Lack of new homes to push up London property prices

Residential property prices in London will almost certainly continue to rise in the long term as large increases in demand for housing in the capital over the next decade and beyond will not be matched by an upsurge in the supply of new homes being developed, new independent research published by Cluttons today shows.

London's limited housing stock is also expected to place upward pressure on rental values pushing yields higher for landlords and pricing many people out of the market in the process.

Although many housebuilders have vast land banks, a lack of finance is restricting them from building the new homes that London, and the wider country, so desperately needs. Consequently, housebuilding levels are currently only at three-quarters of the level it was between 2000 and 2007.

Tony Pidgley, chairman, Berkeley Group, said: "Housing can lead the [economic] recovery. The impact of delivering the shortfall in London alone would be 80,000 new jobs. But there is simply not enough urgency. We need clear government policy which encourages investment from home and aboard. London must welcome investors, not penalise them, if we want growth and prosperity."

Buy-to-let landlords are filling their pockets due to the high concentration of renters in the UK, particularly in London, with rents currently at a record high of £734 per calendar month, on average, according to letting network LSL Property Services.

Julian Briant, head of residential consultancy division, Cluttons, commented: "A growing and vibrant London offers a wide range of residential opportunities for both investors and developers. Small private landlords will continue to play an important role in the capital, including creating more units from the existing stock.

"However, the housing challenge we face needs radical solutions. Long term demand from highly qualified professionals at different stages of their careers and family lives presents a clear range of opportunities for investors taking a long view."