A New Direction for London’s Housing? An Alternative View Christine M E Whitehead LSE 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 owneroccupation 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 What has been happening? • Looking at the 2534s • Many fewer single person households • More ‘others’ • More couples – with and without children. What might happen 2011 to 2021? 2011-21 - from DCLG 2011 Homes needed or released New 15-24 124000 15-24 to 25-34 535000 25-34 to 35-44 285000 35-44 to 45-54 -6000 45-54 to 55-65 -52000 55-64 to 65-74 -91000 65-74 to 75-84 -56000 75-84+&over to 85&over -199000 • 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 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!