This is a good article running down the main options for building homes in London. Unfortunately it seems that the only properly viable option is to start building on the greenbelt, but communities are so sold on greenbelts, will this happen?
Before the metropolitan Green Belt was established London saw unprecedented rates of development. Almost one in five of London’s current homes were built in a single ten-year period just before the Second World War. A much smaller and more controlled release of appropriate bits of Green Belt could be an effective way to deliver substantial numbers of new homes. (...) There is a legitimate debate about whether London’s Green Belt could be better managed, ensuring the protection of beauty and public access as well as providing new homes. The new Mayor will need to take a pragmatic rather that absolutist view.