Select Committee on Transport, Local Government and the Regions Memoranda


Memorandum by London First (AFH 44)

INTRODUCTION

   London First was set up in 1992 to improve and promote London. We represent 300 of London's largest companies as well as the capital's higher and further education institutions. Our subsidiary London First Centre, is the inward investment agency for London, promoting London overseas, assisting companies to set up, and ensuring London remains a world city. Our response is made in the context of representing businesses operating in London.

  In "Planning for London's Growth" published by the Mayor's office of the GLA in March 2002, it is anticipated that by 2016 London will be a city of 8.1 million people. London's population will have grown by a population the size of Leeds, since the Millennium. Similarly the number of households in London is estimated to grow from 3.1 million today, to 3.6 million in 2016—approximately 31,600 a year. If London is to cater for this increase and make good a backlog of overcrowding and homelessness, the number of new homes needed each year rises to the order of 43,000. The Mayor has set a target of ensuring 50 per cent of new homes built each year are affordable, and depending on the exact mix of housing built, costs will range from £22.5 billion to £27.7 billion. Another £6 billion to £18 billion will be needed for maintenance.

  This highlights two key problems:

    —  Supply: London needs to build 43,000 homes a year for the next 14 years in order to meet anticipated economic growth, but housing completions were only 13,000 in year 2000 and 12,000 in year 2001; and

    —  Investment: Local Authorities have a Statutory duty to house those in priority need, and use Social Housing Grant for these people in order to off-set Bed and Breakfast costs, rather than providing Affordable Housing for the economically active.

  London is the largest city in Europe, and an economic power house for the UK, attracting inward investment, generating employment and exporting wealth to the rest of the UK. But, the lack of Affordable Housing is frequently cited by London First members and inward investors alike as an issue which could erode London's status a world city, if it is left unchecked. The shortage of homes—the result of low supply, constrained by the planning system, government housing statutes and funding regimes, and the lack of skilled labour—is beginning to impede business competitiveness in the capital. This is important not just for London, but for the UK as a whole.

  London First submits this memorandum to the Select Committee Inquiry into Affordable Housing, to emphasise London's unique needs, and to restate the importance of investing in London in order to maximise the opportunities for the UK, as a whole, that are presented by this unprecedented growth.

SUMMARY

Demand issues

    —  Affordable Housing should be available to all people on incomes of less than £30,000, who are unlikely to qualify for social housing, and should include a range of housing for rent, as well as shared ownership.

    —  Social Housing Grant is only sufficient to provide assistance for those in priority need. In London, it funds the social housing market, not the affordable housing market.

    —  In London, the Intermediate market is not being delivered effectively on land supplied by private developers alone.

    —  The Mayor's "50 per cent Rule" is not economically viable for developers and, in the short to medium term, will reduce the amount of land coming forward for development. This is already inhibiting housing development by the private sector, and worsening the affordability problem in the capital.

    —  If key worker housing is to be promulgated it should be defined as a separate Use Class under the Planning Acts, as residential for rent, only.

    —  "Key worker" housing units must be recognised as satisfying "Affordable" housing requirements in the planning process.

    —  Financial Accounting Standards should be revised so that employers can provide rent guarantees without this being recorded as a debt in company balance sheets.

    —  Personal and Corporate Tax regimes should encourage access to Affordable Housing.

    —  National pay rates should be abolished for public sector employees.

Supply issues:

    —  Clarity is required with regard to National, Regional and Local planning guidance on residential development.

    —  Residential developments need to be repositioned as a respected asset class that Institutions will fund.

    —  The Intermediate market should become the accepted standard route into the housing market for all people, including those aspiring to freehold ownership.

    —  Exclusive social housing developments should be avoided; we should create balanced communities.

    —  Local clarity is required with regard to the Green Paper proposal for Planning Obligations. Development control should support and encourage residential development.

    —  There is insufficient political will to deliver Affordable Housing, and insufficient Social Housing Grant to fund London's affordable housing need.

    —  Local Authorities should be permitted to use their Housing Revenue accounts (Bed and Breakfast costs) to provide affordable housing.

