‘Affordable Housing’? Get Ready For 80% Of Market Rent

housing_040913What counts as ‘affordable housing’ in London has taken something of a turn for the, er, interesting.

Boris Johnson has made changes to his London Plan, which means that any borough wanting City Hall money to build homes for ‘affordable rent’ must abide by London-wide rent caps of no more than 80% of market rate and maintain an average across the city of 65% of market rate. This has been criticised by the Planning Inspector and prompted an impassioned debate by councils of all political colours and some London Assembly members, because:

  • councils want to be able to set their own rents to reflect their local housing situation
  • even 65% of market rate in some boroughs is ridiculously high.

There was a fascinating debate at City Hall on Tuesday (you can watch the webcast of the Extraordinary Plenary on the GLA website). Labour moved to reject these proposals but failed to get a two-thirds majority as all Conservatives voted with the Mayor – even Victoria Borwick, who also sits on the highly sceptical Kensington and Chelsea council and personally voiced doubts about the scheme.

So now this is going to be reality, what does it actually involve? Let’s first look at Affordable Rent. This is a new type of social housing model introduced by the coalition. In short, to make up for a cut in government grant money to build new homes, developers can charge more for these homes (up to 80% of market rate) if they use funds from central government.

Councils have expressed concern that up to 80% of market rate is far, far too high to be truly affordable. A two bedroom flat in Southwark at 80% of market rate would need an income of nearly £44,000; at 65% of market rate you would need to be earning £35,600. In Brent, to afford a two bedroom flat at 80% of market rent you’d need to earn £37,700; at 65%, £30,600. This is not ‘affordable’.

‘Ah yes but,’ says Sir Eddie Lister, who was at the meeting instead of the Mayor, and his planning team. Councils can subsidise the rent by gifting the land to the developer (if they have land to gift) or tenants can make up a shortfall with housing benefit. So if we’ve got this right: developers have to charge a higher rent to make up for getting less taxpayer cash during the build, only for the taxpayer to have to subsidise those rents through housing benefit?

The criteria for rents to average out at 65% of market rate does give some flexibility for how councils set their rents. In a single development, each unit can be let out at different levels. Kit Malthouse (Conservative, Westminster) painted a picture of one scenario, of a block in Pimlico where some one-bedroom flats would be let at 80% of market rate to young professionals to subsidise lower-rent family housing in the same development. Sounds like an idyllic mixed community. Except that those young professionals would be counted in the affordable housing statistics, when if they’re earning the £57,720 per annum needed to afford a one-bedroom flat in Westminster at 80% of market rate, they presumably aren’t in need of social housing. And if these young professionals (who are somehow eligible for social housing and have been allocated a much sought-after ‘affordable home’) need housing benefit to top up their rent, then surely that proves the rent is too high. Some developments already use higher income earners to subsidise a percentage of affordable housing in the block; at least with these, only the genuinely affordable housing counts as affordable housing.

And this is the rub. Eddie Lister admits that the major reason behind the 80%/65% rule is to maximise the number of units that can get built, so the Mayor meets his targets. But what’s the point of being able to say that 50,000 ‘affordable homes’ have been built if not all of them are being lived in by people who genuinely do need affordable homes? We know that if the Mayor misses his targets, media gits like us would point and go ‘ahhhhh’. Or something equally erudite. Well, here’s our pledge, Boris. We would rather you built fewer homes, but made sure they were actually within reach of the people who need them. If you do that, we won’t run a bitchy piece if you miss your target.

The concern here is that it’s just one more pressure forcing people on low incomes out of inner London and out to boroughs that are cheaper. This was put to Eddie Lister, and he acknowledged that if someone can’t afford the ‘affordable rent’ then housing benefit can help, but that should only be a “temporary measure”, he says. If you can’t afford the ‘affordable rent’ where you’re living, he suggested, you should move. We’ve already established that’s not necessarily a very good idea, and yet this policy could encourage it.

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Photo by Louis Berk from the Londonist Flickr pool.

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  • Dn

    Let’s not forget rents will never go down unless more houses get built. I DO think it’s a good thing to come up with an achiveable scheme to stimulate building, afterall if there were more houses the market rate would come down and the rent wouldnt be so high.

    • ballboygirl

      I think you’ve missed the point. More houses are not required – what’s required is the will to keep social housing! In my block of flats when a tenant leaves the vacant property is advertised as a private rent (make legal by the gov’t even though they are a housing association!) – a family needs a 3 bedroom flat due to overcrowding and one becomes available in my block but the Landlord won’t rent to social housing tenants – no obligation to do so – so people live in overcrowding. It’s policy – not lack of housing. As for the private sector, go walk around Regent’s Park and you’ll see hundreds of empty flats – owned by Arabian business men for their clients – when they come to the UK. So don’t swallow the Tory ‘we needs more houses built line’ – that’s just an excuse to destroy the green belt and make even more money for the developers.

      • Maggie Allen

        75,000 houses flats empty in the UK.

        • Nick Katz, FRICS

          How many flats in London? That would be more interesting and relevant to discuss. That said, more homes need to be built…and social housing needs to be supported. When millions more people come into a city over a short number of years, they need to have accommodation and it’s cheaper to own than rent right now. That plus foreign demand means…either settle for prices continuing to skyrocket over the next decades or start an enormous construction revolution.

  • Concerned Londoner

    will this affect the shared ownership schemes where you pay a % as rent?

  • Maggie Allen

    Social housing is NOT affordable no more. And its a joke to call it ‘affordable’ when this evil government UK, is directing housing associations to put up rents annually by huge amounts. The whole system is corrupt, from greedy government to greedy housing associations who by the way are meant to be non profit….well that’s a joke too. Housing associations are either a business or a charity….well seeing that they are not charities they must be businesses……
    Go figure….. corrupt as can be.

  • Jon

    So as I understand it you suggest that a small number of people are given highly subsidised flats paid for by taxpayers i.e, everyone else. So how do you choose who gets these flats and above all how do you stop this practice leading to corruption?

    The greater the discount the greater the risk of corruption. I would suggest that the average rent is set at 80% of market rate and not 65%. If this is too high for ordinary people then build more flats in areas where they can afford to live. It is nuts to put low income workers in an area full of high priced delis rather than good value chippies.

    • http://londonist.com/ Rachel Holdsworth

      The process of deciding who gets affordable housing happens now, under social housing rules, and has been going on for decades. And as for why it’s not a good idea to put eveyone on low incomes in the same bits of London, see: http://londonist.com/2013/06/why-dont-people-on-low-incomes-all-live-in-the-cheap-bits-of-london.php (especially paragraphs 4 and 5). There are 700,000 people in London earning less than the Living Wage – that’s an awful lot of people to move around.

  • lukel1

    I live in an affordable rented home, and the truth I can not afford to work, even if benefits are cut i’m still better off not working.