London house prices "could explode"

People view properties advertised for sale in the window of an estate agent in west London January 2, 2009. REUTERS/Stephen Hird

LONDON (Reuters) - London can expect a future explosion in house prices unless there is an increase in construction during the economic downturn, one of the city’s key figures said on Tuesday.

Peter Rogers, chief executive at the London Development Agency (LDA), said prices will rocket because of pent-up demand.

“Demand exceeds supply and unless there is a steady stream of housing when the recovery does come there will be an explosion in house prices because of pent-up demand with no supply,” he told London Assembly committee members.

Last year London Mayor Boris Johnson promised 50,000 extra affordable homes during the next three years but the collapse in house prices and the credit crunch has left construction in the doldrums.

The LDA is working with the mayor and housing agencies to increase development, Rogers said.

“It seems evident to me that building has stopped. The banks will sit and see decline in value and the builders will not build unless there is a real incentive,” he said.

“Two issues are critical to that in my view. The first is underpinning housing in terms of ownership through an equity release scheme. The government has done something on that, but I think it was slightly flawed.

“The second is promoting development ... a different form of investment so we can kick-start the construction industry and not wait for the recovery.”

He added: “That is what developers are waiting for, that is what bankers are waiting for, and I believe the mayor has a role in stimulating the market through a different route.”

Reporting by Avril Ormsby; Editing by Steve Addison