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
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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