Memorandum by the Mayor of London (AH
39)
1. INTRODUCTION
1.1 Housing supply is fundamental to London.
A population rise from 7.3 million in 2001 to 8.1 million in 2016
is projected—22,400 households every year over that 15 year
period. Pressure on housing is an underlying cause of affordability
problems in the London market. Despite the recent slow down, those
on the lowest incomes would still have to pay over eight times
their earnings for the least expensive home—far above the
national average.
1.2 Long-term failure of supply to meet
demand, particularly in social housing, has resulted in record
levels of homelessness and overcrowding. London has over half
of England's overcrowded households and nearly two-thirds of households
in temporary accommodation.
1.3 The Mayor's 2004 Housing Requirements
Study showed a need for 35,400 additional dwellings a year, for
10 years, to tackle backlog need and meet household growth. The
2005 Housing Capacity Study showed potential for around 31,090
homes a year. Consultation on an alteration to the London Plan
target of 23,000 homes per year is now underway. Within this,
the Plan aims for 50% market, 35% social rented, and 15% intermediate
housing. The Mayor therefore welcomes this opportunity to contribute
to the Committee's work and to work together to drive up housing
supply in London.
2. SUMMARY
2.1 This submission is set out in sections
3-12 below, responding to the headings set out in the Committee's
call for evidence of 11 October 2005. It is recognised that there
will be two more enquiries on housing and the Mayor will make
submissions to these. The key points the Mayor wishes to make
are:
— The focus on supply is correct but
any conceivable level of increase is unlikely of itself to significantly
reduce prices.
— Affordable housing subsidy must be
directed towards new supply, not demand subsidies and public subsidy
should not subsequently be lost to the market.
— Investment and planning powers should
work together to maximise affordable housing in line with regional,
evidence-based priorities and to achieve an appropriate size and
tenure mix.
— In growth areas—particularly
the Thames Gateway—infrastructure should be provided in
phase with housing development. This will be essential in making
areas attractive to occupiers and hence to developers.
— Increasing owner occupation can assist
some households but consideration should also be given to unlocking
existing equity values.
— Modern methods of construction can
assist in delivery but incentives are needed to make this happen
and such methods may increase capital and/or revenue costs.
3. THE ECONOMIC
AND SOCIAL
IMPACT OF
CURRENT HOUSE
PRICES
3.1 High house prices (and private sector
rents) impact on London's economy and are primarily the consequence
of supply shortage. Prices grew quickly between 1996 and 2004—more
quickly than the UK for much of that period. Although in the last
couple of years this trend has reversed, the ratio of lower quartile
house prices to lower quartile earnings more than doubled between
1993 and 2003.
3.2 Inward migration is a key driver of
London's population growth, driven by London's economic growth.
Failure to meet consequent increased need is a potential block
on growth for London and the UK. Supply shortage impacts on affordability,
resulting in loss of low to middle income earners from London,
often when they wish to settle down and have children. This results
in retention problems for key services, which lose experienced
staff, and increasingly polarised communities—with the richest
and poorest overrepresented. Lack of supply, particularly in social
housing, has increased homelessness and overcrowding, and the
effects on these households in terms of health, employment, education
and crime are widely recognised. In particular it damages children's
life chances, with nearly half a million London children living
in overcrowded homes.
4. THE RELATIONSHIP
BETWEEN HOUSE
PRICES AND
HOUSING SUPPLY
4.1 Supply is a factor, although not the
only one. Income and population growth, changes to household composition,
demand for owner occupation as the tenure of choice, growth of
buy-to-let, investment in housing as an alternative to pension
provision, limited supply of and restricted access to alternative
tenures, the speculative nature of the house building industry
and planning constraints all contribute. There are also significant
local variations, contributing to the existence of numerous housing
sub-markets.
4.2 The Barker Review proposed setting affordability
targets to regulate supply and estimated the possible impact of
a range of increases in supply. The Mayor's response to the Review
welcomed the aim of increasing supply but questioned the affordability
target approach and the validity of assumptions about the relationship
between supply and prices for London. The Mayor is represented
on the Advisory Groups for the ODPM follow-up studies—assessing
the impact of increased private sector supply on price and addressing
sustainability and infrastructure implications of supply change.
