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London needs a new deal to tackle the housing crisis

Tackling the capital’s housing crisis will require co-operation across all levels of government and a coherent devolution deal, according to the London Housing Commission’s final report. Its chair, Lord Bob Kerslake, writes for PSE on how this could be achieved.

London faces an unprecedented and mounting challenge in housing its citizens. Its ability to meet accommodation needs is drastically failing to keep pace with the requirements of its booming population. It is hardly surprising, therefore, that it has become the issue dominating the mayoral campaign ahead of May’s election. 

Figures suggest that London needs to be building at least 50,000 new homes each year if it is to meet its housing demands. With an additional 1.5 million people projected to be calling London their home by 2030, the current house building rates of just 25,000 are simply not good enough. 

As demand for homes increases, affordability problems are escalating sharply; house prices in the capital have risen 45% above the highs experienced before the financial crash hit. By contrast, average house prices outside of London have grown only 5% during the same period. Where an average home in the capital now costs £500,000, more than 12 times the median income, it is clear that many Londoners are being priced out of buying their first homes. 

Inevitably, the demand for rented accommodation has grown rapidly as more and more families rent for longer. The numbers are staggering – the number of private rental sector households has doubled in the last decade – yet even here there are worrying signs. Rents in London are more than double those seen in the rest of England and while weekly wages have risen approximately 2% in the past five years, the cost of renting – rising 16% – is far outstripping this. Given demand is so high, there is further little incentive for landlords to improve the quality of their properties. 

These problems extend beyond priced out first-time buyers and hard-up renters. The knock-on effects are wide: businesses struggling with recruitment and retention, rough sleeping increasing, and the costs of supporting low-income families through housing benefit and temporary accommodation are a considerable drain on scarce public resources. There is thus a compelling case for keeping housing at the top of the policy agenda. 

With this in mind, in July of last year I was invited by the IPPR to join with experts spanning government, academia, and the housebuilding sector, to establish the London Housing Commission. We were tasked with reviewing the factors contributing to London’s housing crisis, with the ultimate objective of developing a clear programme of action through which it might be tackled. Our findings were published in March in what we presented as a ‘Building a new deal for London’. 

No single solution 

At the heart of this new deal must be a collective commitment between Westminster, the Greater London Authority, and the London boroughs to double the supply of new homes. There is no alternative to this. Improvements to existing stock – for example, refurbishment of empty homes or conversions of non-rental properties – offer a short-term strategy, but alone will fall short of meeting the numbers of homes required. 

The only way in which the challenge can truly be met is to build more homes and, crucially, homes which are affordable and/or suitable for a range of tenure types. As our consultation with housebuilders, planners, councils, housing associations, and homelessness charities illustrated, however, the barriers to this are many and varied. As such, we do not offer a single solution. Rather, we have presented a package of recommendations to confront head-on the problems identified. 

The new deal between central and London government calls for action across all levels of government and highlights the benefits of the London mayor, London boroughs, and central government working together in order to achieve this. 

The mayor and boroughs must make the first move, using powers they currently hold to start addressing these issues which will in turn prepare the ground for future devolution. London will need to make a strong commitment to government – most importantly to identify land sufficient to provide for 50,000 homes a year, speed up processes for land release and development, and simplify requirements for negotiating affordable housing in the planning system. 

Supporting neighbourhood planning 

They should also support communities in conducting neighbourhood planning to bring forward small sites and regeneration opportunities, as well as working with housing associations to increase housebuilding in exchange for many more new sites. 

To bring forward housing investment they should also deepen co-operation with TfL to unlock more building around transport sites, and work with public sector pension funds to unlock more investment in affordable homes.

To help out London’s many renters, the mayor should also create of a London-wide lettings hub, which would support the government’s objective of improving renting by linking up tenants with good-quality landlords and incentivising landlords to meet higher property standards and offer longer leases. 

It is abundantly clear, however, if London is to deliver the homes it needs, the power and resources at London’s disposal are inadequate, and thus a radical devolution settlement is needed. This should include making the current London Plan the single strategic planning policy for London and in this, enabling the mayor to force boroughs to change their plans if and when they neglect to identify enough land for housing. 

To ensure borough planning departments are capable of delivering the local plans and planning system required to deliver 50,000 homes a year, London should have the power to set planning fees. 

Finally, to ensure planning applications are turned into homes, boroughs should have the discretion to levy a council tax on developers where targets for housebuilding on a site were agreed, but missed.

Devolving stamp duty 

More investment will also be critical and the commission makes the case for devolving stamp duty proceeds. It would mean London could retain a proportion of this income for building new homes, both for buying and renting. We anticipate this accompanying a reduction in central government grants and yet the additional power to adjust stamp duty rates in consultation with the capital’s business community. More generally, the borrowing cap placed on both GLA and London boroughs should rise so that more immediate capital can be accessed and invested into house-building. 

These are major changes, but it is clear that continuing with the current arrangements will not deliver the homes that London needs. With London’s housing crisis showing no sign of ending and its impact on the economy spreading out into the rest of the UK, the time has come for policy-makers to radically rethink the way in which the capital’s housing is tackled. This will require co-operation across all levels of government and a coherent devolution deal. 

The London Housing Commission’s final report does not contain all of the answers to London’s deep housing crisis, but presents a strong package of proposals to challenge the roots of London’s housing failure.

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