Tower block developers are pulling back from London as the costs of doing business in the capital mount, adding to the mayor’s challenge in tackling the city’s chronic housing shortage.

Developers submitted applications for 72 buildings of 20 storeys or more last year, 13 per cent fewer than in 2020, according to an annual study of tower construction in the capital by New London Architecture, a think-tank, and estate agency Knight Frank.

A dwindling supply of homes in tall buildings threatens to leave City Hall well short of its ambitious target of more than 50,000 new homes each year.

The number of applications for tower blocks has been falling since 2018, the year after a fire at Grenfell Tower in west London killed 72 people and triggered an inquiry into the safety of tall blocks.

Last year, construction work started on 29 tall buildings, the second lowest number since 2013 and worse only than pandemic-hit 2020.

As well as the disruption and uncertainty caused by lockdowns and coronavirus, “build cost inflation has had an impact on new applications and starts”, said Stuart Baillie, head of town planning at Knight Frank.

Line chart of Number of new developments over 20 storeys showing Planning applications for new towers in London are falling

The dislocation of supply chains as a result of the pandemic and, more recently, Russia’s invasion of Ukraine has sharply pushed up the price of construction materials and labour.

Developers face further costs as regulations governing energy performance and safety are tightened. “There is a feeling of increased risk to committing to projects with these new policies [which are] really starting to impact the viability of certain developments in central London areas,” Baillie said.

Another challenge is fierce competition for development land as a result of the boom in ecommerce during the pandemic.

“One of the pressures we’re seeing now is that industrial land has become so valuable because of demand for logistics [warehouses] that there’s been a complete reversal. A few years ago we were losing all this industrial land because housing was so expensive. That has now reversed,” Peter Murray, chair of NLA, said.

As well as cost pressures and competition for space, new housing is being stymied by some local authorities.

In the main, though, London boroughs have been willing to give the green light to new development which gets them closer to meeting their housing targets. The 98 full planning permissions granted last year is the highest annual total on record.

But those permissions relate to applications made as far back as 2018, and the number of new applications replacing them has diminished.

In part, that is because prices in the London flat market have stopped rising at the pace they sustained between 2010 and 2015, according to Tim Craine, head of research at Molior London, which monitors development in the capital.

Sadiq Khan, London’s mayor, has sought to boost building in the city but has focused his efforts on ensuring that developers add affordable homes to the capital’s stock — an additional cost which has deterred some which complain that their projects are no longer viable.

“The speculators have left and if anything goes wrong in the development process now, prices aren’t going to rise to get you out of trouble. That’s my take on why starts are falling,” Craine said.

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