Meeting Londoners’housing needsInvesting in housing infrastructureLondon’s population has grown significantly in recentyears and this is set to continue. We have not beenbuilding enough new homes to keep pace and presentplans fall far short of meeting the housing needs ofLondoners in years to come.People in the capital are finding it increasingly difficult to find affordable housing to rent orbuy. This has been brought into sharp focus by the changes to the benefit system. However,affordability is a supply and demand issue and the imbalance in London has seen prices and rentssoar over recent years with no prospect of relief in sight.With the capital’s population set to top 9 million by 2025, this is a problem that is going to getmuch worse, unless we act now. Bridging the affordability gap will require a range of solutionsacross the private and public sectors to boost supply.One of these solutions is to increase the supply of new affordable homes built by the capital’slocal authorities.This document explains why London Councils is calling for the capital’s councils to be given thefreedom to invest in building some of the new homes London needs over the coming years.
The problem There are 8.2 million people living in London today and This housing supply deficit is an entrenched problem the capital’s population is expected to increase to 9.4 that will require substantial and sustained investment to million by 2021. address over the long term. Simply to keep pace with known demand, London needs The average cost of building a new home in London is to build at least 36,000 new homes every year. Yet in currently £180,000. Putting a crude cash estimate on 2010/11 there were just 19,860 new homes built in the London’s housing shortage, the cost of building the capital. In the first half of 2012/13 the total number of 221,000 homes London needs to make up the shortfall is affordable homes built in the capital was just 5,220. £39.8 billion (based on current prices). The gap between the number of new households and new London’s forecast housing shortfall by 2020 homes being built will be more than 221,000 by 2020. (This assumes: the government extends the Affordable Homes Programme, the private sector continues to build Cost of meeting this shortfall, at existing rates and targets in the Mayor’s Housing based on today’s prices £39.8bn Strategy are met - all very optimistic assumptions.) London already has significantly lower levels of owner occupation than elsewhere and, as the gap widens, the capital’s already low levels of home ownership are set to decline further as fewer and fewer Londoners’ are able to 221,000 raise the substantial deposits required. It is unlikely that any government will commit to spending on this scale. Volume housebuilders have Almost one in four households in London live in private shown neither the ability, nor the willingness, to build rented accommodation, compared to around 17 per cent on this scale in the capital. elsewhere. Rents in the capital already average £1,272 a month, which is double that of many other areas and Allowing councils the scope to borrow against their more than half of an average London renters’ salary. existing housing assets to build some of the homes London needs will be a vital part of the long term More than 360,000 London households are registered on solution to fixing the capital’s housing infrastructure. London councils’ housing waiting lists and more than 37,000 households in London are living in emergency Proportion of London households by tenure: temporary housing arranged for them by their local council. 18% Council The most significant factor in London’s uniquely skewed Tenants 49.9% housing market is the mismatch between supply and Owner demand that has grown over many years and is set to 9% Occupiers grow much worse unless action is taken now. RSL Tenants Number of new homes neededper year to keep pace with demand 36,000 23.1% Private Rental Tenants Number of new Overall council house building has almost non-existent homes built 2010/11 for most of the last 20 years. Only 80 council homes 15,450 were built in London between 2003 and 2010. In recent years there has been a small increase in the number of homes built by councils – 350 were built in 2011 – but this will have to increase substantially if councils are to help close the gap between supply and demand for new homes in the capital. The capital’s councils are ready and willing to build more new homes. A London Councils survey suggested that, collectively, they are planning to build several thousand Projected shortfall by 2020 new affordable homes for Londoners to rent or buy over 221,000 the next decade.
