This document discusses London's housing crisis and calls for London councils to be given freedom to invest in building new affordable homes. It notes that London's population is growing but new home construction has not kept pace, leading to a projected shortfall of over 200,000 homes by 2020. Allowing councils to borrow against existing housing assets could generate funds to build an additional 54,000 affordable homes. This would help address homelessness, overcrowding, and lack of affordable options that increasingly impact Londoners.

1. Meeting Londoners’
housing needs
Investing in housing infrastructure
London’s population has grown significantly in recent
years and this is set to continue. We have not been
building enough new homes to keep pace and present
plans fall far short of meeting the housing needs of
Londoners in years to come.
People in the capital are finding it increasingly difficult to find affordable housing to rent or
buy. 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 rents
soar 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 get
much worse, unless we act now. Bridging the affordability gap will require a range of solutions
across 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’s
local authorities.
This document explains why London Councils is calling for the capital’s councils to be given the
freedom to invest in building some of the new homes London needs over the coming years.

2. 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 needed
per 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.

3. The solutions
The 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 broad
implications for future policy: 1. The removal of the housing borrowing cap
Firstly, it will be important to ensure that resources from 2. the index linking of housing borrowing capacity to
all key stakeholders in London, including the Treasury, ensure that it doesn’t decline over time
the Mayor, the GLA and London boroughs, work together
to maximise their impact. 3. Boroughs to be able to ‘swap’ their housing
borrowing capacity where this can meet local
Secondly, new types of investment solutions and investment needs.
approaches will need to be developed and delivered if we
are to meet housing demand. No one solution will meet
the massive demand. Enabling councils to meet demand Homes for London Board
by building more homes has already garnered support
from 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 of
In April 2012, the government gave those councils that independent experts and politicians to help find creative
owned their own housing full control over their stock solutions to London’s unique housing need. The board is
for the first time in generations, meaning they had the chaired by the Mayor of London’s Deputy for Housing and
right 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 to
take 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 to
Giving councils full control of their own housing stock jointly address the capital’s acute housing crisis over the
means 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 together
As part of the agreement, however, the government to develop a set of new approaches that address the
imposed 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’ rules
that apply to most local authority borrowing. This artificial • How can borough, Mayoral and other public sector
cap 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 to
Aligning the housing borrowing cap with the Treasury’s meet the needs of a wider client group in a longer
prudential borrowing rules could generate a total of £3.2 term and sustainable way?
billion of sustainable borrowing, which could provide an
additional 54,000 extra affordable homes for Londoners, • How is subsidised or sub-market housing to be
over 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?
£1.6bn
Potential 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

4. 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
38
The average age of the
first time buyer is 38.
Without parental help and
on an average income, the
age 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

5. 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 capital
For references as well as more info on London Councils’ housing policy work, visit: www.londoncouncils.gov.uk/housingcrisis