London's 6.6% Price Drop Isn't the Real Story

Good morning,

London flats just got 6.6% cheaper.

Sounds like great news, right? Finally, some breathing room for first-time buyers in the capital.

Except the developers building the next generation of those flats are looking at the same number and quietly shelving projects.

So why are projects being shelved and what does it mean for the future?

Let’s dive in.

In this newsletter, you'll find...

• Why cheaper flats might mean fewer flats

• If You Remember One Thing, Make It This

• Feedback

Why cheaper flats might mean fewer flats

Right, so here's the headline: average London flat prices fell 6.6% in the year to May, down to £423,000. London overall dropped 3.7%, its ninth straight annual decline. Inner London fell even harder, down 5.9%.

Meanwhile, London semi-detached houses actually rose 0.4%. Same city, same market, wildly different story depending on what you're buying.

For buyers, a 6.6% discount is genuinely useful. For developers? That same 6.6% can wipe out the profit margin on a scheme that was only just viable to begin with.

Same asset class. Very different consequences.

Why This Actually Matters

Here's the bit the headlines won't tell you: London just put a 558,000-home plan out for consultation — roughly 51,000 homes a year through 2037.

Big number. Ambitious target.

But at the same time, the number of new developments coming to market is at its lowest since January 2017, and the Construction Products Association just downgraded its 2026 forecast for private housing output from -7% to -10%, with zero growth expected in 2027.

Translation?

The city wants more homes built at exactly the moment building them has become less financially attractive.

The Bit Nobody's Connecting

Developers don't just care about what a flat sells for today. They care about what it'll sell for once construction, finance and affordable-housing costs are all factored in (what's called the "residual land value").

When sale prices drop 6.6% but build costs, finance costs and the incoming October Building Safety Levy don't drop with them, that margin gets squeezed from both ends.

Add in fast-track affordable-housing thresholds of 20%, 25% or 35% depending on the borough, and plenty of schemes simply stop making sense.

Fewer schemes started today means fewer homes finished in three or four years' time. Which, if you're playing the long game, actually tightens supply right when the market needs the opposite.

Cheaper today. Scarcer tomorrow. That's the paradox.

So What Do You Do With This?

If you're buying to live in or hold long-term, the flat discount is real and worth using just don't assume it's a permanent feature of the market.

Scarcity has a habit of reversing price falls once the pipeline dries up.

If you're a landlord or investor, keep an eye on London rents. They're still averaging £2,302 a month, with Kensington and Chelsea at £3,596, rents aren't falling anywhere near as fast as capital values, which tells you where the underlying demand actually sits.

There's also a genuine government consultation running until 15 October offering partial levy relief to developers delivering 20%+ affordable homes.

Worth watching and if it works, it could be the thing that unsticks stalled sites. If it doesn't, expect the supply squeeze to get worse before it gets better.

If You Remember One Thing, Make It This

Falling prices don't automatically fix affordability. If they stop new homes from being financed and built, they just delay the problem and hand it to whoever's buying in three years' time, at a higher price, with less choice.

Keep half an eye on London's new-build pipeline over the next few months. That, not this month's price index, is the number that'll tell you where this is really heading.

Run the numbers on your own patch and reply. I'd genuinely like to know what you're seeing.