The solutionsThe scale of the capital’s projected housing shortfall In this context, London Councils will continue to press for:and the financial cost of meeting it, have two broadimplications for future policy: 1. The removal of the housing borrowing capFirstly, it will be important to ensure that resources from 2. the index linking of housing borrowing capacity toall key stakeholders in London, including the Treasury, ensure that it doesn’t decline over timethe Mayor, the GLA and London boroughs, work togetherto maximise their impact. 3. Boroughs to be able to ‘swap’ their housing borrowing capacity where this can meet localSecondly, new types of investment solutions and investment needs.approaches will need to be developed and delivered if weare to meet housing demand. No one solution will meetthe massive demand. Enabling councils to meet demand Homes for London Boardby building more homes has already garnered supportfrom organisations such as RIBA. While allowing councils to sustainably borrow to build more housing would undoubtedly help in the short term, this alone cannot solve the capital’s housing crisis.Prudential borrowing The Homes for London Board brings together a mix ofIn April 2012, the government gave those councils that independent experts and politicians to help find creativeowned their own housing full control over their stock solutions to London’s unique housing need. The board isfor the first time in generations, meaning they had the chaired by the Mayor of London’s Deputy for Housing andright to keep and manage all of their rental income. In includes three borough Leaders from London Councils.exchange for this right, councils in London agreed totake on £7.6 billion of the nation’s housing debt. The board has made early progress in creating a stronger partnership between the GLA and London boroughs toGiving councils full control of their own housing stock jointly address the capital’s acute housing crisis over themeans that councils can borrow money against their long term.existing assets to invest in new housing. Working with the board, we now need to work togetherAs part of the agreement, however, the government to develop a set of new approaches that address theimposed a cap on such borrowing. This cap was over and deeper challenges in housing investment in the capital.above the Treasury’s normal ‘prudential borrowing’ rulesthat apply to most local authority borrowing. This artificial • How can borough, Mayoral and other public sectorcap effectively halves the potential cash available for land assets best be used?councils in London to invest in new homes. • How can the private rented sector be improved toAligning the housing borrowing cap with the Treasury’s meet the needs of a wider client group in a longerprudential borrowing rules could generate a total of £3.2 term and sustainable way?billion of sustainable borrowing, which could provide anadditional 54,000 extra affordable homes for Londoners, • How is subsidised or sub-market housing to beover and above those already planned. funded and delivered in London to address the needs of lower paid working households?Total cost of meeting London’s shortfall = £39.8 bn;Amount of borrowing ‘headroom’ under debt-cap • How to ensure a balance of investment and paying housing benefit which can produce an efficient and enduring solution in London? £1.6bnPotential amount of borrowing under Prudential Borrowing rules • Do the London boroughs and the Mayor have the necessary powers and flexibilities to address London’s housing investment challenges? £3.2bn
The costs of the crisis The average house price in London increased by around Rents in the private 10 per cent in 2011 sector have been increasing above The cost of inflation for a number renting temporary of years and rose 25 per accommodation for cent over the past two homeless households in years leaping by 12 per London was £408 million cent in 2010/11 alone in 2010/11 10% £408m The average purchase deposit for first time buyers in the capital is 12% now £58,000£58,000 38The average age of thefirst time buyer is 38.Without parental help andon an average income, theage of a first time buyer in £397,000 50%London would be 52 The average house price in London in July was £397,000, 64 per cent The average rent for a higher than the national 2-bed flat is more than average 50 per cent of an average single person’s salary, compared to 25 per cent in north-east England
The benefits of investment The cost of placing homeless households in temporary accommodation in London is £408 million a year. Boroughs could save all of this money if they built homes for social rent instead. And they would save this money year on year. Removing the artificial cap on HRA borrowing could allow boroughs to build an additional 54,000 new affordable homes for Londoners. London has the highest rate of overcrowding in England. Building 54,000 new affordable homes could provide bedrooms for an extra 75,000 London children. Investing in the capital’s housing infrastructure would have benefits for the wider economy. Every £1 invested in housing infrastructure generates £2.60 in additional spending in the supply chain. £1 = £2.60 An additional £1.6 billion investment = 19,200 extra jobs in London. And an extra £4.16 billion of spending in the supply chain. +£4.16bn The vast majority (50,000) of these new homes SITE BLE LA AVAI could be built on more than 2,000 existing public land sites in the capitalFor references as well as more info on London Councils’ housing policy work, visit: www.londoncouncils.gov.uk/housingcrisis