Zone 2 housing slowdown: building work on just 77 flats and houses started in three months — despite annual target of 65,000 new homes

Building work on new private homes in the desirable Zone 2 “doughnut” around central London has virtually ground to a halt, figures reveal today.

Developers started work on only 77 flats and houses in the area in the first three months of the year, down an unprecedented 97 per cent from the quarterly average in 2015, according to industry analysts Molior London.

The “startling” slowdown will make it even harder for City Hall to ramp up the level of housebuilding to hit the target of 65,000 new homes a year in the latest London Plan.

Zone 2, which forms a ring of popular residential areas such as Clapham, Hammersmith, Islington and Queen’s Park, was seen as the hottest property market in the capital as recently as five years ago when buyers priced out of the central “bullseye” of the West End and Kensington and Chelsea sent demand soaring.

This led to the launch of a host of regeneration schemes on former brownfield industrial sites that included luxury homes often being snapped up by foreign investors and then rented out.

However, leading developers say a “perfect storm” of setbacks, including a fall in house prices since the Brexit referendum, rising construction costs, higher taxes, the collapse of the buy-to-let sector and demands for at least 35 per cent affordable housing from Mayor Sadiq Khan means it is impossible to make a profit in Zone 2.

One leading developer said: “Fundamentally the big housebuilders are getting out of London.

“Quite simply, when the state takes so much they can’t make the sites work. Everything’s moving from residential to offices.”

The developers’ “strike” in Zone 2 means land with planning permission for 63,500 new private homes is sitting unused, according to the Molior data.

Sam Long, research analyst at Molior London, said the capital was now “a tale of two cities”, with strong housebuilding in the cheaper suburbs of Zone 3 and beyond propped up by the Government’s Help To Buy scheme. However, few buyers in inner London can access the equity loans of up to 40 per cent provided under Help To Buy because of the maximum eligible price-tag of £600,000.

Across London as a whole, work started on 5,453 new homes in the first quarter, down 18 per cent on the same period last year.

A spokesman for the Mayor said: “It’s no wonder some private homebuilders are holding back given the uncertainty of the Government’s chaotic mis-handling of Brexit. Sadiq is getting London to build more social rented and other genuinely affordable homes — including by raising council home-building five-fold — though fully affordable schemes are not captured by these figures.”

City Hall said it started 12,555 “genuinely affordable” homes in London in 2017-18, which it says is the highest level since responsibility for funding them was devolved to the Mayor.