London Mayor Boris Johnson is widely viewed as a friend of developers who have ambitious plans for the central area of the city. Johnson has often “called-in”—that is, vetoed—decisions by local London councils to reject a development. Construction of luxury housing has flourished in the fancier neighborhoods of Mayfair and Knightsbridge.
On May 14, though, the Greater London Authority (GLA), which reports to Johnson, blocked the development of 25 luxury apartments in Mayfair. The reason: They were too big. Johnson’s move may signal that the luxury boom in the city center is facing new limits, according to three brokers who don’t want to be identified talking down the market.
Blocking the project is not a protest against conspicuous displays of wealth; it’s about creating more affordable homes in London. In the wake of the GLA decision, the council of the City of Westminster (one of London’s 32 boroughs) told the developer to redesign the building to reduce the enormity of some of the apartments. The Westminster council, which oversees the Mayfair and St. James neighborhoods, home to Europe’s biggest concentration of hedge funds, still hasn’t decided whether to approve the plan. The ultimate power to sign off lies with the GLA and Johnson.
The developer, real estate fund Brockton Capital, had sought permission to build homes at 56 Curzon St. with an average size of more than 5,000 square feet (465 square meters) to gain from surging prices. The average for new homes in the U.K. is 915 square feet, according to the Royal Institution of Chartered Surveyors. “We’re working with the council planning team to get the scheme approved,” says Brockton’s co-founder, David Marks.
A 39 percent rise in Westminster home prices helped fuel an overall jump of about 11 percent in London for the year through March 13, according to researcher Acadametrics. Half of London’s buyers of new homes are foreigners, and they spent more than £3 billion ($4.6 billion) last year, a 25 percent increase from 2011, says broker Jones Lang LaSalle. Only one in seven foreign buyers of new London luxury homes actually reside in the property they acquire; the rest rent them out.
The Westminster council has approved plans similar to Brockton’s in the past. Back in 2008 the local government allowed the redevelopment of a parking lot into luxury homes on Audley Square, where residences average an incredibly spacious 6,500 square feet. A comparable upscale development at 20 Grosvenor Square won approval in 2011 for units averaging 4,500 square feet.
Billionaire property investors David and Simon Reuben have won approval to develop what’s likely to be the U.K.’s most expensive home. The former In and Out Club at 94 Piccadilly, a onetime members-only club near the Ritz Hotel, will be turned into a single home of about 60,600 square feet that will feature a 35,000-bottle wine cellar, an underground swimming pool, a gym, a ballroom, and no less than 11 bedrooms. Expected price: about £200 million.
The Reubens’ planning application was approved by the Westminster council after the two investors offered to contribute £3.85 million to the construction of affordable housing in the borough. That’s a common practice of high-end developers, who write a check to the city to financially support construction of middle- and working-class housing.
London officials increasingly want developers to build the affordable homes themselves. “We want to see two things: places being built and more housing units,” says Edward Lister, chief of staff at the GLA. “We don’t like sums of money just being paid over to authorities. We’re taking a harder and harder line on this.” Lister says the city may raise new home construction targets to 40,000 a year, up from 33,000 now.
Affordable housing is in scarce supply. The average monthly rent in London stood at £1,110 in April, up 7.6 percent year to year, according to rental agency LSL Property Services. Compare that with a paltry 0.8 percent year-to-year rise in average weekly earnings and it’s easy to see why many working-class Londoners must move to the suburbs.