The Federation of Master Builders, which represents small and medium sized building companies, said inflation and interest rates had caused their members to see up to a 300% increase on materials prices and increased borrowing costs.
It added this was on top of a skills and staffing crisis, as the number of EU workers reduced and 750,000 others were due to retire in 8-10 years.
The body said there were additional challenges in acquiring land, with a shortage of green field sites, which meant developers in the capital were often competing with companies wanting to use land for data centres or industrial kitchens.
Its London director, Sam Eden, said: “We’re all borrowing the money, whether you’re a builder or whether you’re a private family trying to build a home, you are borrowing that money.
“As the rates go up, so do your costs, and with material prices as high as they’ve ever been, this is a major hurdle for builders and people to be able to build homes.
“The key area is people. We need builders to build these homes, and there has been a huge reduction in this number and that’s continually falling.”
A spokesperson from the Department for Levelling Up, Housing and Communities said: “Increasing the number of genuinely affordable homes is central to our levelling up mission and since April 2010 there have been 131,598 new affordable homes built in London.
“London is receiving almost £10bn to help address the issues preventing the market from delivering.
“These include programmes such as the affordable homes programme, land assembly fund and small sites fund.”