As the election for the Mayor of London next year looms on the horizon, candidates are pledging to build more homes in the capital. But targets are no use to anybody unless they are backed up with a credible plan, and in London the biggest challenge is that the housing market is broken, dysfunctional, pining for the fjords.
Shelter wants candidates to produce a credible plan to build 50,000 homes a year within the first 100 days of office.
One major plank of this plan has to be non-market housing. In dark times, we should nurture and grow the pockets of light that the market’s dysfunctions don’t reach. Councils, housing associations and co-operatives can all renovate and build homes and let or sell them at permanently affordable prices. The Mayor of London can give them every ounce of support available. If Sian Berry were elected the Green mayor, she would also work with landlords and tenants to discourage the needless demolition of homes.
But to build 50,000 homes a year we really need private builders to make a bigger contribution. How can we do this?
Let’s start with who the new private homes are being built for at the moment. Hint – it’s not the average Londoner, who earns around £28,000.
The average first-time buyer in London is in the richest fifth of Londoners and pays over £400,000 for their home. Even with a big handout from mum and dad, they’d need to earn something like £80,000 on average to ‘get on the property ladder’.
Such rich individuals are in short supply, and so wealthy investors keep the show on the road. Around one in ten new homes are bought by overseas investors, and another five are bought by British investors. They’re able to buy homes before they’re built, ‘off-plan’, helping developers get finance from banks, so Boris Johnson has lent them his full support. Most investors then let these homes out to Londoners on private tenancies at rents little more affordable than a mortgage (but without the need for quite such a massive deposit).
But wealthy investors fuel our housing market, driving up prices or at least maintaining them at very high levels that the average Londoner could never afford. They also lead developers to behave like this:
(Quick aside – I’ve exposed this and many other nasty adverts targeted at investors over the years. Investors don’t just drive up prices, they also distort the kind of homes built and the way they’re marketed and sold.)
The edge may come off buy-to-let thanks the Chancellor’s policies to reduce landlords’ tax breaks and charge them a higher rate of stamp duty, but the Office for Budget Responsibility still expects prices to rise faster than earnings for the next five years.
I predict that every mayoral candidate other than Sian Berry will rail against tower blocks of luxury flats in the same breath as promising to build 50,000 homes a year. But they won’t explain how they will square this circle.
What’s going wrong with our house building market? Why are new homes so bloody expensive?
Well, to begin with, so long as we treat homes as assets to speculate on – whether home owners and amateur landlords treating homes as pensions, or Russian oligarchs treating Chelsea mansions as safety deposit boxes in case they lose Putin’s favour – so long as this is the prevailing attitude, house builders will target this wealthy market and prices will be driven up.
The Green Party wants to reform property and land taxes to discourage this attitude. For example, we’d phase in a Land Value Tax to replace council tax and business rates, with the aim of reducing the profits you can make off rising house prices.
But the Mayor of London doesn’t have the power to this – yet.
What she or he can do is address some of the barriers to house building identified by the GLA in this study, this follow-up, and this further work by its Outer London Commission:
- in recent years, between a third and half of sites with planning permission have been owned by companies with no intention of building on them – speculators looking for a quick profit by hoarding land;
- the building industry has, over decades, become ever more concentrated and is now dominated by around 25 big developers;
- big developers don’t like to build and sell homes too quickly, because it will depress prices.
The last point is particularly telling. Take the Kidbrooke Village scheme in Greenwich, where 1,900 council homes were demolished to make way for 4,000 new homes. You might think the whole point would be to keep prices down in the area by building these as quickly as possible. But no, they plan to build these over twenty years, and one bed flats currently for sale start from £330,000.
The GLA found that few developers want to build more than 100 homes a year in any given development, to keep the market prices rising.
I could go off into a long explanation of the housing and land markets in London, particularly the magic of land values, but I won’t bore you. The key point is that big developers building in the current broken market won’t solve the affordability problem.
So what would a Green housing strategy look like? I’m not going to tell you what the Green Party’s manifesto will pledge, not least because that’s for the members to decide, not me. But these are three building blocks for a credible plan to build 50,000 homes a year.
- Diversify the market with public land. TfL wants to build 10,000 homes on its land. Rather than signing dodgy deals with the 25 big developers, public land like this could be used to break their stranglehold by involving a much wider range of development partners. Use compulsory purchase powers on land hoarders and avoid closed-shop procurement processes to give smaller builders and new entrants a shot at using them.
