London needs to build more homes to solve its housing affordability crisis. It’s a commonplace opinion, but incorrect, according to former Treasury official Ian Mulheirn, quizzed by the London Assembly budget and performance committee this week about what members described as “one of the most pressing issues facing Londoners”.
“General market supply is a red herring,” the economist, now executive director at the Tony Blair institute for Global Change, told the committee. “The problem is not a shortage of places to live; it is affordability…and affordability is determined by public policy”.
The answer is therefore not “supply in general” but tackling the post-2010 erosion of social housing and cuts in housing benefit support for private renters, he said.
It’s a contentious view, addressed directly last year by former Shelter policy chief and Downing Street housing adviser Toby Lloyd: “Building new homes is not the only way to solve housing problems – but pretty much all housing problems are a lot easier to solve if you have plenty of homes…the consensus on building more homes is still the best hope we have of solving our chronic housing problems”.
But there was also agreement that increased supply was “just one element of what is needed”, City Hall deputy housing director Rickardo Hyatt told the committee. “We need to ensure that, as well as increasing housing supply, we are delivering the right homes in the right locations, linked to affordability and need.”
And that would require “considerably increased capital subsidy into affordable housing,” said Helen Evans, chief executive at Network Homes, and chair of the G15 group representing the largest housing associations in London.
With grants for house-building under current subsidy rules meeting only 15 per cent of development costs, compared with to up to 70 per cent of costs before 2010, affordable housing providers are dependent on cross-subsidy from market sales, she said. And that model has “reached its limit. We have to have cash in before more cash can go out for more homes.”
Research earlier this year from the G15 and City Hall suggested that meeting Mayor Khan’s London Plan target of 325,000 new affordable homes by 2032, with 70 per cent of them for social rent, would require almost £5 billion government funding annually – a 600 per cent increase on the current grant, said City Hall housing policy chief Francesca Lewis.
So would the Mayor’s current programmes deliver enough social rent homes to meet the need? Green Party assembly member Caroline Russell asked.
“Given where we started, and what we think is needed going forward, it will be very challenging,” said Hyatt. “There needs to be a significant increase in the level of subsidy if we are to see a dramatic increase in the level of social housing.”
The Mayor was nevertheless on track to meet his current target of 116,000 new affordable homes by 2022, supported by £4.8 billion funding agreed with Whitehall, he said, answering concerns from Conservative committee chair Gareth Bacon. “We are on course and ramping up delivery,” he said.
Last year saw what Khan described as “record-breaking” affordable housing performance – 14,544 affordable homes including 1,916 council homes started with City Hall funding, which was just above his 14,000 target. Between April and June this year 2,672 affordable homes were started against a new target of at least 17,000. That was twice the number of starts achieved in the first quarter of 2018/19, Hyatt said.
Answering criticism from Tory member Susan Hall that the Mayor should be “screaming from the rooftops that we need more family homes in London”, he said it was for the boroughs to determine the mix of housing needed in their areas. “The Mayor should not dictate”.
And finally, two hours in, a mention for Brexit. “Market uncertainty creates risks,” said Hyatt. “A disorderly exit from the EU, for example, will have a significant impact on our ability to meet the target.
View a webcast of the whole meeting here.