Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence


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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