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20 March 2015

The debate: is the London housing market broken?

The New Statesman brought together a group of experts to pick apart the key housing issues in the capital, and what's to be done about them. Charlotte Simmonds reports.

By Charlotte Simmonds

If you want to get a Londoner talking, talk to them about their housing. From sky-rocketing prices, to shortages in the affordable housing supply, to renters’ rights, it is a topic that fires debate like few other. With less than three months to go before the general election, it is also an area where the public is keen to see political leadership.

Many cite the great void between the average annual London wage – around £30,000, depending on what part of the city you measure – and the average London house price – £458,283, according to the latest government stats – as evidence of a market that is out of control. Others say the slump in house building – which has declined steadily since the mid-century, particularly in the public sector – is the key agitator.

Whether the London housing market is “broken”, or whether the present situation is merely the natural consequence of free-market economics principals befitting a global capital, was the question up for contest at a recent New Statesman debate, supported by the National Housing Federation, the Royal Institution of Chartered Surveyors (RICS), and residential developer Taylor Wimpey.

Three panellists advanced the case that the market is broken, while three advanced the case that it is not. All conceded that elements of the market are in need of improvement.  On the affirmative side sat David Orr, CEO of the National Housing Federation, David Lammy, MP for Tottenham, and Campbell Rob, CEO of the housing charity Shelter. Opposing them were Ingrid Skinner, MD for Taylor Wimpey Central London, Andrew Boff of the London Assembly Housing Committee, and Andrew Jones, MD of design, planning and economics at infrastructure developer AECOM. Each panellist offered opening remarks before fielding questions from a lively audience on a broad range of topics – including affordability, house building, developing the green belt and reversing political apathy. 

Out of reach

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In his opening remarks, David Orr emphasised just how distant the prospect of homeownership has become for the average Londoner. “Let’s call her Sally,” he began. “As an average renter, she pays £1,500 on rent, more than half her gross income. If she wants to buy a property, she can just forget about it. Indeed, to afford the average London home, you need an income of £100,000 a year.”

David Lammy raised another troubling trend – the rising age of first-time home buyers. Various research now puts the average first-time London buyer in their thirties. Lammy mentioned new research that suggests “the average age of a London buyer will be 52 in a generation, if the trajectory continues. To me, that’s a broken market.”

For Orr, the problem of affordability was exacerbated by low stock and a rising urban population (more than eight million and counting). “I was part of the baby boom generation, and back then our nation was building more than 300,000 homes a year,” he said. “We’ve just had the biggest baby boom since the baby boom, and less than 20,000 homes were built in London, which is well below what’s needed at the rate the city is growing.”

Some took the opportunity to slate the current model of “affordable housing” used by councils and housing associations, which sets rent at 80 per cent of the market value. By this definition, Campbell Robb called affordability “probably the most bastardised word in the English language” and said that affordability “must relate to the wages people earn.”

Orr pointed to funding cuts to housing associations as part of the problem. “Some of the biggest cuts the coalition made in the 2010 were to housing associations and social housing, while demanding the same degree of delivery. That means housing associations have had to charge a higher rate to tenants.”

Several panellists were keen to point out that “the market” means different things to different stakeholders. From an investor’s perspective, or indeed the perspective of many Londoners who have become millionaires due to their property’s appreciation in value, the market is in rude health.  “The market is doing lots of things for lots of people,” summarised Ingrid Skinner, “the problem is that it’s not doing everything it needs to. I’m not sure that means it’s broken, although there are certainly things it could do better.”

“The question ‘is the London housing market broken?’ presumes there is only one market, when really there isn’t,” added Andrew Boff. “There are multiple London housing markets depending on what appeals to you. If you’re a billionaire, the market is actually rather good.”

Supply and demand

There was broad agreement that the extortionate cost of housing in London is the result of short supply – and that more house building is urgently needed to relieve pressure. Andrew Jones called the market “not broken, but under significant stress.” This, he said, came down to poor planning and development which had failed “to address the long-standing divergence between demand and supply. There are simply not enough sites that can be developed to meet this demand.”

Skinner agreed that planning could be improved. “There is a clear supply-side issue,” she said. “It is still relatively slow, and doesn’t bring the extra product through the system that we need. The release of land is another obvious one, because it is a finite resource – and the biggest cost of a house is not the construction but the land that comes underneath it.” 

