London housing begins to feel the pain of Britain’s wobbling economy

Developers have slowed housebuilding on concern about the economy and pressure from higher borrowing costs and inflation.

On a site in a deprived part of east London, the cracks in the British economy are meeting the crisis at distressed developer Country Garden Holdings.

The firm, which bought the land in 2018, had been planning to construct hundreds of apartments, but no buildings have gone up and now the developer faces a cash crunch. 

Meanwhile, new home sales in the British capital have collapsed to an 11-year low as surging interest rates and a cost-of-living crisis dampen demand. Access to the site was closed, with few signs of building work.

Developers have slowed housebuilding on concern about the economy and pressure from higher borrowing costs and inflation. That in turn is hurting construction firms, which are going insolvent at the fastest rate in a decade.

The problems in housing are just one sign the British economy is starting to wobble after a surprisingly strong first half of the year. Private-sector firms suffered their first contraction in seven months in August, and Bloomberg Economics expects higher borrowing costs to send the economy into a recession.

“The impact of higher interest rates is only beginning to permeate through the economy,” said Niraj Shah, an economist at Bloomberg Economics. 

Elevated borrowing costs will lead more households and businesses to adjust their spending — denting overall demand in the economy.” 

In its battle to tame inflation, the Bank of England has delivered 14 rate increases since late 2021 — the fastest monetary tightening since the late 1980s.

The spike in borrowing costs has increased the risk of corporate defaults as some medium and large companies struggle with debts, the Bank of England warned this week. Some firms may “reduce investment and employment sharply” in response, it said. 

Almost 440,000 firms were already in “significant distress” in the second quarter, an increase of 8.5% from a year ago, according to consultancy Begbies Traynor. 

Many of those are in construction, where output of private new housing fell more than 8% year-on-year in June.

The outlook has only worsened since then. Builder Crest Nicholson has said its sales rate has been “progressively deteriorating” in recent weeks and is half its expected level. 

Buckingham Group Contracting, which was working on the redevelopment of part of Liverpool Football Club’s stadium, blamed lost business when it announced it was no longer trading last week. 

Homebuilder stocks have fallen about 40% since the Bank of England rate tightening began in December 2021.

Back in east London, signs promising luxury homes “setting a new standard in riverside living” at the Country Garden site have been defaced with graffiti. 

• Bloomberg