Densification of housing estates in London could add as many as 160,000 new homes over two decades, according to the Centre for London, easing a severe shortage in the city that has driven up rents and house prices.

Housebuilding in London is running at around half the level needed to meet demand. "London is in the midst of a housing crisis, as the city faces a need for some 49,000 additional homes a year," said the think tank in its Another Storey report.

"This shortage of homes is intrinsically linked to a shortage of land, particularly land that is developable, deliverable and close to transport infrastructure. Building on the green belt is not supported by government or the Mayor of London, and brownfield land is in limited supply. Hence, densification of existing land uses will play an increasingly important role in coming years."

For its report, the Centre for London analysed large housing estates in four London boroughs. These were Lewisham, Barking & Dagenham, Waltham Forest, and Hounslow. By bringing densification of these estates up to "urban" levels, Hounslow could increase their housing capacity by 81%, said the report, or 3,500 more homes.

This was similarly true of Lewisham and Barking & Dagenham. Waltham Forest's estates were denser, but could still provide 21% more homes. To win the support of residents and to compensate them for disruption during any such regeneration work, more money should be given to them through Home Loss Payments, suggested the Centre for London.

"The mayor has already started working with local councils, housing associations, and developers on a good practice guide for estate regeneration in London," said James Murray, deputy mayor for housing and residential development.

"He will also be consulting with Londoners and community groups across the capital, which is one of the key recommendations set out in this Centre for London report. Sadiq [Khan] has been clear that his new guidance will make sure that where demolition is involved, there should be no net loss of social housing, full rights of return for tenants and a fair deal for leaseholders."