London needs 50,000 new homes a year, over 80% of which must cost no more than £700 per foot, according to a new report from real estate adviser Savills.

The report says an increase in the sales rates and planning applications over the past year means an average of about 35,000 new homes a year are set to be built over the next five years, up from an estimated 28,000 units a year ago.

But a report released by Savills, 'London Regeneration:Boosting housing supply beyond prime', says that the shape of the development pipeline does not match the shape of demand, with a shortfall of 15,000 homes a year remaining.

Savills has predicted that the biggest gap between emerging supply and demand will fall in the lower mainstream markets, where a total shortfall of 28,500 for homes priced under £450psf is anticipated.

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"Within this price bracket, we anticipate a shortfall of 6,500 homes for market sale and rent, the bulk of which (5,500) will fall under £375psf," the company said. "This is in addition to a shortfall of 7,500 units per year projected in the affordable sector, where 15,500 new homes a year are needed, including all forms of intermediate and shared ownership tenures. A further shortfall of 7,500 units per year is projected in the affordable sector, where 15,500 new homes a year are needed, including all forms of intermediate and shared ownership tenures."

The report says price growth is rippling out and that the sharpest growth is being seen beyond the city centre. Over the last 12 months, Waltham Forest has topped the chart with a rise of 23.5%, followed by Lambeth (21.9%), Southwark (21.1%), Islington (20.6%) and Hackney (19%), all outperforming the London average of 12.4% and Kensington and Chelsea (12.8%).

"The unassailable demand for more homes in the mainstream markets makes the case for building and investing away from the centre compelling," says Susan Emmett, Savills UK residential research director. "Now is the time for developers and institutional investors to look beyond the prime markets of central London."

Paul McGowan, director, Savills Greater London development and sales, adds: "Emerging neighbourhoods and areas of regeneration, particularly where there are significant transport improvements, carry the potential to create sustainable communities, lifting values and driving occupier demand to new levels."

(IT)