London is falling far short of its building targets, homelessness has reached record levels and families are being priced out. Yet the financial fallout extends far beyond the capital.

A “localised housing crisis” has become a “national problem”, according to Liam Sides, associate director in Oxford Economics’ Cities & Regions team.

The capital has been the weakest-growing region since 2008, with Greater Manchester’s thriving economy outpacing the rest of the country, a report by the independent economic advisory firm suggests.

Despite the fact that ONS figures show London accounts for almost a quarter of the UK economy, the report shows the capital has been in a “stagnant” state since the 2008 financial crisis, and cites housing costs and availability as some of the key factors for its stuttering growth.

Mr Sides says that “London is such a substantial part of the UK economy and its underperformance has become a central part of the UK’s overall productivity slump”.

London’s economy relies on a skilled workforce, he says, but high house prices and a housing shortage “limits the ability of skilled labour to move to highly productive roles” and mean London is not as attractive for skilled global workers.

Author of the analysis and Cities & Regions economist at Oxford Economics, Alexander Harvey adds: “High housing costs, fuelled by limited land availability and regulatory constraints are… pushing workers further away from their place of work.”

This limits the benefits that come from firms and workers being located close to each other, he adds.

Self-employed publicist Haddy Folivi, 48, moved from London to Peterborough in 2021 with her two children.

Born and raised in Hackney, she said house prices in the capital had become “ridiculous”, and the main driver for her to leave.

“For a house with a room each for my kids, we were looking at around £500,000.

“I didn’t want to overstretch myself and pay thousands of pounds a month on a mortgage. I wanted to get something affordable for us as a family.”

She says many families in London, including many of her friends, are being “forced out”.

Ms Folivi is part of a “mass exodus” of people being priced out of London, according to Paul Rickard, CEO of affordable housing provider Pocket Living.

According to its poll of 1,000 people aged 25-45 in Greater London:

• 42% said although they didn’t want to move out of London, they may have no choice
• Almost two-thirds of young people rely on some form of borrowing to cover their housing payments.

Mr Rickard says in the five years they have been running the survey, “these are some of the most concerning findings we have seen”.

“London’s housing crisis has deepened into something more corrosive: an affordability breakdown that is reshaping how a generation lives, works and plans for the future.”

UK businesses are increasingly pivoting their hiring to regional offices and away from the capital, with the proportion of head office-related jobs outside London at record levels, affording to Vacancysoft, which provides labour market data and analysis.

For instance, 58% of head office jobs within financial services are now based outside London.

Vacancysoft’s CEO James Chaplin says “companies are reorganising their workflows across multiple sites, where, increasingly, the proportion of people hired into London is being reduced”.

He hails Manchester as “hugely successful in positioning itself as an alternative hub for financial services middle and back office”.

“Looking ahead, either the cost of living in London needs to come down, where rents or the costs of mortgages are the biggest issue, or businesses need to increase the packages they are offering.”

Housebuilding itself contributes to the economy through jobs, investment, more labour mobility, and in March the Office for Budget Responsibility forecast that the creation of an additional 170,000 new homes, as planned in the government’s reforms, would boost GDP by 0.2% by 2029-30.

But this estimate could be influenced by factors including capacity constraints in the housebuilding sector.

A report by Public First, a policy and research consultancy, found boosting London’s homebuilding could contribute £40bn to the UK economy by 2034.

According to its analysis, meeting London’s target of building 88,000 new homes a year would boost productivity in the capital by 5.6% in the long term and raise the average Londoner’s take-home pay by £3,700.

But recent figures show London’s housebuilding has been grinding to a halt, leading to a reduction in the affordable housing quota.

The Home Builders Federation reported that only 30,000 residential properties were built in London in the year to June.

London’s housing crisis is “not just a social issue but an economic imperative”, says Simon Carter, CEO of property company British Land.

He calls for “unlocking a step change in housebuilding” in order to benefit London and the UK economy.

But Pocket Living’s Mr Rickard thinks the focus should be on first-time buyer support.

“It’s no good just building homes – people need to be able to buy as well. At the moment, both parts of the equation are not there.

“The policy announcements in the last year – government has pulled some levers but we need to pull thousands more.”

A government spokesperson said: “We will leave no stone unturned to build the 1.5 million homes this country desperately needs so we can drive growth and restore the dream of homeownership.”

The overhaul of the planning system “will add £6.8bn to the UK economy according to the OBR (Office for Budget Responsibility) forecast”, the spokesperson said, adding that “we have recently introduced emergency measures to ramp up housebuilding in London and unblock growth”.

A spokesperson for the Mayor of London, Sir Sadiq Khan, said: “Continuing to grow London’s economy is one of the mayor’s top priorities, upskilling Londoners and unlocking at least 150,000 high quality jobs through his Inclusive Talent Strategy and backing businesses and innovation through his London Growth Plan.”

“Sadiq is also focused on tackling the housing crisis, and is doing everything in his power to deliver more homes of all tenures. “