Whatever happened to airspace development?

An easy way to gauge the health of London’s housing market is to count the cranes across its skyline. These once-ubiquitous silhouettes have long served as a barometer for the capital’s construction activity. Today, their decline speaks volumes.

Recent Molior data enumerates this trend, finding that only 2,158 private homes began construction in the first half of 2025 – a new low in a decline since 2023, and just 4.9% of the government’s half-year target.

Over the past five years, UK property development – and airspace projects in particular – have faced a confluence of pressures unlike any period in recent memory. Rising costs, shifting regulation, and shaken investor confidence have combined to stall or derail schemes that once defined urban innovation.

The pre-Covid-19 pandemic promise of up to 41,000 new homes through airspace development now rings hollow. But understanding why this promising model faltered is the first step towards rebuilding it.

The rise of airspace

2019 promised a lot for airspace development in London. The revised National Planning Policy Framework urged local authorities to “support opportunities to use the airspace above existing residential and commercial premises for new homes”.

Meanwhile, airspace projects across London were drawing increasing investor interest: Apex Airspace secured £10m from the Greater London Authority to help tackle the capital’s temporary housing crisis; and Fruition Properties, equipped with pre-existing expertise, was pursuing an expanding pipeline of projects in Putney, Bermondsey, and Westminster.

The sector was rapidly emerging as an innovative and fast­ growing area within residential property. By building upwards, developers could extract value through the “air rights” above existing structures without facing the escalating – and often inflated – costs of land acquisition.

In high-demand cities like London, this approach offered a sustainable, low-disruption means of boosting housing supply while rejuvenating existing stock. Further, at a time when capital was largely tied up, airspace schemes required relatively modest upfront investment, and many freeholders were eager to participate in this new approach to urban growth – viewing it not only as a creative investment opportunity, but also as a way to upgrade the existing building’s fire safety or fund cladding remediation.

Regulatory transition

The Building Safety Act (BSA), implemented in 2022, hardly needs another introduction. Yet the familiar slow and arduous refrain continues, with developers still waiting an average of 36 weeks to secure Gateway 2 approval – triple the original 12- week target.

Two core issues are evident under the new regime.

The first is a lack of clarity. Under the previous system, developers could collaborate with engineers and inspectors to ensure technical compliance before submission. Under the Building Safety Regulator (BSR), this consultation process has been largely removed, leaving developers uncertain whether their designs meet the required standards prior to review. As of 2025, around 75% of applications have been rejected for “missing or flawed information”, highlighting this widespread confusion.

The second issue lies in the major changes to fire regulation. Guidance has moved from flexible, performance-based requirements to highly prescriptive rules, with little distinction between new builds and regeneration projects. This rigidity has created practical barriers – for example, all but proscribing New York-style fire escapes – even in cases where buildings could demonstrably meet functional safety standards through alternative design solutions.

Even the BSR itself has acknowledged the turbulence of this transition. Tim Galloway, the regulator’s deputy director, recently conceded to having “underestimated” the difficulty for firms – assuming the implementation of a second staircase would be “something that [firms] would already be able to do”- and cited a lack of “deep construction industry experience” for the legislative and practical confusion.

But the damage, in many ways, has already been done. Projects that once symbolised innovation have stalled, investors have retreated, and confidence in the system has been shaken. Our own experience with an almost-development – New Palace Place in Westminster – underscores these challenges: investors were on board, planning feedback was positive, and the freeholder seemingly supportive. Yet as the new BSA requirements evolved and regulatory uncertainty deepened, progress stalled and eventually ground a promising pipeline to a halt.

Broader headwinds

Well-intentioned but poorly planned legislation is evident elsewhere too, such as the mandatory 10% biodiversity uplift introduced last year under the Environment Act 2021. Amid economic uncertainty, these regulatory pressures are compounding existing market challenges.

Rising costs, combined with a shrinking labour supply and pandemic-driven productivity declines, are squeezing the entire industry. Contractor insolvencies, interest rate-prompted investor retreat, and limited government support for buyers – dampening demand – have further intensified the strain.

And London’s SMEs – a sector which has experienced a 66% decline in London over the past two decades – are perhaps bearing the brunt of this “perfect storm”, with 92% expressing dissatisfaction with the government’s approach to housing and many struggling to stay afloat under these new heavier regulations.

Silver linings

The facts of the matter remain the same: airspace development remains innovative, sustainable, and critical to adressing London’s housing shortage. Space scarcity and and costs ensure airspace could become a key tool in meeting demand – but success depends on dismantling rigid barriers, protecting SMEs, and clarifying policy uncertainty.

Equally, adapting existing regulations is essential to restoring confidence and moving projects forwards. For instance, allowing alternative approaches to building safety and fire compliance – perhaps grounded in a risk-based framework – could achieve the same functional objectives without stalling promising developments.

Moreover, distinguishing between new build and regeneration projects is vital, with the latter often delivering additional benefits for the host building’s safety and sustainability.

In this light, airspace regeneration schemes can enhance the city’s overall safety standards and advance the objectives of the BSA, even if achieved through different methods.

Though the picture is challenging, no problem can be solved without first being acknowledged. By confronting these structural realities, the industry can adapt and begin to rebuild on firmer, clearer ground. In doing so, London’s property market may slowly start growing again, heralded by a new wave of cranes adorning the city’s skyline.

This article first appeared in Green Street News.