- Innovate in big projects like housing zones and estate regeneration. Parcel big sites out into smaller plots to get homes built more quickly and try different approaches with each one – co-operatives and community land trusts with homes for rent or sale, purpose built private rented housing, council and housing association homes, custom build, self-build, community-led planning and design. I could go on.
- Find more sites with the help of Londoners. Set-up a People’s Land Commission, as suggested by Stephen Hill and Darren Johnson, and use technology pioneered by Greater Manchester to get the public involved in finding more opportunities to build homes on derelict sites, on top of existing buildings, in place of empty car garages, and so on. Make sure this approach puts people and nature front and centre, rather than trampling over them with amoral talk of assets.
These proposals will also help to reduce opposition to new homes. What, other than outright opposition, can we expect when house building means very tall blocks of luxury flats built for investors, planned with no meaningful involvement from the local community? As Demos argue in a new report, most opposition is born out of a genuine concern for the community, and lack of transparency and trust in the planning process.
We need this kind of fresh thinking if we’re going to build homes, and not just false hope. Darren Johnson has done fantastic work on the London Assembly to develop and promote this analysis, and to build cross-party consensus for innovations such as selling land to smaller builders, backing community-led estate regeneration and building mutual housing for older people. Next year, together we can get a new Green team into City Hall to do much more.
What if any is the advantage of community land trusts over community development trusts ? Isn’t the provision that CLT membership is open to anyone living or working in its area a hostage to fortune, especially in areas where ‘forced’ gentrification is being contested ? (in the sense that future ‘residents’ or ‘workers’ might be big corporates who just opened a superstore nearby, and/or buy-to-leave investors in a just-finished tower block)
There’s no inherent advantage, and the two models can work very nicely together. You can have a trust own the freehold on the land, and use the ground rents and any other income to finance its community development work.
As with any form of community trust, the membership models can vary. These details should be worked out on a case by case basis, but I think a general principle is that the existing local population (including residents, community groups, churches, businesses, etc.) should be in the driving seat.
London’s population is growing fast an we must build homes faster than families form in order to resolve the crisis.
The call for 50,000 homes is an improvement but it nowhere near high enough to resolve the crisis.
3.3% of household contain two or more families
468,000 – 20-34 year old adults still live with parents
It grow by 107,373 Additional People in 2013 (ons) and has grown more since.
The prediction of 50,000 homes is both out of date and based on much lower internal net migration figures which have proven to be wildly optimistic and only to resolve the crisis over a twenty year period if all the productions prove true.
If you are looking to resolve the crisis we must be talking in the numbers 72,000-100,000 homes per year.
This is a much more difficult problem and the suggestions above fo not go far enough. We need to back not just the measures above but go much further and back unpopular methods. This includes changing taxation, large infrastructure projects and the most controversial of all building on greenbelt.
Can I ask a silly, more light hearted question? When my wife and I walk past a lovely big home, I often joke, that we will walk into their kitchen and tell the current occupants that we need it now and ask them to leave. “Morning, please get out, its our turn now.” Am i the only person that makes this joke?
You write “to build 50,000 homes a year we really need private builders to make a bigger contribution” and ask how we can do this, but 50,000 is at the lower end of estimated needs, according to the House of Commons Briefing Paper, Meeting London’s Housing Needs, where the estimate is 50,000 to 80,000 per annum.
You link to a very interesting, and credible, report from the consultants Molior, The Barriers to Housing Delivery in which, as a result of several causes it concludes
the ‘realistic’ planning pipeline is likely to be somewhere between 50,000 and 70,000 homes during the next three years even if EVERY consented scheme commenced construction tomorrow
so 18.67K to 20.33K per annum.
Given this, it makes not sense to demonise private sector developers for not building faster, especially if you hope they will make a bigger contribution. The Molior report describes the constraints they are under, which will apply to new market entrants too.
You, these report writers, and most other commentators, do not think ahead to the pricing impact of increases to supply of housing, whether in fear of it destabilising the market, or in hope of making London once more an affordable place to live. Even Priced Out is calling only for zero house price inflation, which is hardly good enough in London, but at least it is progress in terms to formulation policy in price terms, not projected demand.
