Don't leave house building to the house-builders

Give people a driving seat in housing investment, writes VMC Rozario.

The reality is mortgage finance is never going to get back to the heady days of the early 2000s, nor should it. But with rents rising, saving for a deposit when a lack of supply keeps prices overinflated seems impossible.

I'm part of Generation Rent, a generation unable to access social housing or mortgage finance and left paying more per month for housing than any other group. But I'm also part of a growing generation of people that, unlike their parents, need to find our financial security in something other than the bricks and mortar of their own home.

Whatever the larger debate, we need more homes all sorts of homes, for rent, socially and privately, and to buy.

The question becomes where will this investment come from?

The London Mayor wants a £1.3bn rebate in stamp duty from the Treasury to build 1 million homes by 2050. Yet with the banks holding back on lending and the Government set against going back to a pre-2010 situation of more public subsidy for capital investment in social housing (despite the economic evidence that it could be the short-term kick the economy crucially needs).

Political parties are desperate for a quick fix to this investment problem. Institutional investors, like pension funds, have been incredibly slow to come to the table to kickstart building.

Perhaps we would be better off crowd sourcing investment from the public directly.

There are a growing number of success stories of start-ups who have gone directly to large groups of ordinary savers/investors through websites like Kickstarter. Although the model isn't directly transferable, the principle is. Get people to invest in housing other than their own. Around 1 million plus private landlords in the UK are doing and making a profit out of it, so why not make more of us landlord investors?

That doesn't mean becoming a country of buy-to-let investors, but if more people want to invest in housing other than their own why not tap into that?

Some might scoff at the idea given the economic climate but actually there are two things that mean we should look at it seriously. Firstly we already have a model of public savings that has grown in sufficient volumes to take seriously.

When Premium Bonds were created by Harold Macmillan government in 1956 the aim was to control inflation but also to encourage saving in post-war Britain. On their first day £5 million worth of bonds were sold and by 2006 improvements in accessibility and a desire for safer investments than the stock market saw 23 million people (then around 40 per cent of the British public) hold premium bonds.

The ability to bring together savings from such a broad section of society (1.6 million of those bond holders had saved only a reasonable £5,000) should be something to replicate in housing investment, especially as housing is relatively stable and long-term investment.

Now National Savings and Investments manage over £100 billion in ordinary people's savings. Imagine if a separate housing fund was launched. There is something powerful about the idea of a family growing into habit of saving, with the added bonus that their investment has helped a housing association deliver them a home and keep house prices and rents down is a bonus. Unlike dead rent, in time those savings could fund a deposit on their own home, university fees or even retirement costs.

The second indicator that this general idea, people investing in housing other than their own, needs closer inspection is that where housing associations have dipped their toes in retail bond issues they have generally had their feet bitten off. Steve Binks, Places for People's Finance Director told the Communities and Local Government Select Committee last year about their experience of reaching out to private investors:

We went out with a relatively small issue, or ambitions for a relatively small issue of £25 million to £50 million. That was our initial asking and we were surprised-almost overwhelmed-by the demand. We ended up raising £140 million in two weeks from people who would invest money with us for five and a half years, put it into an ISA at-I think the interest rate was 5 per cent.

Moreover there's enormous scope of innovation and creativity in this space to give ordinary people a stronger say in housing investment. More work should be done to think and test how this could help communities fund more housing locally, how housing associations could come together to utilising the wealth of savers in the south east (who unsurprisingly save the most) to fund affordable housing across the country and how investments could be made as easy to buy and manage as a premium bond.

A sign marks a plot for sale on a housing construction site on in Swindon, England. Photograph: Getty Images

V M C Rozario is a pseudonymous former housing professional and a member of Generation Rent.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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