We are disappointed at the lack of progress in completing these
studies, but early indications from these and other sources suggest
that only a doubling of supply increase would achieve any significant
price reduction, reflecting price-inelasticity in London. London
land use constraints mean that an increase in new supply above
35% cannot be achieved sustainably. Experience suggests that a
flat or falling market is usually accompanied by a supply fall,
as developers resort to land banking and scale back development.
4.3 The Mayor does not accept a simplistic
relationship between supply and price, but this is not the sole
rationale behind the Barker Review or government plans to increase
supply. Increasing supply is essential to meet housing need and
demand and to ensure economic well-being. Housing and planning
policies must focus on speeding up delivery and investment must
be directed at measures to increase supply.
5. THE SCALE
OF HOUSING
DEVELOPMENT REQUIRED
TO INFLUENCE
HOUSE PRICES
AND THE
IMPACT OF
PROMOTING SUCH
A PROGRAMME
ON THE
NATURAL AND
HISTORICAL ENVIRONMENT
AND INFRASTRUCTURE
PROVISION
5.1 The Mayor is not convinced that the
scale of development necessary to, on its own, significantly influence
house prices is realistic.
5.2 The alteration to the London Plan will
seek to drive supply up from the current 25,000-26,000 a year
(2004-05 provisional estimate 25,619), already a significant increase
from the 17,000 the year before the Mayor's election, to 31,090
per year. Through the London Plan, the Mayor has ensured that
new development will not encroach on green belt or employment
land. During 2006, the Mayor will assume responsibility for the
London Housing Strategy, enabling better integration with the
London Plan, other Mayoral strategies and investment streams for
transport and economic development. A key aim will be to address
wider environmental concerns, for example mitigation of flood
risk and energy efficiency.
5.3 Infrastructure provision will be crucial
in supporting housing development, especially in the growth areas
such as the Thames Gateway to ensure long-term sustainability
and it is important that investment strands—housing, transport,
health, education—are integrated. More fundamentally, any
lack of commitment to infrastructure investment leaves developers
unwilling to invest on a scale that would make optimum use of
opportunities. Responsibility for forward planning of public service
related infrastructure, in particular schools and waste planning,
should be within the Mayor's remit, as should the power to aggregate
and agree s106 agreements across a number of developments to help
fund large infrastructure projects. The Mayor would be happy to
further discuss options for value capture to fund infrastructure.
6. THE SCALE
OF THE
GOVERNMENT'S
PLANS TO
BOOST HOUSING
SUPPLY
6.1 Boosting supply is the central aim of
the London Plan and the London Housing Strategy. The Government's
response to date falls short of meeting the national target in
the Barker report, or the requirement estimated in the GLA's Housing
Requirements Study. The Mayor's targets are set out elsewhere
in this response. However, within the overall aim of increasing
output it is essential that the Mayor's minimum target of 50%
affordable housing is delivered.
7. THE RELATIVE
IMPORTANCE OF
INCREASING THE
SUPPLY OF
PRIVATE HOUSING
AS OPPOSED
TO SUBSIDISED
HOUSING
7.1 Supply must increase across all sectors
but deliver the right mix of market and affordable housing, of
the right size, in the right places. Regional and local needs
assessments and capacity studies provide evidence to support different
development patterns between and within regions, sub-regions and
local authorities. In London, the ODPM Housing Needs Study methodology,
using affordability, size and quality criteria, indicates 59%
social rented, 7% intermediate, and 34% market. However, this
takes no account of development economics, availability of subsidy
and the desire to meet low to middle income home-ownership aspirations.
These considerations are reflected in London Plan and London Housing
Strategy targets.
7.2 The social rented stock in London has
shrunk from 35% in 1984 to 25% in 2004, reflecting a structural
shift to owner-occupation, although a level of owner-occupation
significantly below the UK average at 59% compared to 71%.
