just 4,170 housing units in the 2024-25 fiscal year, against an official annual target of 88,000, according to data from the Centre for Policy Studies. The population grew by roughly 100,000 over the same period, deepening a shortfall that has pushed first-time buyer prices to 10 times the average annual salary, up from 7.5 times in 2010.

"The development was better than most I've seen in London, and I still don't understand why they disliked it so much," said Nicholas Boys Smith, chairman of Create Streets, a London-based think tank specializing in urban design, referring to the Shoreditch Works project that was denied after four years and more than 9,000 pages of documentation.

The city's case-by-case planning system, administered by 32 boroughs, relies on subjective criteria such as whether a project is "out of character" with existing buildings or blocks too much light. The refusal rate for residential projects has climbed to more than 30 percent in 2024 from 20 percent in 2000, University of Warwick research shows. Some 281,000 homes that received conditional approval remain unbuilt, often because developers deemed the attached conditions too onerous.

The cost of not building

The housing shortfall carries consequences far beyond the property market. Construction employment in London has fallen 21 percent since 2017, government data show. In the last quarter of 2025, work stopped on more than 5,000 homes across 50 development sites, frequently because the building contractor went bust. The U.K. spends roughly 18 billion pounds a year subsidizing rents for low-income families in London, according to the CPS.

Renters now spend 42 percent of their income on housing, up from 15 percent in the 1950s and 1960s. More than 336,000 households are on the social housing waiting list, a quarter of the national total. Nye Jones, a 34-year-old Londoner who shares an apartment, said he sees little prospect of buying a home. "In the winter it means trying to avoid putting the heating on to help with bills," he said.

Vienna built three times more homes than London last year despite being a much smaller city. Auckland doubled its construction rate after making planning rules more flexible in 2016, which decreased rents and home prices over the following decade, according to the Centre for Cities. Vancouver exceeded its annual housing target by 54 percent last year after revamping its regulation. Austin, Texas, is building 32,000 homes a year — the per capita equivalent of London building 113,000 a year, the CPS estimates.

Regulatory thicket deepens

Post-Grenfell fire-safety rules have added another layer. A requirement introduced this year mandates two independent staircases for any building taller than 18 meters, roughly six stories. The government's own analysis found the costs were 294 times greater than the safety benefits. Berkeley Group, London's biggest house builder, had its application to convert a shopping center in southeast London into almost 900 homes rejected for a second time in April. The planning officer acknowledged the critical need for new homes but ruled the harm to heritage buildings outweighed the benefits.

The last time London came close to meeting its 88,000-home annual target was in the 1930s, when planning permission took about three weeks and involved a dozen or so pages, according to Sam Dumitriu, head of policy at Britain Remade. Now it typically takes years. Developers like Phil Irwin have spent two years and more than 100,000 pounds trying to get approval for a two-apartment conversion in Hackney, with the council repeatedly requesting new reports on arboriculture, sustainability and sunlight analysis.

Incoming Prime Minister Andy Burnham has pledged the biggest social housing building program in 70 years. In late March, the government unveiled an emergency plan to fast-track sites delivering at least 20 percent affordable housing. But without overhauling the 1940s-era planning framework itself, the gap between what London needs and what it builds will continue to widen.

This article is for informational purposes only and does not constitute investment advice.