    —  Public land holdings should be "gifted" for residential developments, whether these are delivered through private house builders or RSLs.

    —  Estate transfers are most successful if additional land holdings are sold on as well.

Sustainability issues

    —  Government should commit to funding major infrastructure projects in Thames Gateway to release land supply for London's growth.

    —  A holistic cost/benefit approach should be adopted when assessing the financial viability of public funded Housing schemes.

    —  There should be a presumption in favour of Sustainable Development in Planning law.

ANALYSIS AND DISCUSSION

  1.  Demand issues

Affordable housing

  1.1  Affordable Housing should be available to all people on incomes of less than £30,000, who are unlikely to qualify for social housing, and should include a range of housing for rent, as well as shared ownership. The definition of Affordable Housing needs to embrace all people, or family units, on incomes of less than £30,000 per annum, at current wage levels. It should encompass the growing number of people on moderate incomes who cannot afford to rent or buy at London prices, and who are unlikely to qualify for social rented housing. It should include:

    —  housing for rent with the direct investment of Social Housing Grant;

    —  housing for shared ownership with the investment of Social Housing Grant providing a lower level of affordability;

    —  housing for shared ownership without the investment of Social Housing Grant to a higher level of affordability;

    —  housing for key workers;

    —  low cost home ownership;

    —  sub market renting; and

    —  student accommodation.

  1.2  Social Housing Grant is only sufficient to provide assistance for those in priority need. In London, it funds the social housing market, not the affordable housing market. At present, since Local Authorities have a Statutory duty to house those in priority need, their main interest is in seeing "affordable housing" used to house these people, in order to offset Bed and Breakfast costs, rather than say economically active young people, and people/family units on modest wages.

  1.3  In London, the Intermediate market is not being delivered effectively on land supplied by private developers alone. Increasingly the "price" of securing a planning permission is:

    —  up to 50 per cent social housing;

    —  for rent with no grant support; and

    —  to be provided through a nominated RSL, via Housing Corporation funds.

  This results in predominantly social housing being provided, rather than low cost intermediate accommodation, ie for young people, and for people on modest wages who are needed to work in London, and who are needed to create a balanced community, or for important workers who do not fall within the Mayor's very arrow categories of "key workers". There are significant social and economic advantages in creating mixed tenure developments, which contribute towards balanced communities, and which help to attract and retain lower paid workers in the capital, aspiring to future freehold ownership.

  1.4  The Mayor's "50 per cent Rule" is not economically viable for developers and, in the short to medium term, will reduce the amount of land coming forward for development. Fixed percentages of up to 50 per cent Affordable Housing (social) units being required in new private developments, results in the remaining 50 per cent units being placed on the market at even higher prices than would otherwise be required to deliver a reasonable developers' profit, in order to cover the cost of the social units. This inflates the market and makes an affordable home even less attainable for young people, and for people on modest wages who are needed to work in London.

  1.5   The Mayor's "50 per cent rule" is already inhibiting housing development by the private sector, and worsening the affordability problem. Housing land has already been purchased by private developers at high market rates, on the presumption that 75 per cent of the units will be sold to privately, on the open market. Therefore the "cross subsidy" for Affordable Housing has to be generated by increasing the sale price of the private houses, making the market increasingly less accessible to those on modest wages who are needed to work in London.

Key worker housing

  1.6  If key worker housing is to be promulgated it should be defined as a separate Use Class under the Planning Acts, as residential for rent, only. As stated above, in principle we do not agree with the concept of key worker housing as we believe Affordable Housing should embrace all workers earning less than £30,000. But, if key worker housing is to be promulgated it should be defined as a separate Use Class under the Planning Acts, as residential land use for rent, only.

  1.7  "Key worker" housing units must be recognised as satisfying "Affordable" housing requirements in the planning process. If this is not accepted, the "price" of a Key worker planning permission becomes the same as for all other private residential developments (ref 1.3 above), with the inevitable result that the Affordable (social) housing element is then subsidised by increased rents received from key workers.

