Sadiq Khan’s affordable homes investment: some detail and context

Sadiq Khan’s affordable homes investment: some detail and context

Last week, City Hall announced that Sadiq Khan will “kickstart” a “major council homebuilding comeback” in London by investing £1.67bn in boroughs’ own housebuilding programmes and in so doing “help get 10,000 new council homes underway over the next four years”.

This followed news last month that during the 2017/18 financial year, work began on over 12,500 new “affordable” housing association homes in London, which the Mayor has helped pay for from a separate fund of £3.15bn.

Where has this money been coming from? How is it shared out? What exactly do the terms “council home” and “affordable home” mean in this context? What difference will Khan’s initiatives make to new “affordable” housing provision in London and to housing supply in London as a whole?

The answer to the first question is straightforward. Both the £1.67bn and the £3.15bn have been put at Khan’s disposal by national government. The latter, larger, sum was dispensed under the auspices of the then housing minister (and also then London MP) Gavin Barwell, in November 2016. The former, smaller sum, came London’s way in the government’s spring statement in March this year. That’s £4.82bn altogether to go towards starting the construction of 116,000 “affordable” homes of various kinds by April 2022.

So after the national government hands cash for affordable homebuilding down to London’s regional government – the Greater London Authority (GLA) and the Mayor – what happens to it next? Basically, the Mayor dishes portions of it out to organisations responsible for building such housing in London under his Affordable Homes Programme 2016-21.

In the case of the first, larger sum, the capital’s housing associations have been the main beneficiaries. They were invited to bid for chunks of the £3.15bn to help them fund the construction of primarily the three types of affordable home that meet Khan’s definition of being “genuinely affordable” in London where, of course, housing costs are very high. About half of that money has been allocated so far,

The three “genuinely affordable” types are: London Shared Ownership homes; Khan’s signature London Living Rent homes, which are ultimately another sort of low cost home ownership scheme (a “rent-to-buy” product); and London Affordable Rent homes, which are low cost rented homes, though not as low cost as what we might now need to call traditional social rented homes. The three types are formally defined here.

The arrangements for the £1.67bn are different. It will fund a particular part of the Affordable Homes Programme called Building Council Homes for Londoners, whose main beneficiaries will be – clue in the title – London’s borough councils. Khan’s announcement about the 12,500 “affordable” starts in 2017/18 highlighted those to be let at “social rent levels”, though less than a quarter of them were actually of that type. However, Building Council Homes for Londoners is designed to focus on what City Hall’s press release called “new homes based on social rent levels” rather than Shared Ownership, London Living Rent or the higher levels of Affordable Rent.

Definitions of affordable housing are notoriously slippery. So, addressing the third of our four questions above, let’s look at exactly what “council home”, “affordable” home and also “based on social rent levels” seem to mean in this context.

Khan isn’t going to funding a “council homebuilding comeback” in the sense of reviving the type of large scale council house for rent construction projects seen in the 1960s and 1970s – during which over 20,000 council homes a year were built – with automatic tenures and rent levels to match. That is not within his power. What he has done – well, the relevant GLA officers have – is negotiate a greater amount of flexibility with the government over the terms on which the £1.67bn can be dispensed than applied with the £3.15bn.

There seem to be two key elements to this. One is that Khan will be able to contribute a higher proportion of the cost of constructing each new home than was possible with the £3.15bn. This will enable councils to set more lower rents – that is lower end London Affordable Rents – for the resulting rented homes than would otherwise have been the case. The Mayor has set caps on Affordable Rent levels, “based on” the lower traditional social rent levels – basically, very similar to them. The caps are listed in a table on page 12 of the Building Council Homes for Londoners funding prospectus.

The other key element is that it will be up to councils to decide whether the tenants of their new homes for rent have London Affordable Rent or traditional social rent tenancies (see paragraph 31), which are more secure, as Shelter’s John Bibby explained here.

In summary, then, the homes Khan will fund with the £1.67bn will be “council homes” in the sense that councils will own them, “affordable” in that their London Affordable Rent levels will be no higher than the caps he has set, which are very close to (“based on”) traditional social rent levels. Confusingly, the government defines Affordable Rent as a form of social housing, in that it can be accessed only by people on councils’ housing waiting lists. But some of the council homes Khan is to fund might also be defined as being for social rent under the traditional definition if that is the type of contract tenants are offered.

Two other caveats: one, some of the council homes to be funded will be of Khan’s other “genuinely affordable” types – those low cost home ownership (or “intermediate” affordable) products, London Shared Ownership and London Living Rent (see paragraph 32); and, two, not all the money will go to council – just as councils have been getting a bit of the £3.15bn, so housing associations will get a bit of the £1.67bn, though they won’t be first in the queue.

Finally, what difference will the £3.15bn and the £1.67bn make? Well, some difference and of a good kind. It is calculated by the GLA that 116,000 or more “genuinely affordable” homes will have been started with the help of the £4.82bn total “through to 2022”. That’s four years away. The Mayor says 65,000 new homes altogether, of every tenure type, to be built in London every year to meet overall demand. He has a long-term target of 50 per cent of all new homes being “genuinely affordable”. You do the maths.

 

Categories: Analysis

1 Comment

  1. Paul Burnham says:

    Dave writes that ‘The Mayor has set caps on Affordable Rent levels, “based on” the lower traditional social rent levels – basically, very similar to them’; and
    ‘…the caps he has set, which are very close to (“based on”) traditional social rent levels’.

    However, compared to an average London Council rent of ¬£105.87, the current London Affordable Rent rates applied to London’s stock mix produce an average of ¬£158.85. So the average uplift is ¬£52.98 weekly, or almost exactly 50.0%, all plus service charges.

    The Mayor describes the new higher rates as ‘based on social rent levels’ and repeatedly, as ‘social rent’. This is unacceptably misleading, because:

    • The national rent setting policy clearly distinguishes between social and affordable rent setting. London Affordable Rent (LAR) is affordable.

    • Government (DHCLG) housing statistics always demarcate between social and affordable rents; and again London Affordable Rent is classified as affordable.

    • The Mayor’s Homes for Londoners: affordable homes programme 2016-21 funding guidance (2016) states that ‘For legal and regulatory purposes, the GLA views London Affordable Rent as Affordable Rent’ (para 11)

    PS the source used for an average London council rent in 2018-19 is the most recent figures (for 2016-17) in the DCLG’s live table 707, assuming two subsequent annual reductions of 0.65% due to the 1% annual rent cut.

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