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How many homes should be built in London?

Last year there were just under 22,000 starts, pretty close to the Greater London Authority target of 23,000 units. However, the GLA is considering raising the target to 31,000 units a year, a 35% increase in housing starts.

How difficult is that likely to be to achieve?

The latest report from London Development Research says it will be a challenge, given that the number of housing starts has remained fairly consistent since the start of the century.

Is planning likely to be a logjam?

Not particularly. LDR's report shows that planning permissions have risen from 91,500 in 2004 to 108,300 last year and planning applications rose from 84,600 to 90,900 in the same period.

So what are the obstacles to delivery?

LDR identified a large number of potential barriers. They include: construction cost inflation, the strength of existing use values, increasing affordable housing demands, protracted Section 106 negotiations, capital gains tax on land disposal, a tough selling market, local politics, and a lack of pre-let on mixed-use schemes. Many of these issues affect the return and risk of a development, and can make it more difficult to get funding in place to start construction of a scheme.

What do banks want before lending to developers?

LDR identifies five general things that banks want. They are:

• comfort with sales percentages on the developer's existing schemes
• a good level of pre-sales before construction starts (as much as 35%)
• a pre-let on commercial space
• a 20% margin on cost at current prices
• comfort on the general selling environment the scheme will be delivered into.

Its report says: "The market is telling us that many of the [planning] permissions come with obligations that are too onerous." But it points out that selling new homes in London is, on average, a low-risk activity. It summarises: "If the mayor finds a way to encourage the market to build more homes, we will all be pleasingly busy for the second half of this decade."

Water under the bridge: the target of 23,000 units a year may soon be old hat