If we need further landlord investment, it should be nudged towards new-build homes. Photo: Getty
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Labour must be bolder about curbing the growth of landlord-investors

The Lyons review is too timid about the principle of putting first-time buyers at the front of the queue.

Time will tell whether Sir Michael Lyons’s long-awaited housing review will deliver the dramatic increase in house-building the country needs over the coming decades. But for now at least it breaks important new ground in the policy debate about how the homes we do have are sold, and to whom.

Among the most eye-catching of the proposals he presents to Labour today is for a percentage of new homes to be reserved for a certain time for purchase by first-time buyers. There should also be powers to restrict their sale into the buy-to-let market, he says.

This is different from previous attempts to help first-time buyers in that it is not only designed to give them a head-start but, importantly, places a restraining arm across eager landlord-investors.

This could mark a decisive turning point in housing policy, which from the 1980s until now has been geared towards boosting the private rented sector and giving would-be investors every opportunity to pile in with their cash. The deregulation of the housing market, the exponential growth of buy-to-let mortgages and rapid house price inflation – all engineered by ministers in one way or another - have all encouraged the colonisation of the market by a rent-seeking generation of small landlords.

The initial idea was that the private sector would pick up the slack in the supply of new homes after councils were effectively prevented from building any more. But this never happened and instead the housing shortage set in and first-time buyers were shut out.

It is a common complaint that rising house prices are condemning more and more younger people to renting, where the costs are so high that they have never enough money to save for a deposit.

Obviously, obviously, there are not enough homes to keep up with demand. But what we tend to consider less is who might be buying up these homes, at their inflated prices, instead: the answer is private landlords.

The story of the housing market over the past decade or more is the decline of owner-occupation and the rise of a new rentier class comprising small investors, who of course already own their own home and have done very well out of the property boom, thank you very much. As a result, these people have the resources to get ahead of first-time buyers every time.

The number of homeowning households barely increased between 2001 and 2011, from 14.9m to 15m, according to the Office for National Statistics. Virtually all of the growth in the housing stock during that time was absorbed by the private rented sector, which grew from 6.7m to 8.3m. Proportionately, owner-occupation fell from 69 per cent to 64 per cent of all homes, while privately-rented accommodation grew from 12 per cent to 18 per cent. Social housing has also been in decline, due to the lack of investment in new homes for the sector, and is now smaller than the private rented sector.

A major part of the drawback with buy-to-let investors, and the reason they have driven up costs rather than funding supply as was once hoped, has been that they tend to buy existing stock rather than funding new developments. The Treasury’s best estimate in 2010 was that just one in 10 buy-to-let loans was taken out on a new-build property. (A subsequent consultation discovered that even that was an optimistic figure.)

So putting some kind of break on buy-to-let investment, and putting first-time buyers ahead in the queue, is vital and Lyons’ proposal is to be welcomed.

However, to limit the application of this approach to new homes is not ambitious enough, as they represent only a small proportion of the homes coming onto the market in most areas. Why not apply this policy to the sale of all homes, new and existing?

And to the extent that we need further landlord investment at all, it should be nudged towards – not away from – new-build homes.

In this regard the Lyons review, while representing a step forward, is not realistic enough  about the challenge facing first-time-buyers in the property market and the need to give them greater access to all homes that come onto the market, not just new ones.

And if we are to allow our new landlord class to keep sinking their capital gains into the property market, let them use their stacks of cash to fund the building of new homes.

Daniel Bentley is director of communications at Civitas: Institute for the Study of Civil Society, and co-author of Finding Shelter: Overseas investment in the UK housing market

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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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