Mill Group

The unique characteristics and associated challenges of the London housing market previously raised by a report from the Institute of Public Policy Research (IPPR) last year entitled ‘Affordable Capital -Housing in London’ were again highlighted in the recent report from the Joseph Rowntree Foundation (JRF) ’Changes to Affordable Housing in London and Implications for Delivery’ . This new report considers the affordability pressures which will inevitably increase as London is now ranked the 13th most expensive city in the world (Economist).  The 2011 census put London’s population at around 8.2m. With current growth levels outpacing predicted levels, London’s population could hit 10m by 2030.

Whilst increasing housing supply is an important part of any solution to the housing market, it is not a silver bullet. The IPPR report (see above) highlighted nine factors that make London unique: tenure, cost of housing, type of home, housing need, population churn, inequality, diversity, international influence and the office of the Mayor of London. The direct and indirect ramifications on each of these should be considered in building an effective policy.

Focusing on just one factor, population churn: The JRF study stated that 10% of London households have moved in the last 12mths, two-thirds of which were those in private rented homes. The indirect costs of this population churn can be significant. A London School of Economics study in 2007 estimated that population mobility or churn cost London councils more than £100m per year. The private rented sector (PRS) in London currently represents a large chunk (25.4 per cent) of the London housing market and is still growing.

The provision of private rented accommodation is a much needed part of the housing strategy, but innovation in the form of longer term PRS tenures could lead to both direct and indirect benefits. For example, providing additional security for the occupant, but also delivering more cohesive communities thus reducing churn and some of the social cost burden for the councils.

Echoing the views of the IPPR and the JRF a comprehensive housing policy that considers all the factors may not reduce the cost of public subsidy but could help deliver synergy, limiting the overall cost burden at local council and central government levels. As the policy makers ponder the issues of delivering both private and public affordable housing solutions, we support the view of the JRF that London practitioners must also work together to achieve consensus for a sustainable housing delivery model for London.

At Mill Group, our focus is on creating innovation in housing and housing tenures leading to long term sustainable solutions. Our Investors in Housing programme allows investors to benefit from a sound residential investment proposition, whilst helping to address the wider issues of the UK housing market.

The recently published Molior Report Barriers to Housing Delivery undertaken for the Greater London Authority identified three main constraints to housing development in London:

 Control of the pipeline: The point being that despite planning permission being available for 210,000 new homes in London – the equivalent of seven years’ housing supply at the current GLA rate of 32,000pa – over 85% are in mega schemes that rarely deliver more than 250 homes every three years. According to Molior, the realistic delivery over the next 3 years from the planning pipeline is between 50,000 and 70,000 homes even if every consented scheme commenced construction tomorrow.

 Non balance sheet funding: The availability of debt, especially development funding, is a greater constraint for developers than its cost. Only large firms are able to access it – the very firms that do not deliver housing in the volumes required (see above)

 Private sector capacity & public sector speed: Most building firms say they are operating at their planned capacity – and the planning system needs time to settle down from its major upheavals. Getting viable planning permissions are difficult, but the time they take and the conditions imposed on them can considerably hold back any potential start dates on new sites.

So there definitely are issues here – and we are unlikely to build anything like as much as the GLA currently say we need in the next 3 years in London.

Looking deeper into the issue of housing supply for Londoners, we find that overseas investment is now accounting for over 50% of the uptake of London’s new build housing market. Some may rent but most bought for family or simply as a safe haven – so only a proportion of new built schemes are actually available for Londoners to occupy. London is building up a second home/holiday home problem that it doesn’t realise it has.

No wonder rents are going up… and values in London will as well.