What Are The Solutions To London's Housing Crisis?

Rachel Holdsworth
By Rachel Holdsworth Last edited 58 months ago
What Are The Solutions To London's Housing Crisis?

We've established that it's difficult-to-impossible to live in London on less than the living wage, and that it's not practical to move lots of people on low incomes to the cheaper boroughs. At this point in our research we got depressed and started asking around for ideas to make it all go away.

What we found was this: housing in London is complicated. Bloody complicated. Tugging at one thread unravels a whole other tangle over here that you didn't even know about. But what it all boils down to is that London doesn't have enough housing, at all, full stop, so the extra demand pushes prices up out of the reach of not just those on low incomes, but increasingly middle incomes as well. And the solutions to sorting out the affordable housing problem would benefit all of us. We spoke to three members of the London Assembly: Andrew Boff (Conservative), Tom Copley (Labour) and Darren Johnson (Green), and London Councils about what needs to happen.

One idea to cut the benefits bill is to pay people more, an idea that Boris Johnson backed at the last Mayor's Question Time. Putting more people on the London Living Wage (currently £8.55 an hour) obviously increases their spending power; but businesses would doubtless complain about their bottom line and customers would doubtless complain about any price increase. But the fact remains that benefits are subsidising low pay. Another approach to the same problem comes from the Adam Smith Institute, which suggests lifting those on minimum wages out of tax.

Dealing with pay doesn't address the lack of actual housing, though. We can't all keep getting a pay rise to cover spiralling rents, and the simple statistic that 24% of London's children live in overcrowded homes illustrates that there isn't enough property for all of us. Boris thinks he can build enough homes to plug the gap in 10 years, which sounds optimistic at best. Everyone agrees we need to build more homes (and at a local government level, everyone agrees that the receipts from right to buy should be ploughed back into housebuilding; something that national government blocks), and there are plenty of ideas on how to do it.

London Councils and Tom Copley both called on the government to lift the cap on councils being able to borrow in order to build more housing. "Everything comes back to affordable housing," said the London Councils spokesman. Tom described how the private sector has never been able to fill the gap left by the lack of council building in the last couple of decades, and that's had a big impact on supply. A shortage of social housing pushes more people into the private rented sector, which in turn pushes up rents and makes greater calls on housing benefit. Social housing makes financial sense long term: the main taxpayer subsidy goes on the building, which is paid back in rent and the reduction in housing benefit. In fact, Darren Johnson has worked out that if the UK's social tenants rented privately, it would cost an extra £5.3bn a year in benefits (PDF).

Andrew Boff says the emphasis should be on high quality family housing. There's no point throwing up all these high rise developments of one and two bedroom apartments when families need more space, indoor and outdoor. We were sceptical about proposals to build low-rise developments with gardens instead of tower blocks, but he patiently explained that if you take the footprint of a tower plus the surrounding green space, and build 3-4 floor mews houses with gardens instead, while you wouldn't get quite the same density you would at least get homes that people want to move into that will last a century (and since we're typing this in a terrace built in 1900, we concede he has a point). Young professionals and elderly people like the convenience and security of blocks, but shouldn't London's housing stock be as diverse as the people?

But this is all long-term. Rents are increasing by double figures every year and are currently two and a half times higher in the capital than the rest of the country. We need action so Londoners rent affordably now. And that would seem to involve some kind of rent control. There are various ways that could work, but the most popular suggestions for London are pegging rent increases so they can't go above the rate of inflation, longer tenancies offering security (particularly important for families, especially where the children have settled into local schools) and the end of no-fault eviction, where a landlord can kick out a tenant at the end of the lease usually because they reckon they can get more rent from someone else, a practice Tom Copley described as "indefensible".

The idea of rent control isn't a universally popular one; Boris Johnson keeps invoking the spectre of New York and how rent control is pretty much dying out there, and the concern that applying controls would reduce the supply of property. But interestingly, our Assembly Members don't think that's necessarily a bad thing. Both Andrew Boff and Darren Johnson thought that getting rid of bad landlords could be beneficial – the opportunistic, buy to let landlords who don't properly look after their tenants.

To counterbalance any reduction in supply as bad landlords sell up and leave the market, and/or generally increase supply of rented property, the idea of more institutional investment in the private rented sector came up. Large scale, professional companies developing high quality housing for long term leases, offering security and stability. Kind of like housing associations, but on a larger scale. But this would also take time to develop, and we're back to talking about supply again. Oh dear. We'd rather hoped to finish on a slightly more optimistic note.

Read more: Is it possible to live in London on a low income? and Why don't people on low incomes all live in the cheap bits of London?

Photo of new housing in the Olympic Village by Manuel.A.69 from the Londonist Flickr pool

Last Updated 05 June 2013

MadMax11

Two words: Rent Caping.

If it's good enough for New York home of Gordon Gekko capitalism it's good enough for London. Everything about the housing and renting market in London is predicated on an ability to force prices up as far as the market will hold and the market will hold much higher than the average worker in London can bare.

DrPlokta

In the long run, building more homes makes the problem worse, not better. The pulling power of a major world city depends on its population -- the higher the population, the more attractive it is as a place to live and work. So by building more homes and increasing the population, we will attract even more people to come and live in London. That's a good thing, but it won't help with the housing situation.

In fact, there are no answers at all. It will always be difficult to afford to live in a major world city, people will always have less space than they'd like, and so on. The only "solution" would be to destroy London's economy and make it a less attractive place to live.

CL

Recently heard from an acquaintance that one of his friend owns 250 properties within London (and apparently the number is still increasing) - if this is the pace of people backed with capital buying up a lot (if not most or all) available living spaces, which has an apparent connection to the upward spiraling of rent price, something needs to be done.

