Developers will be allowed to build lower numbers of affordable homes and claim higher subsidies to build them under plans being drawn up by the government to solve London’s housebuilding crisis.
Steve Reed, the housing secretary, and Sadiq Khan, the mayor of London, will announce the package within weeks, in what officials say will be a time-limited intervention designed to stall the sudden drop in new building in the capital.
The plans, details of which are still being negotiated, have been welcomed by developers but condemned by homelessness charities who say it will increase the record numbers of people who are homeless in the UK.
A spokesperson for Khan said: “The mayor is working with the housing secretary on a package of reforms to boost housebuilding in the capital.
“Expected to be launched in the coming weeks, the changes will aim to unblock stalled sites and give the mayor stronger levers to approve homes and bring thousands of homes forward more quickly as we continue to build a better, fairer, more prosperous London for all.”
Mairi MacRae, director of campaigns and policy at Shelter, said: “Plans to slash targets on affordable housing in London will allow profit-driven developers to continue looking after their bottom line at the expense of 97,000 children who are growing up homeless in the capital.
“The government must urgently reverse these plans.”
Ministers have put new housebuilding at the heart of their economic plans, with a target to build 1.5m homes over the course of the parliament, helped by changes to the planning system and billions more pounds for social housing.
This has not been sufficient, however, to prevent a sudden and steep drop in housebuilding in London.
Figures published by the consultancy Molior this week (pdf) show the number of homes under construction in the capital has fallen from about 60,000 in 2015-2020 to 40,000 today. Molior’s projections suggest that number will fall further, to as low as 15,000 by 2027.
In the first three months of 2025, builders began work on just 3,248 new private-sector homes in the capital. A report on Thursday by the Centre for Policy Studies showed this amounted to 0.12 new homes per 1,000 people, compared with a national average of 0.5.
Robert Colvile, the director of the Centre for Policy Studies, said: “We’re now in a situation where we’re building one 20th of the houses we need in London. That’s going to torpedo the government’s target of 1.5m homes.”
Building homes in London has always been more expensive than in the rest of the country because of limited space, which means developers have to build taller projects and often have to knock down other buildings first.
In recent years, however, costs have increased rapidlyas a result of inflation, higher interest rates and tighter regulation after the Grenfell Tower fire.
Experts say the Building Safety Regulator, which was set up after the disaster, has struggled to cope with the number of applications it receives, with about 10,000 applications stuck in the approval process.
Khan and Reed are considering a number of measures to get the system moving quickly.
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The first would be to change the rules governing fast-track planning applications, which developers overwhelmingly use.
To qualify for the fast-track process, companies currently need to include 35% of affordable homes in any new development. The government is thinking of reducing that to 20%.
The second measure would be to increase the amount of government subsidy available for building affordable units, so companies can be funded for as many as half of the cheaper homes they build.
The third would be to give councils the option not to charge a tax known as the community infrastructure levy, which forces builders to pay for local services such as roads and GP surgeries.
Officials want to include an automatic review period for the measures in case the economic situation improves before the end of Khan’s term in office in 2028.
One said: “This is an emergency and we need to act. There is next to no social housing currently being built in London, and 20% of something is better than 35% of nothing.”
Kate Henderson, the chief executive of the National Housing Federation, said: “Whilst we recognise the unique challenges to development faced in London, it is essential that we do not water down our affordable housing ambitions.”