  1.8  Financial Accounting Standards should be revised so that employers can provide rent guarantees without this being accounted as a debt in company accounts. Institutional funding for key worker housing can be provided through rent guarantee covenants delivered by NHS Trusts, and other major public sector clients. The Financial Accounting Standards should be revised so that similar funding regimes can also be provided by private sector employers, without the rent guarantee appearing as a debt in company Balance Sheets. This will encourage further private investment in this area.

  1.9  Personal and Corporate Tax regimes should encourage access to Affordable Housing. The Treasury should remove the threat of a "Benefit in kind" for Affordable housing provision for Key workers. Similarly, there should be Tax Relief for employers who provide Key worker housing.

  1.10  National pay rates should be abolished. Public sector wages should be banded according to job grades/competencies and job location (ie cost of living, calculated on a mean regional basis, and index linked.) This would then be comparable with the Private sector which pays "commercially competitive market rates" in order to attract and retain staff at all levels and in all locations.

  2.  Supply issues

Private sector

  2.1  Clarity is required with regard to National, Regional and Local planning guidance. Private investors are generally risk averse, and seek to manage risk effectively. Planning Guidance should be clear and consistent eg Introduction of additional use or increase in lesser use floor space sufficient to satisfy mixed use requirements. Permitted densities at up to 250 habitable rooms per acre. Percentages in relation to affordable housing not to exceed 40 per cent, as 50 per cent in terms of floor space is too high, and there is beginning to be competition amongst the authorities. Central Planning Policy Guidance should be retained, and reflected in Regional guidance. The planning system needs to be user friendly and consistent, or residential developers will go elsewhere—usually outside of London—where risks are less.

  2.2  Residential developments need to be repositioned as a respected asset class that Institutions will fund. The certainty required to minimise risk on financing complex development proposals should not be underestimated, particularly in London where mixed use schemes are subjected to more difficult funding regimes. Residential developments need to be repositioned as a respected asset class that Institutions will fund, by creating a "steady" business ideally comprising both shared equity and rental income streams.

  2.3  The Intermediate market should become the accepted standard route into the housing market. There should be a "normalizing" of the Intermediate market so that it becomes the accepted route into the housing market for young people, for first time buyers and all people on modest incomes. It should become the accepted route into the housing market for all those aspiring to freehold ownership.

  The Housing Corporation should be charged with sole responsibility for delivering social rented housing via RSLs, and the private sector should deliver affordable housing, with additional modest grant support from Central Government (based on TCI or a similar equivalent formula), on a part rent/part buy basis. This will greatly increase the number of affordable properties available through the intermediate market. London sites are complex, previous uses and ground conditions are inevitably onerous. Flexibility to deal with such conditions on a local basis is essential in any grant making formula.

  2.4  Exclusive social housing developments should be avoided. It is more important to focus on homes of all tenures for London, and to create balanced communities. This will also help maximise developers' investment returns on capital. If a blanket "50 per cent Rule" is applied to all areas, including some of the disadvantaged outer London Boroughs like Newham, Barking and Dagenham, this will certainly not produce balanced communities—it is more likely to increase social polarisation, as these areas already have high percentages of affordable housing.

  2.5  Local clarity is required with regard to the Green paper proposal for Planning Obligations; and Development control should support and encourage residential development. Obligations could be interpreted by some Local Authorities as being in addition to recommended percentages of affordable housing required in residential developments. Increasing the burdens on residential development will impact on residual land value, and further restrict land being brought to the market as well as the supply of new and affordable homes. We recommend residential schemes are subject either to Obligations, or to minimum percentages of affordable housing units, but not both. Where appropriate, land should be zoned for residential use instead of employment use. Special Residential Zones might be introduced, as well as Special Business Zones for example. Air rights should be exploited to encourage more residential and mixed use developments over existing premises eg retail, commercial etc.