An audience member from Newcastle raised an important point regarding demand – that it is primarily driven by a lack of economic opportunities elsewhere in the country. “One of the main problems affecting demand is internal migration,” he said. “People move here because they are looking for jobs. Couldn’t we take a lot of heat out of London if we improved the situation in other cities?”

Responding to his question, Lammy agreed and said the government has made a “huge mistake in getting rid of the regional development agencies.”

“Many graduates in the rest of the country find their way to London,” he added. “When it comes to dynamism and enterprise, the country feels fragmented.”

Boff agreed that the government’s investment strategies are far too London-centric, saying the Olympic Games were exemplary of money spent where it made the least difference: “I never agreed with the Olympics; I wanted it to be help up north where it could provide regeneration where it was really needed.”

Following a similar line of discussion, another audience member asked whether “unlocking the suburbs” through better transport links could take the burden off housing in central London. Skinner agreed that “more efficient and affordable transport systems” could do much to “open up wider areas to wider amounts of people”.

Jones also said that “transforming tired, underperforming suburbs could solve the problem”. Orr concurred, but warned that great suburbs required forethought, and that towns such as Milton Keynes were “successful” reminders that “planning is about place making”. “It’s about knowing what a place will look like in 15, 20 years,” he went on. “We’ve seen a cacophony of short-term initiatives over the life of the coalition, but what we need is long-term development plans.”

Going green

Two audience members raised questions pertaining to London’s green belt, more than 1.6m hectares of conservation land intended to stem the spread of London’s urban sprawl. Should this land, particularly areas that are low in biodiversity, remain safe from development or be released for house building?

The topic roused impassioned replies from the panel. For Lammy, green belt legislation is out of date and out of step with current priorities. “If we’re serious about building the homes we need, then you cannot stand by a system that we came up with just after the war and have not reviewed since,” he said. “Why is it acceptable to shove families on the 15th floor of a high-rise development in inner London when we have wasted land in outer London?”

Orr raised that “vast swathes of the green belt have no environmental value” and that their status as protected land, designated more than half a century ago, should be open to review. “We’re not talking about creating urban sprawl, we’re talking about decent, affordable homes where families can put down roots and start communities,” he said.

It was left to Andrew Boff to play devil’s advocate. “When people talk about building on the green belt, I say that I’ll agree to it, so long as you build on Hyde Park first. Now that could help resolve inner-city housing problems,” he said.

Dividing green space into that which is valuable and that which can be sacrificed leads us down a dangerous slippery slope, he continued. “If anyone suggests that the green belt is less valuable because it’s outside London, less valuable than Hyde Park, I take issue with that. The green belt is probably the most successful political policy we have, and we know what happens if we let go of policies that benefit us all. It would be a huge mistake.”

Political will

With the election approaching, prospective voters have been promised more homes and more affordability by all the major political parties (though how they would be paid for, and what they would be built from, remains dubious).

As the debate drew to a close, a final question came from the audience: when we consider that the cost of housing so disproportionately affects the young people who do not yet own homes, why have politicians failed to galvanise this demographic to come out and vote?

Rising disaffection with the housing market, and what it can do for ordinary people, is perhaps one of the biggest barriers to creating change. “Buying a home feels so out of reach for young people that when they see politicians devising policies, they just think ‘you’ve got to be joking’,” said Robb. His words summarised the mood of a primarily young audience who, when canvased at the start and end of the debate, firmly agreed with a show of hands that the market is broken. “When politicians finally come up with some proposals that really make a change, then we’ll see young people coming out to vote”.

What might such proposals look like? Lammy said a rent cap was “a must” (“if Angela Merkel and Michael Bloomberg can run one, then we need one too”). Demands raised throughout the debate, such as more public-sector house building, better transport links, “supercharged” suburbs, and the possibility of green belt development, were generally agreed to be the obvious priorities. 

Several panellists said that fixing the market was less about inventing more policy, and more about getting our priorities straight. Orr raised London’s Crossrail project as a prime example of when politicians made a good choice and just pushed on with it. “A huge amount of this issue comes down to political will,” he said. “We tend to overcomplicate things. Crossrail was a political decision where we said London needs this, so we’re going to do it. Well, London needs homes more than it needs Crossrail, and it also needs the political leadership to deliver it.”