7.3 Housing products must change across
tenures. In social housing, the GLA's Housing Requirements Study
identified that 42% should be four-bed plus, to tackle the backlog
in family housing provision. This need for larger homes holds
for intermediate housing, where the policy driver is to aid retention
of key workers and prevent low-to-middle income families leaving
London. The need is for family-sized dwellings, rather than the
one-bed/studio homes developers often see as the primary intermediate/key
worker product. Although the percentage of three bedroom or larger
social rented dwellings increased from 16% to 20% between 1991-92
and 2003-04, this is well below the required figure and analysis
of schemes under development indicates that this proportion is
falling.
7.4 In the market sector, output of three
and four bedroom homes fell from 28% to 19% between 1991-92 and
2003-04—against the trend in all other regions except the
North East. The Home Builders Federation recently recognised the
need for larger units, since increasing numbers of smaller units
has encouraged purchase for investment/buy-to-let/second homes,
rather than meeting need. Housing and planning policy should be
more directive of the mix of market housing to tackle the problems
of affordability.
8. THE REGIONAL
DISPARITIES IN
THE SUPPLY
AND DEMAND
FOR HOUSING
AND HOW
THEY MIGHT
BE TACKLED
8.1 Low demand in some areas and high demand
in others is a primarily due to wider regional economic and social
factors. The problems are different and require different solutions.
It would be simplistic to pursue regional equalisation by redirecting
London's growth to other regions, since London's world-city status
means that growth would be more likely to go overseas. Its fundamental
importance to the national economy means that choking off growth
in London would have a rapid and damaging effect on the rest of
the country.
8.2 There is a pressing need to drive up
housing supply in London to support national economic growth and
to increase housing investment to ensure this is done in a socially
sustainable way. The problems of low demand areas would be best
addressed not by replacing unwanted stock but by investment in
economic development to ensure provide jobs and in social infrastructure
to create places in which people wish to live.
9. THE POTENTIAL
BENEFITS OF
AND SCOPE
TO PROMOTE
GREATER HOMEOWNERSHIP
9.1 The recent IPPR study—"Shifting
foundations: home ownership and government objectives" (Dominic
Maxwell, Institute for Public Policy Research, September 2005)—considered
the range of benefits ODPM identifies from increasing homeownership.
This included release of social housing, assisting community stability
and contributing to mixed and economically active neighbourhoods.
The report raised interesting questions about these aims and argued
that the most convincing policy aim is to tackle housing market
driven inequality in the intergenerational transfer of wealth.
In this respect it builds on the Shelter Report "Know Your
Place" which concluded that home ownership is driving levels
of wealth inequality unseen since Victorian times.
9.2 The Mayor supports the policy aims of
mixed tenure neighbourhoods (through the London Plan) and targeting
intermediate products to free up social housing (indirectly through
the London Housing Strategy). However, the Mayor agrees with the
thrust of the IPPR and Shelter reports that tackling wealth inequality
would be the most cogent aim of interventions to support home-ownership.
This would be in line with the intermediate housing aims of his
London Plan.
9.3 Only 59% of London's households own
their home. The high percentage of social housing is driven by
London's high levels of poverty and worklessness. Conversely,
significant private rented accommodation is needed to attract
and house the younger workforce seeking flexible and accessible
accommodation. The Mayor supports the extension of home ownership,
where this is targeted at increasing equality of opportunity,
but would not want to commit London to the national targets the
Government has outlined.
9.4 It is essential that home ownership
products contribute to increasing supply. Demand subsidies, for
example key worker HomeBuy and Market HomeBuy, are the wrong approach
in a market characterised by supply shortfall—except where
they free up social housing. While they may represent the best
"quick fix" solution for a limited set of key worker
issues, such subsidies can only exacerbate affordability problems
for the wider group of low to middle income earners. Also, public
subsidy should not be lost to the market. This is recognised in
the HomeBuy proposals, which take steps to lock subsidy in, for
example by ensuring future access to local authority nominees.
