Proposals to reduce housebuilding targets in London by around 300,000 homes could cost the London economy £41 billion a year in economic output, new analysis by multidisciplinary development consultancy Pegasus Group has found.
The new draft London Plan, which was released for consultation in July, proposes a housing target of 558,000 over the next ten years – more than 300,000 fewer than the original Government target of 880,000. Pegasus’ research has found this could have significant consequences for London’s economy that extend far beyond the housing market.
By analysing public and industry data, economics experts at Pegasus estimate that the 300,000 homes no longer in the plan could have provided accommodation for approximately 762,000 residents – equivalent to a city the size of Leeds or Glasgow. Of these, an estimated 412,136 would be economically active with the potential to support £41 billion of economic output per year.
Furthermore, Pegasus found that the proposals to reduce housebuilding targets could mean losing out on £69.6 billion of construction investment over ten years. This investment could have in turn contributed to 25,400 direct construction jobs and an additional 52,800 roles through the supply chain and wider economy.
Pegasus’ analysis also revealed that the construction phase of the additional 300,000 homes could generate an extra £8 billion of Gross Value Added (GVA) per year, or £80.6 billion over the ten-year period.
Nevertheless, while the housing shortfall could affect the city’s economic potential with some households less likely to move to London as a result, the draw of the capital will still mean that many seek to locate there. For these households, as well as existing residents, Pegasus estimates that the loss of the additional 300,000 homes could see house prices hit almost 16% more than they otherwise would have.
These figures underline the substantial contribution that increased housing delivery can have in driving economic growth across London and the wider UK.
Additional impacts of the reduced housing target identified by Pegasus included:
Failure to tackle London’s housing challenges risks weakening the capital’s ability to attract and retain talent, with Pegasus’ analysis identifying that the number of London residents moving elsewhere in the UK increased by 28% between 2014 and 2024. This in turn could affect the supply of key workers that London depends on; a recent survey by NHS Homes Alliance found that 68% of NHS staff considered lack of affordable housing a key factor in deciding to leave their employment in London
Lack of housing also places increases demand for temporary accommodation: recent analysis by London Councils revealed that as of 2025 the equivalent of one in 50 Londoners are in temporary accommodation, costing London boroughs £4 million every day
Furthermore, with poor housing currently costing the NHS over £100million annually in London, Pegasus estimates that addressing the 300,000 shortfall in housing delivery in London could help save the NHS £30-35million in expenditure per year
Commenting on the findings, Chris Wheaton, Senior Director in the Economics team at Pegasus Group, said: “As our analysis clearly shows, housing and growth are intrinsically linked, and nowhere more so than in London. The opportunity cost of the London Plan delivering 300,000 fewer homes than the Government’s target extends far beyond homes lost. A potential £80bn in lost economic productivity over ten years is a startling figure, but one that is essential to understanding the capital’s vital role in building national economic prosperity.
“Supporting housebuilders to build, whether through ambitious targets, policy reform or targeted funding, ultimately feeds into our country’s bottom line. And although there are some opportunities to absorb homes in surrounding areas, these neighbouring regions are already struggling and can’t cover all 300,000 – so many will get lost for good.
“While it is fair to say that the Mayor of London has leaned towards realistic delivery, the fact is that falling short of assessed housing needs will constrain the capital’s growth potential.
“The consequences will be felt across a broad range of economic and social indicators, from labour supply and healthcare provision to tax revenues, local authority finances and wider societal outcomes. Existing homeowners and London residents will also feel the effects, as persistent supply shortages continue to place upward pressure on house prices and borrowing costs.
“It is positive to see the Great London Authority’s campaign for better infrastructure and more affordable homes, and we welcome the added clarity that the draft London Plan has brought developers. But to boost housing delivery policymakers will need to consider alternative solutions. These range from increased investment in transport infrastructure to unlock development opportunities, utilising grey belt land, and considering greater density of dwellings in appropriate suburban areas.
“At a time when economic growth is paramount, the economic and social price of failing to deliver sufficient housing is simply too high to ignore.”
The full economic analysis can be found via https://www.pegasusgroup.co.uk/the-true-opportunity-cost-of-the-draft-london-plan/