A New Direction for London’s Housing? An Alternative View

Christine M E WhiteheadLSE

Evolving London GVA Second Series, October 13th 2014

Kings Fund, London

The Housing Problem: Is there anything new to say?

• At one level not really – everyone thinks they know the problem but no-one really knows the answer

• Housing now regularly comes top of the list of political concerns, especially in London

• Problems include affordability; access to owner-occupation and generation rent; lack of social housing; and most importantly low levels of new supply

• The two biggest problems are: plans are unrealistic and political courage is very limited (nil?)

What are the big issues?• Shorter term problem arising from the financial crisis and

the subsequent near closure of the mortgage and development funding markets

• Longer term problem about the slow and inadequate response of new supply to changing demand

• The volatility of house prices and the concentration of demand in London

• Structural changes in tenure and affordability• Reductions in government support for both supply and

demand - which are unlikely to be reversed whatever the result of the election

• Plans need a reality check

The basics 1: London’s

demographics• London’s population grew by

88,000 a year 2001-11 – 1.1%• Young population: births

exceed deaths• Substantial net international

inflow• Large net flow out to rest of

UK• But net outflow has been

lower during recession• So both shorter term and

long term pressures

How big is London’s housing problem?

• Updated projections suggests 53,000 homes a year required

• This still implies falling headship rates for 25-34s.

• ‘No age group worse off’: 63,000 homes a year.

• Alan Holmans: 23,000 affordable homes a year

• 15 boroughs housing a third more households in over 20 years?

• London’s housing shortfall could be around 30,000 homes a year

• Looking at the 25-34s

• Many fewer single person households

• More ‘others’• More couples – with

and without children.

What has been happening?

What might happen 2011 to

2021?• Cohort requirements from

DCLG’s 2011-based projection (based on 53,000 pa)

• 149,000 homes released by households aged 35-74, many from moves out of London – but will there be somewhere for them to go?

• Biggest impact of undersupply likely to be on groups with biggest net requirement

2011-21 - from DCLG 2011 Homes needed or releasedNew 15-24 124000

15-24 to 25-34 53500025-34 to 35-44 28500035-44 to 45-54 -600045-54 to 55-65 -5200055-64 to 65-74 -9100065-74 to 75-84 -56000

75-84+&over to 85&over -199000

The Basics 2: Economic Fundamentals • Building more will not have much immediate effect on prices – unless

everyone is convinced that we can and will go on doing so for a very long time. The evidence of the past 30 plus years is against this. So no easy or immediate benefit – even if numbers can be increased rapidly;

• The recession has reduced household formation – so any economic improvement is likely to offset demographic changes putting further pressure on the market resulting in higher prices and lower standards of housing and occupancy;

• The demand for housing rises not just with demographics but with incomes – so economic success means higher demand. The easiest and worst way of reducing house price increases in current conditions is to have a recession – especially in London – this is NOT what anyone wants;

• So unless fundamental reductions in demand from existing households the problem will not be solved

• But that is not a reason not to try

The Basics 3: What are we going to build?

• Plan assumes (has to assume?): - building within the GLA boundary- building high and high/super density - building for the private rented sector- continuing to build significant

proportions of social and affordable housing;• Planning permissions have now risen in line with

requirements and starts beginning to come forward; • But very different development model from before the crisis

and many reasons (including experience) to expect completions to be far behind.

The Basics 4: Where are we going to build?

• Latest suggestions: - Opportunity /housing zones - Garden cities and/or cities within cities? - Change of use from commercial

• Greenbelt/greenfield?• All must be tried, but • All have major issues (including the potential fro

building the slums of the future) and likely to be slower than predicted

• Still massive political objections to development

The Basics 5: Who will build/finance?• Established developers – can they expand and do

they want to?• Smaller and medium sized builders (inc self build) –

major planning and cost issues • Bringing in developers and contractors from other

countries – need knowledge and support • Role of institutional funders – the wall of money but

management skills?• Local authorities: only with partners • Housing Associations: social and private renting?

The Basics 6: Role of Government • Planning not the only issue – but still many barriers• Vast number of government initiatives –all

currently very small and need to be maintained and developed into a more coherent whole

• Most initiatives if they work will work slowly - need stability and commitment

• At regional level – micro monitoring and management having some success

• The basics are still that there is less money and more uncertainty

Conclusions • If London is to remain a world city the housing problems will

not go away;• Those who are prepared to pay more and live in worse

conditions will outbid those who can make other choices; • Need to do all that is possible to build – but new initiatives

take longer to get going; • Can more be done in more traditional ways – especially in the

outer suburbs;• Can intermediate tenures play a larger role?• Need to improve outward mobility;• Need to tax established households more effectively;• Need commitment and stability in both policy and the macro-

economy!