Will Boris build homes you can afford?

London Mayor Boris Johnson last week published his plans for housing in London over the coming years. It’s vitally important the Mayor gets this right given roller-coaster house prices, unaffordable rents and a long term undersupply of homes. So how did he do?

The Mayor’s strategy has a more ambitious vision to get homes built for the next generation than we’ve seen from Westminster for many years – and this is welcome – but there are also some major practical weaknesses in his approach which we think could be improved.

So what’s he getting right?

  • A focus on building more homes in London than at any time since the 1930s.
  • An understanding of what will be needed to get those homes built. Boris’s strategy talks about the need for more investment from government as well as reform to the land market and house building industry. We agree that these are the right areas to focus on.
  • The Mayor’s idea of ‘housing zones’ is novel and could work if backed up by the right mechanisms. He must ensure that high land prices don’t end up pricing out smaller builders and producing homes that ordinary families can’t afford.
  • The Mayor is right to look at ways to rationalise the “intermediate” market in London, so that it’s easier for shared owners to move without being restricted by the rules of whichever product or scheme you started with.

The Mayor has identified the right things to focus on. We think though that improvements must be made to the details of the plan.

The big weakness is that while he is focusing on building more homes, many of them will be at prices that Londoners on normal incomes will struggle to afford.

Recent analysis by Savills suggests that the bulk of demand for homes in London comes from families with an income of less than £50,000. They say this equates to homes available at a maximum cost of £280,000 to buy or £1,200 month in rent for a two bed flat. And many London families will need homes at lower costs than that.

Yet what is accelerating in London at the moment is the building of luxury flats at prices far above that level. The number of affordable homes being built is very low.

Boris Johnson’s plan does not address this sufficiently.

The new housing strategy suggest that the majority of new homes built in the capital will be at full market value. The Mayor needs to be clear about what price ranges for new homes he is targeting and what he can do (inluding using his public status) to help stabilise house prices more broadly in the capital.

As well as planning for market homes, Boris is able to set the terms of a £1 billion “affordable” home building budget over three years.

The Mayor can decide how this public money is split between low rent homes, higher rent homes and shared ownership homes. The split is very important. You can get more of the higher rent and shared ownership homes for the same amount. However, many Londoners on a low or middle salary cannot afford these higher rent or shared ownership homes. Cheaper homes help more people, but require more money, so fewer homes can be built. A balance needs to be struck, which recognises the need for a bigger and better middle market but also the desperate need for low rent homes.

The Mayor has gone for a split of 30% lower ‘capped’ rent homes, 30% higher rent homes and 40% shared ownership homes for his £1 billion pot. This compares to a split of 70% low (social) rent and 30% higher rent and shared ownership under the previous Mayor.

In January there will be an independent assessment of London’s housing need and if this shows the greatest need is for lower rent homes, as we expect, then the Mayor will need to reflect that in his split.

What next?

We’ll be looking at the plans in more detail and making recommendations to the Mayor as to how the strategy could be improved to provide more homes for mid and low income Londoners.

With housing a top issue for London voters the Mayor knows that he must get this right.

 

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