The big picture is that London needs new housing on a scale beyond what most people feel comfortable imagining, and in the course of its building, should it happen, housing will be an unattractive investment for all but very long term investors. Fresh thinking about where to build, and a wider range of development partners, will help, but not if at the cost of excluding those will established expertise, who you seem to accuse of signing dodgy deals with TfL. It may be amoral to talk of assets, but definitely immoral to encourage less experienced developers and first time buyers to become the owners of assets whose values will decline.
London’s housing crisis and the excessive prices which result mean that any policy to price people back in will have to include public guarantees for developers, of all shapes and sizes. The stoking of housing demand seen in the recent Spending Review can be seen as a partial, ad hoc version of this, but inadequate, unsustainable, and unfairly directed.
The realistic pipeline takes into account all the problems in the uncompetitive market, such as the fact that consented schemes with more than 500 homes will be eked out over years to avoid affecting the market. The obvious reason for this is that developers pay a price for the land based on expected house price inflation, and would lose money if their development deflated or even stabilised local prices.
I don’t demonise private developers. They’re behaving exactly as you’d expect in this broken market, maximising their profit margins on land holdings and development schemes, exploiting weaknesses in the planning system to dodge social contributions, and keeping prices high to avoid losses on their pipeline land banks.
I don’t discount the impact of greater supply on prices, I just ask how we get higher levels of market supply, and conclude it isn’t through the current approach in such a concentrated and dysfunctional market. Expecting the current national and London housing strategies to increase supply in a way that would stabilise prices is fantasy, and the “scrap planning and let the market rip” approach has unacceptable ecological and social consequences, and could – as in Ireland and Spain – lead to a different and even more damaging kind of speculation on property and land.
I don’t think anyone has all the answers, but I think my three proposals would go a long way to making the land and building markets more competitive, and to develop housing models that are more sustainable.
You call their deals dodgy,and thinking about housing as an asset as amoral, and yet you are not demonising them. Yeah, right
Follow the link and read that article – some of those deals are really, really dodgy. I don’t see why describing a focus on assets as ‘amoral’ should be considered demonising them, I didn’t say ‘immoral’. The problem with many schemes, especially estate regeneration, is that the moral rights of existing residents are entirely ignored by councils who treat schemes as asset management projects.
You refer to “the 25 big developers” – that’s a huge number of market participants, and I am sure you know that when the OFT investigated the market in 2008, they did not find evidence of market collusion, so it would help to drop this language sniping at private sector developers. In specific locations such as Kidbrooke, the developers do have an effective local monopoly, but the Molior report suggests the rate they build out is determined by other factors in the supply chain. If they or other developers could build faster, why would they not, since no one is forced to live in Kidbrooke?
You don’t need collusion to be uncompetitive. I wouldn’t describe 25 firms as huge in a house building market as big as London’s.
This IPPR report is a good read on problems with the house building market. It includes figures showing that the 10 biggest UK developers have continuously increased their market share from around 6% in the 1930s (the golden age of private sector-led building) to 47% by 2002, and that the number of active firms has fallen in the past 20 years from around 12,000 to 4,000.
Molior are quite clear that in places like Kidbrooke the slow build out rate is to do with keeping prices high. The supply chain problems are a wider issue for the whole sector, and incidentally are related in part to the loss of builders’ yards on light industrial sites that are being turned into residential uses!
For some reason, the link to the first Molior report no longer works, but this is quoted from it on the HBF site, which accords with my recollection
‘Site-by-site interviews suggest the obvious: builders intend to build their sites, nonbuilders do not! So the fact that non-builders control almost half of the planning
pipeline is a constraint on housing development in London. When accusations of
land banking are directed at builders, those accusations are misplaced.’
25 is still a huge number, and the fact that it is reducing will be to do with the policy context – e.g that we have a planning system now, unlike in the golden age of the 1930s. That is not an argument against planning controls of any sort, but an identification of problems within our current system which are more relevant to the crisis than how developers behave.
I don’t think anyone claims to have all the answers, which is why, for the Intergenerational Foundation housing blog week, I called for a Housing Peace Conference, with no preconditions for participation other than accepting that there are not enough houses where young people want to live, and that this is why their housing costs are too high.
See also what I wrote in that link on “Financial planning for an end of property speculation”, which is what I am getting at here about needing a coherent long run support for developers as if we really believed we’ll one day make housing affordable again. It should be what the Bank of England is thinking about when refers to “MacroPru” for the housing market, but sadly that is, maybe inevitably, focused on short term financial stability, so the fear of market turmoil, rather than the hope of housing 20-30 year olds.
Comments are closed.