Rayhan Rafiq Omar

Money goes where it is treated best.

There is no incentive for anyone to build: government, housebuilders, homeowners could all build, but none do.

Why don't they build? High cost of land, ridiculous planning process

High cost of land exists because few people/companies are sitting on the vast majority of land (they call them land banks). These land banks appreciate faster than the rate of inflation, so the holders of land banks have no pressing need to put that land into use. This restricts the supply and pushes up the price of land further.

That's the key problem.

The solution? Well, there's only really one: tax land.

Government pays for infrastructure, private land owner pockets the profit from increase in land value, taxpayer has bigger tax bill and bigger housing crisis as a result. Landowner pays zero tax on increase because they have no need to sell (can borrow against asset).

Tax land, just a little, and it'll be uneconomical to sit on unproductive land. This would boost housebuilding, the sales market and generally boost jobs and prosperity.

By the way, taxing land is simple. Look at Taiwan. They have 3 rules in their law that we can learn from:

1. The state reserves the right to tax land.
2. The owner of any land reserves the right to set the value of that land.
3. The state reserves the right to purchase land at the owner's stated valuation.

A self regulating market, boost to the economy, solve the problem of high land prices/not enough homes AND shift the burden of tax income from the middle class to the wealthy land owners who pay not their fair share of tax.

Comments?

Michael Edwards

It is complicated, yes, but not insoluble. We need a mix of things:
(i) rent control as MadMax11 argues
(ii) holding on to what remains of the social housing, ending RtB
(iii) changing to land value and property value taxes in a form which discourages excess space and the holding of empty property (cf @Rayhan), encourages investment in real production
(iv) expropriating (at existing use value) the huge stock of land in London which has permission for housing but is not being built, and then actually building on it, using public money
(v) if all that makes some private landlords sell up, remember that we don't loose the dwellings - they re-enter the market for others to buy
(vi) Discourage forms of "inward investment" which are simply driving prices up without adding to stock
(vii) help make other cities and regions more attractive to migrants
(viii) ultimately stop housing being a market commodity.

LondonSolutions

I'm not sure I agree with Boff saying effectively that non-family sized properties have no positive impact. Over the last decade many family sized properties have been converted to one bedroom flats or are shared by single people and couples. Whilst new one bedrooms and studios won't create new family properties, it may free up the existing ones for use by families. In addition a lot of my family have downsized to 2 bedroom properties leaving freeing up their previous family sized house. Some of them can't find the right property to downsize, so effectively the lack of suitable 2 bedroom properties is preventing a 3 bedroom house with garden from becoming free.

I actually think we need to house more of London's non-married working population in medium rises properties near the centre. This makes totally sense in terms of transport needs and workers productivity. We can also use land more effectively by moving open air parking underground, prioritising brownfield sites for residential development, building over railway cuttings, stations & single story shops. Rent control won't increase supply but to prevent landlords taking advantage of people in urgent housing situations to up rent all landlords should have to give 3 months notice, whilst the tenant can leave with 2 weeks notice. This would dampen rent increases. The many empty offices in the suburbs should be allowed to be converted to housing.

Boris Johnson should be given London's stamp duty to increase London's supply of affordable housing.

leewashington

I think increasing taxation on buy to let landlords based on the number of properties they own. We visited a rental property that was one of a portfolio of 150. With the buying power the landlord is able to add to the portfolio at an ever increasing rate removing property that would overwise be available to owner occupiers.

Dan

The government pay housing benefit to fund private rentals. So basically the government are paying off mortgages for already rich people to become even richer. It's an absolute shambles.

marna

Reducing the number of new builds described as 'luxury' and therefore commanding high prices would help middle income families with children trying to move out of rented 2 bedroom flats - and free those for people who want to downsize. Currently rental prices are so high that saving for a property is difficult and housing being built is to an unnecessarily high interior specification is unaffordable. Whilst ownership isn't necessarily the only goal, ownership of many flats by a few people is a significant problem. Yes to rent capping to reduce the attraction of ownership of a large property portfolio and the buy-to-let market.

dgbdgb

Depressing situation, but I'm really glad to see you cover the housing issue. Has to be one of London's major challenges.

I strongly agree with the comments below on taxing empty properties - if done well could reduce the attractiveness of buying property that sits empty yet earns capital for the investor as it appreciates in value. This could release housing to the public and also discourage investors for prime sites and improve the chances for land being used for normal housing. But any tax has to be very high to stand a chance of being effective. You could also tax second homes as well.

I fear rent control although looks attractive in the short term has problems. In the long term it discourages investors from maintaining buildings. Many of the slums in central London (now vanished) came from the introduction of rent controls and the subsequent lack of investment in buildings. The same would happen again. We need to be clever about the way we change the situation.

I think getting people to invest in building more social housing (either through councils or housing associations) would be good. But I also think we should be encouraging people to do more build-your-own housing - in Europe this is fairly common, can reduce prices and improve housing conditions. Really identify land suitable for this (either brown field, and probably some green field as well) and encourage people to work together to create housing.

Finally on the funding side, London generates a lot of business tax (for example in the City of London), which is taken by the treasury and mostly not invested back into London. Some of this money (possibly a fixed percentage) ought to be invested back into social housing and infrastructure. A sustainable funding solution is really required - something that results in a positive cycle of investment leading to growth and generating the money for more investment.

Londoner

One aspect of the debate that never seems to be addressed - ever... there are too many people in London. The population is too high. We will never be able to build enough homes to give everyone the opportunity to buy or rent a good property at a reasonable rent. Unless we're prepared to tackle the elephant in the room - both in London and much of England - of overcrowding, I don't see any solution to the problem.