Housing in London - the current state of play Christine Whitehead London School of Economics Next steps for housing policy in London - supply, standards and affordability Policy Forum for London London, 21 October 2015

Progress The Negatives: the Positives Completions stable at around 18,000, way below Plan let alone requirements and new orders falling (affordable housing timing) Densities and overcrowding increasing Homelessness rising – 80% higher than in 2010 House prices and private rents rising (although prices actually fell in August Some government initiatives which may reduce capacity BUT Planning permissions and now starts rising quite rapidly Increasing emphasis on unlocking large sites with assistance from GLA/HCA and DCLG – Housing Zones (although as yet little evidence of successful build out) Increasing interest from Housing Associations and institutional funding in private rented sector Attempts to improve rental offer Large number of government incentives

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 concentration of demand in London - some 25% of projected increases in households in England to 2031; House price volatility and macro economic instability; Worsening access to housing of all types; Structural changes in tenure; Reductions in government support for both supply and demand.

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 over 20 years? Given these requirements London’s housing shortfall could be around 30,000 homes a year

Many fewer younger households Many fewer single person households More ‘other’ households More couples – with and without children Looking to the future – not enough singles to take the strain so families couple worse off. What has been happening?

Priorities Is it just new build, new build and new build? But building more will not have much immediate effect on prices; The recession has reduced household formation – so any economic improvement is likely to offset demographic changes putting further pressure on the market; But also longer term pressures to reduce household formation especially for younger households which are likely to worsen – so condition likely to be worse for this group in the future; The demand for housing rises not just with demographics but as much because of income growth – so economic success means higher demand; So there is an inherent tension between success in the London economy and success in providing housing for Londoners; The easiest and worst way of reducing demand and house prices in current conditions is to have a recession. This is NOT what anyone wants; So have to accept indicators will get worse BUT not a reason not to try.

Concerns about what and where 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; But very different development model from before the crisis and many reasons (including experience) to expect the process to be much slower than predicted; And scale and location issues: - 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 for building the slums of the future) Still massive political objections to development, especially in outer suburbs where need to raise densities

A More Fundamental Priority: Housing, Welfare and Affordability Who can afford to live in London? Camden evidence that only 14% of those in the private rented sector (33% of the housing stock) are in receipt of Housing Benefit – the poor have already left central London unless in social housing? Majority of new claimants working and often on incomes well above the median - implying very high marginal tax rates for tenants; Pressures from welfare cap, Pay to Stay and Right to Buy; Universal Credit may worsen the situation; Alternatives to the welfare bill – owner-occupation; a better form of intermediate housing; grants for social housing?

Conclusions If London is to remain a world city the housing problems will not go away – indeed will probably worsen; 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 a long while to get going; Current construction model too market dependent Can more be done in more traditional ways – especially in the outer suburbs; The current model of demand side subsidies cannot be sustained; Need intermediate tenures – including shared equity - to 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; Do we need a crisis package – especially for younger working households?

Our new report Housing in London: Addressing the Supply Crisis Athttp:// ent/research/london/docs/LSE-Report-Final- Version-Web-Authored.pdf