Public sector

  2.6  There is insufficient political will to deliver Affordable Housing, and insufficient Social Housing Grant to fund London's affordable housing need. It is acknowledged that a significant percentage of Housing Corporation funds come to London, but the costs of delivering housing in London are disproportionately high—over four times as expensive as in some northern Regions owing to high land values. Government needs to allocate more funding to "pump prime" affordable (low cost) housing for young people, and all people on modest wages in London. Current funds meet the needs of those qualifying for social housing, only. This requires political will. Housing is not on the Government agenda in the same way as education and health, for example, and yet it is essential to the successful delivery of these vital public services. Housing should be at the top of the Political agenda—it is critical for delivering successful economic and social development in London.

  2.7  Local Authorities should be permitted to use their Housing Revenue accounts (Bed and Breakfast costs) to provide affordable housing units. Bed and Breakfast accommodation costs c£600 per family per week in London. Individual Boroughs could raise significant investment funding through their Housing Revenue accounts, to deliver housing units on leaseback or other similar arrangements.

  2.8  Public land holdings should be "gifted" for residential developments, whether these are delivered through private house builders or RSLs. Treasury needs to reassess its Best Value criteria, in order to release land holdings on criteria other than financial. If, for example, the cost of Bed and Breakfast could be equated with the free supply of land, then it could be argued that "gifted" land provides Best Value.

  2.9  Estate transfers are most successful if additional land holdings are sold on as well. This is partly to deliver de-canting space during construction, and partly to deliver lower rise, lower density developments offering better quality of life, and more sustainable communities. This also provides the opportunity to cross subsidise the affordable housing with commercial development on the additional land.

  3.  Sustainability issues

  3.1  We need to build 43,000 homes every year to meet London's anticipated growth, but are currently building only 12,000 homes of all tenures. There is land available in the Thames Gateway, and government should commit to funding major infrastructure projects in the Gateway to release land supply. The Mayor has set out his vision for London, to maintain the City as the UK's economic generator and to strengthen its position as a World City. He is planning for growth and has shown we need to build 43,000 homes every year. We are currently building only 12,000 homes of all tenures, approximately 7,000 of these are "affordable".

  This is causing major pressures within the housing market and, as illustrated in section 1 above, results in access to new housing in London mainly for the very rich or very poor. In order to underpin London's social and economic position, this has to change. Unless we can meet London's housing requirement, the economy will be choked as lower paid workers fail to secure the homes they need, and in locations close to where they are needed to work. There is land available in the Thames Gateway, and government should commit to funding major infrastructure projects in this area in order to release land supply.

  3.2  A holistic cost/benefit approach should be adopted when assessing the financial viability of public funded Housing schemes. New housing provision and population growth on this scale needs new infrastructure in London, but we should take a holistic cost/benefit approach when assessing the financial viability of public funded Housing schemes. Refurbishment of the Holly Street estate in Hackney cost £90 million from the public purse, but trips to local GPs surgeries have fallen by over 30 per cent. This reduces the Health service spend, and significantly improves health service availability.

  3.3  There should be a presumption in favour of Sustainable Development in Planning law. Prior to the Town and Country Planning Act 1990, there was a presumption in favour of Development. Since the 1990 Act there has been a presumption in favour of the Development Plan. With the impending arrival of a strategic Regional Plan for London, we believe planners will have the framework to manage a presumption in favour of Sustainable Development. Local Authorities should have the responsibility of promoting Sustainable Development which supports the Regional plan for London. This will, in turn, support economic growth and encourage mixed use, mixed tenure developments that reflect the new economy.

CONCLUSION

  London is different, because:

    —  It is a World City, and it is the UK's economic generator.

    —  The demand for new homes is greater than anywhere else in the UK, and almost 90 per cent of the sites coming forward for development are brownfield, resulting in relatively high land values and development costs.

    —  Regional Governance and a new planning regime has been implemented recently.

  There are less homes being built in London now, in relatively stable economic conditions, than at any time since 1924. If London is to secure the homes needed to maintain its world position and service the community, it is crucial to ensure land comes forward for development. It is also crucial to ensure private sector investment is attracted to provide the mixed use, mixed tenure housing developments necessary to sustain the new economy, and business competitiveness in the capital.


 
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