Housing the Mayor’s Priorities
September 15, 2011
Mayoral Advisor on Housing
Housing is central to London’s economy, boosting both growth and productivity, and the Mayor is firmly focused on ensuring that London’s workforce has good quality homes in which to live and bring up their families.
The core housing challenge is the supply of homes – the provision not just of housing units but of quality homes which enrich London’s vernacular and meet the wide range and changing needs of Londoners. The economic benefits of investing in housing in the capital are clear: every £1 invested in London’s housing stock can deliver national economic gain of up to £3.
Despite exceptionally challenging economic conditions, the Mayor is on course to deliver 50,000 affordable homes by April 2012 – a record for a Mayoral term. It has been accompanied by a substantial increase in new homes being started – up by almost 50 per cent last year.
Every £1 invested in London’s Housing Delivers National Economic Gain of up to £3
London’s programme for this investment round unlocks a significant amount of private and other investment for the capital’s housing, around £3.7 billion, supported by £1.8 billion of public funding. There is also a major programme to release public land for development, with key schemes being brought forward to deliver both market and affordable homes.
Nonetheless, the market remains challenging, both for buyers unable to save sufficient amounts for deposits, impacting on demand, through to house builders’ ability to access bank lending.
The Mayor is keen to ensure that there is a quality, mid-market offer for Londoners, targeted at those who do not access conventional affordable housing but are unable to purchase on the open market. It is important there are a range of products available for those households – ranging from products to help them purchase, especially for families, through to a quality, flexible private rented offer.
80% of Tenants are Happy with their Landlords
One of the key features of London is the growing, vibrant private rented sector. The private rented sector is increasingly important to meeting London’s housing needs. In most cases it offers a good standard for tenants, with the English Housing Survey showing that 80 per cent of tenants are happy with their landlord.
The Mayor has done a significant amount to promote landlord accreditation in the capital. The number of accredited landlords has doubled over the last three years, to over 9,000, exceeding our target.
The Mayor is now looking to establish a single badge for landlord accreditation in London: the London rental standard, which includes not only landlords but letting agents. The idea is for the standard to be recognised by consumers, and for it to be coupled with incentives for landlords to become accredited. Productive discussions are ongoing with agents and landlords.*
There is also continued interest in ‘build to let’ in London. While it is ultimately the responsibility of the market to deliver private rented homes, the Mayor can play a key role: first, by working with boroughs and delivery partners to develop an enabling policy framework; second, by encouraging institutional investment on land in GLA Group ownership; and, finally, by fostering and brokering arrangements, where required. One way of stimulating the supply of private rented homes, and indeed a mix of tenures, is through long term institutional investment.
There is a Sense that More Could Still be Achieved
There are already examples of this happening, with a long list of organisations, ranging from major international institutions to innovative start ups, developing proposals. The government has also sought to encourage institutional investment into residential development through reform to Stamp Duty Land Tax on bulk purchases and reform to Real Estate Investment Trusts (REITs).
While there is interest in this product in many parts of the country, the greatest focus has been on London. This is understandable. Yields tend to be significantly higher in London, with index linking offering an attractive investment. There is clearer demand amongst an often highly mobile workforce who value the flexibility offered by private rent. There have been several attempts to stimulate this market over recent years, notably the Homes and Communities Agency’s (HCA) Private Rented Sector Initiative. This initiative has been successful at setting the context and opportunities for investment, and generated a significant amount of interest amongst investors. There were some results, foremost the agreement with Berkeley homes to deliver over 500 homes across London and the South East.
But there is a sense that more could still be achieved. For this to happen, it is important the public sector is clear about the policy case for such an initiative, and also learns the lessons of previous attempts and recent developments, for example the sale of the Olympic village to Delancey and Qatari Diar and the introduction of the Affordable Rent product which could offer wider opportunities for developers and investors.
It is important to consider, for example, the level of risk investors would want to take, including development risk, as well as State Aid rules, and the impact on the house builder model. It is equally important to consider the boroughs perspective, their views and their long term plans for their communities. Arguably the clearest role the public sector could play in delivery is through its own land holdings. While these land holdings are often complex sites, there are a number of schemes where an institutional investment could play a role.
Next year, under proposals in the Localism Bill, the Mayor will take on new housing powers, which will transfer land assets and budgets to the Mayor. This is a clear opportunity to explore further the potential for institutional investment on these land holdings, to deliver a mix of tenures, as well as reinforcing the links between housing, wider regeneration, and major infrastructure investments such as the Olympics and Crossrail.
The mayor has already made clear the policy case for the supply of a range of affordable tenures in London, both to meet need, stimulate growth and ensure working households have a quality housing offer. Unlocking innovative forms of investment for housing will be central to our approach.
*Young Group has been invited to join the consultation panel