10. THE EXTENT
TO WHICH
HOME PURCHASE
TACKLES SOCIAL
AND ECONOMIC
INEQUALITIES AND
REDUCES POVERTY
10.1 A recent GLA-led study showed an average
equity value for London homeowners of around £204,000-£370,000
million in total. This affects the life chances and quality of
life of the occupier, relative to non-homeowners, but also the
life chances of their offspring; through inheritance or by providing
access to financial support. ODPM figures argue that 23% of first
time buyers now get gifts or loans from family to buy a home—in
London the figure is much higher. A key benefit of extending owner
occupation is tackling these wealth inequalities and opening up
the opportunity to own more widely.
10.2 However, there is a limit to the extent
to which owner occupation can be extended at the margins, without
encouraging low-income households into unsustainable commitments.
Programmes to promote owner occupation must be backed by the advice
and support to ensure that, as happened under the Right to Buy,
some households do not end up economically disadvantaged.
10.3 The Mayor supports the Government in
encouraging older homeowners to use equity to make improvements
to their homes. The GLA was instrumental in "Houseproud",
aimed at helping London's 330,000 pensioner-only owners plus those
with a disability. This offers major benefits for occupiers and
helps reduce social services costs, but also promotes the use
of equity for personal benefit rather than fuelling house prices.
11. HOW THE
PLANNING SYSTEM
SHOULD RESPOND
TO THE
DEMAND FOR
HOUSING FOR
SALE
11.1 There must be a concerted effort to drive
up delivery in London. Giving the Mayor powers of direction over
local plans would help ensure that they reflect the regional strategy.
Similarly, positive planning powers over new developments would
help tackle Nimbyism. Planning applications in London have risen
over recent years, alongside a recent increase in the number of
schemes refused planning permission. This may have several causes
but the disparity in performance, allied with concerns raised
by the development industry, implies strong opposition to new
housing development. However, a recent increase in the number
of residential units granted permission indicates a significant
development pipeline, which should lead to increased completions.
11.2 Existing structures and powers to assemble
sites, particularly public sector land, should be reviewed to
promote the extension of joint venture models—such as EP's
London Wide Initiative/First Time Buyers Initiative. Enabling
the public sector to take a share in land value appreciation—and
in concomitant risk—would provide funding for infrastructure
investment. The Mayor's response to forthcoming proposals to review
the planning obligations system will set out the requirement to
ensure that increases in value are captured and used to support
infrastructure investment to maximize capacity and sustainability—and
particularly affordable housing. The alternatives of planning
gains tax and optional planning charges/tariff are too crude and
not applicable to brownfield development, which in practice comprises
nearly 95% of residential development sites in London and would
be a strong disincentive to development. The review must speed
up planning—but not lose the ability of s106 to offset development
costs through use of residential development value. The Mayor
welcomes guidance in the planning obligations circular that planning
contributions can be pooled between schemes and between boroughs.
This can support funding of major infrastructure investment.
11.3 The planning system must also ensure
that we are building for the future—requiring higher environmental
standards in new construction. Neither the London Plan nor the
London Housing Strategy have sufficiently strong levers to deliver
this aim, which could best be provided by giving the Mayor the
ability to set building regulations for London.
12. OTHER FACTORS
INFLUENCING THE
AFFORDABILITY OF
HOUSING FOR
SALE INCLUDING
CONSTRUCTION METHODS
AND FISCAL
MEASURES
12.1 The development industry needs to improve
on customer satisfaction, skills, innovation and local acceptance.
There are very few players in London and lack of competition can
be seen as a factor in controlling supply and driving up prices.
The industry should work to improve local acceptance of new developments
by raising design standards and working with the Commission for
Architecture and the Built Environment (CABE).
12.2 It is yet to be proven that modern
methods of construction unequivocally increase quantity and speed
of delivery. However, they can help to tackle the capacity issue
in the industry and improve environmental sustainability in construction
and occupation. However a critical mass has not been achieved
and there is not sufficient demand to warrant a proper supply
chain. Delays over Building Regulations changes have not helped,
and lenders and the public may not be fully convinced of the benefits.
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