Actually, if you've been to central London recently, you'll know there is a huge amount of demolition and rebuilding going on: for example dead center on the west side of Tottenham Court Road. Office buildings in the centre, from the 20s onward, regularly get demolished and rebuilt to modern specs. There are brand new "luxury condos" around Tate Modern and the amount of building going on near Canary Wharf is incredible.

It's true that there are some preserved buildings that are unlikely to be redeveloped. But in the City proper (the square mile) there is a lot of redevelopment. Nobody lives there, though.

The reason for the basements is not that the houses are architecturally noteworthy, just that they are in conservation areas. It has to do with the look of the neighbourhood and all the property value that goes along with that. It's not an effective way of densifying the housing stock.