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Almost daily there is new evidence that London house prices are rising with the prospect of a bubble emerging. Britain has run out of bricklayers, a quarter of jobs being created are in real estate, and prices keep rising. It is clear that the status quo is not an option. Economists and politicians agree that we are not building enough housing in London (half as much as is needed for the last 30 years, according to the Mayor) and that it’s far from a cyclical issue.
The Draft London Housing Strategy presents some interesting policy innovations aimed at getting the homes built that Londoners need. Centre for Cities has previously identified housing supply as key to the capital’s housing issues, and it’s worth highlighting three of the more innovative policy recommendations targeted at this in the Mayor’s draft strategy.
Possibly the most innovative recommendation is working with the government to deliver Housing Zones. In essence these would mimic many of the freedoms in Enterprise Zones. The 10 housing zones would encourage housebuilding in existing opportunity areas through ‘light touch’ planning regulation, tax incentives and land assembly powers. But with little fear of displacement (as housing is the most physically fixed of assets) the risks are constrained to whether the public see the benefit, in more housing, or whether this merely adds to the profit of already viable developments.
The London Housing Bank is another interesting policy idea which would be aimed at getting houses built on larger vacant sites by ensuring flexibility, security and liquidity for developers. The bank would enable the GLA to purchase market homes off-plan, offer guaranteed covenants for build-to-rent homes or loans for keeping homes affordable for a fixed period. These investments and loans (as opposed to grants) would be aimed at vacant land and stalled sites identified in the capital.
The other interesting model aimed at housing supply is for new homes to be covenanted for private rent at below market rates for at least 10 years. Housing associations increasingly see this as a way to realise equity and longer term financing as they re-align their models to deliver housing without grants. The housing association can build homes to rent and either sell to institutional investors with a long term rental covenant, and associated financial security, or rent the property out themselves and realise these benefits. This represents an interesting approach to tackling the capital’s increasing private rental costs by levering in institutional investment and providing security for longterm renting.
Finally, the strategy also calls on Whitehall for certain devolved financial freedoms, most significantly for localised property taxation powers (including Stamp Duty Land Tax) and the lifting of councils’ borrowing caps against HRA for housing investments. Both of these would free up local capital and allow the GLA and boroughs address the housing market at a more relevant city or borough level.
The early criticisms of the policy claim that the overall number of houses will not be enough (42,000 new homes each year for ten years, 15,000 of which to be affordable, and 5,000 for longterm market rent). Labour are calling for more housing, as are London Councils (80,000 each year). However, as it stands any rise in housing supply is welcome, and some of the innovative policy experimentation and approaches in this strategy could be a way of achieving it. There is also little mention of homelessness, vulnerable people or even social housing beyond the rather Orwellian-sounding “re-defining need” section. The strategy is instead forthright in re-iterating the Mayor’s 2012 housing covenant: those who contribute through hard work to London’s success should expect a reasonable housing offer in return.
Commentators agree that London needs more homes, the draft strategy recognises this and puts forward some innovative ways of tackling the challenges. The draft strategy is just that, a draft. It addresses many of the key issues in innovative ways but practical strategies are not yet fully laid out, and those drafted will need effective working between the 33 boroughs, GLA and central government alongside financial institutions and developers. With that in mind, these new models could go some way to addressing the chronic undersupply of homes in London.
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