Constructionin the central London residential market is poised for a slowdown in 2016 as thenumber of units seeking planning permission fell by 30% in the 12 months to theend of the second half of 2015, according to research released by JLL on April 6.
Duringthe period, developers applied for planning permission for a total of 18,640 units,27% fewer than in the year to the first half of 2015 and 30% lower than in the yearto the second half of 2014, according to "Central London Residential DevelopmentReport: April 2016." The number of construction starts remained high in thesecond half of 2015, with almost 33,500 units on-site at the end of the period.There has been a 28% increase in the last year although building activity looksset to plateau, according to the report's authors.
"Thislooks worrying at a time when new housing delivery needs to increase rather thanfall," Neil Chegwidden, director of residential research at JLL said duringa presentation.
Developersare already responding to political uncertainty and changes to the tax regime, suchas the levy of an additional 3% stamp duty on residential transactions from April1 onward, according to the report.
However,steeply rising construction costs are also a culprit for the slowdown in planningapplications, Adam Challis, head of residential research, said in an interview onthe sidelines of the event.
"There'sbeen a ratcheting-up of build costs, as much as 8% to 10% per year in central London.Development is slowing as a result," he said. "Buildings that are materiallymore expensive to construct, such as tall buildings, may start to look less attractiveto developers. Residential towers of 65 stories may not be viable any more. Thereis a subset of buildings that may just never get delivered."
A trendin the past 18 months has been a shift toward higher numbers of construction startsin "outer core" areas of central London versus the "core," accordingto JLL. However, this trend was reversed in the second half of 2015 thanks to alarge number of starts in Canary Wharf, totaling 1,700 new units. This includesCanary Wharf's Wood Wharfdevelopment and Galliard's Harbour Central.
But ifCanary Wharf was taken out of the equation, construction starts for both centralLondon as a whole and core central London would have fallen in the second half 2015.
Challisspoke during his presentation of a "highly politicized" London residentialmarket in which policy was geared toward "encouraging first-time buyers atthe expense of all others."
Speakingof the possibility of a Brexit,Challis said that most of the London residential property industry felt that "in"was "preferable." But he warned that the referendum would not necessarilybring clarity.
"We'llcontinue to have a modicum of uncertainty in our relationship with Europe afterthis referendum. We won't just get back to normal."