The election of Sadiq Khan as London’s new mayor neatly demonstrates what makes London a great city. Through his victory, Khan highlights that London is a city of opportunity where success is not dependent on a privileged upbringing.
However, the attraction of London – thanks to its thriving economy and its ability to attract talent – combined with certain poor policy decisions has had a downside: we are now in the midst of what is widely recognised to be a housing crisis.
The lack of access to decent affordable homes for Londoners is a major issue, with 56 per cent of those polled just before the mayoral election saying housing was a top priority for London.
Affordable housing, as well as being an issue about inclusivity, fairness and creating balanced communities, is also key to London’s future prosperity. The business community is increasingly concerned about the negative impact of excessive housing costs on recruitment and retention of skilled workers. Then there is the need to accommodate people working to provide essential services from nurses through to doctors, teachers and care workers.
To tackle London’s housing crisis, Khan plans to deliver 80,000 new homes per year, with half being genuinely affordable. But to deliver this target will require radical new thinking – particularly given that fewer than 7,000 affordable homes were built in 2014-15 according to the GLA.
He is on the right lines when he suggests raising bonds to build social housing on public land, such as TFL’s and NHS sites, and involvement of the pension industry. This focus on supply side of affordable properties to rent is what is required.
If councils and the mayor are allowed to borrow to build, using public land they could access further funding from the finance sector to build modern decent homes at an affordable rent.
Rather than the current definition of affordability as 80 per cent of market rent, Khan has proposed a London Living Rent, based on a third of the local average borough wage. But will developments providing homes to rent at this level of affordability be viable?
Using public land to avoid land purchase costs, combined with the reduced costs of modern and innovative methods of construction and offsite manufacturing, and perhaps an element of higher priced rental homes, should make such schemes viable as an investment. The steady rental income streams will be particularly attractive to the pensions sector, which in a low-interest-rate world is finding relatively low-risk investment opportunities with sufficient yields increasingly hard to come by.
However, to achieve this goal will require complex negotiation with national government, local government, social housing providers, the finance community, private developers and contractors.
In particular, the City and its finance community has much to contribute, with a history of innovation and directing finance into areas where investment is required while making a decent return for investors.
If London’s housing crisis is to be tackled soon, serious discussion between all parties needs to start now.
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