affordablehousingcomment In a world of its own
Boris Johnson is trying to take the government by the hand and lead it through the streets of London, but can he show it something that’ll make it change its mind? SIMON GRAHAM reports
L
ondon is different. We have the most capital-centric nation in the developed world. It currently delivers a third of the entire UK economic output and, while the rest of Britain has struggled and clawed its way free of recession, in the last couple of years London has taken wing. The capital’s difference is both massively beneficial and massively distorting economically and socially. And one of the biggest distortions is in housing. The mayor of London’s draft Housing Strategy, currently out to public consultation, makes the point emphatically.
London house prices are virtually double the average prices in the rest of the country. The city has built an average of 20,000 new homes a year over the past decade, but needs to build a minimum 40,000 a year consistently for the next 25 years just to keep up with the increase in households. The long-term requirement could be as much as 50,000-60,000 homes a year. The strains on the system are obvious. For the first time in over 100 years, average house size in London is increasing. Street homelessness and the use of temporary and bed and breakfast accommodation are rising and London has by far the highest percentage of overcrowded households. The growing number of people on the streets is becoming reminiscent of the early 1980s. Then, London was suffering economically. Now, homelessness is worsening against a backdrop of economic recovery. Our inability to match London’s economic vibrancy with a functioning, affordable social fabric verges on a national disgrace. Boris Johnson calls housing “perhaps the gravest crisis the city faces”. His ambition to build 42,000 homes a year, including 15,000 affordable homes and 5,000 a year for long-term private rent, is laudable. But will this strategy really break the housing supply logjam? Perhaps not. The strategy offers plenty of ‘solutions’. The mayor is right to call for local authority borrowing powers to be brought more into line with European practice. This would free up councils to invest billions of pounds in new building without the debt appearing on the government balance sheet.
He is right, too, to ask the government to think again about the balance between capital and revenue subsidies for affordable housing. The shift to personal subsidies is ramping up the housing benefit bill. When the problem is supply, what’s needed is supply-side subsidies.
92| January 2014 showhouse
Capital funding is much less expensive for the exchequer long-term and creates assets that can
be used again in the future. The government’s slashing of the housing capital budget in 2010
by 60% looks an ever-bigger own goal with every passing year. But there is little prospect of chancellor George Osborne reversing the policy while the priority remains national debt reduction. The capital settlement is, in any case, already set up to 2018. It is unlikely, either, that the chancellor will agree to wiring all of London’s stamp duty payments back to the capital for new building. Changing the borrowing rules for local authorities should cost the Treasury nothing; losing a
significant portion of the stamp duty take leaves a hole in
the accounts Osborne would have to fill from somewhere else. He may have acceded to it for Wales, but Wales delivers a pittance from SDLT compared to London. Forty per cent of the mayor’s planned affordable programme will be for low-cost home ownership, 60% for affordable rents – a similar mix to now. However, while half the rental programme will be ‘capped’ rents for those most in need (whatever capped turns out to mean), half will be ‘discounted’ rents, set at the lower of 80% of market rent levels or the Local Housing Allowance limit. In targeting this half at ‘low paid working Londoners’, the mayor seems to argue that 80% of market level should become the standard rent.
Housing associations in London have so far used their discretion to keep affordable rents at below 80% where possible, to avoid trapping more people in poverty and benefit dependency. Discounted rent is not going to create sufficient additional financial headroom to make a substantial difference to supply or affordability. But it will impact on already low-paid workers’ living standards.
Among the myriad ideas, one thing stands out.
There is no real discussion about construction industry capacity, though the reality of decreasing housing association borrowing capacity is acknowledged. The mayor’s desire to unlock the assets of currently non-developing smaller housing associations and to find a mechanism to reutilise old housing grant on association balance sheets is nothing new. The Treasury has heard these arguments for four years with no action so far. As big an issue is the inability of private developers to gear up to meet the levels of housebuilding that the government, the mayor, and most other policymakers want them to achieve. Too much of the residential construction market is now in the hands of a small number of major developers who will only re-expand their businesses at a certain rate. For all the mayor’s ambition and desire, the ball remains firmly in Whitehall’s court. Only government ministers can force the pace on land, on planning, on finance, on industry capacity, on winning the public argument for more building. They know the real solutions. They know the crisis is getting more urgent. But they seem stalled over the politics and the money. Meanwhile, housing costs go up and living standards for most continue to stagnate. Nowhere is this more evident than in ‘booming’ London. sh
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