Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Memoranda

Memorandum by Mayor of London (HOU 02)

  This submission supplements the memorandum submitted by Neale Coleman to the earlier enquiry of the predecessor committee and the examination held by that committee on 12 June 2002. This submission focuses on two of the questions asked in the new committee's request for further evidence of 26 July.

  How spending of the new resources should be balanced between social housing and options for owner occupation for those who cannot afford to buy (including shared ownership) and the mechanisms to be used for their distribution.

  The Mayor welcomes the SR2002 announcement that national resources for housing investment will increase by £1.1 billion by 2005-06 relative to 2002-03. Given the different pressures in different regions in his view it may not be appropriate to make a decision at national level on the distribution of resources between these two categories. Such decisions should be taken at a regional level within the context of regional housing statements.

  Resources should be distributed between regions of the country relative to housing need. The two key factors in the relative need for affordable housing are the extent of unmet housing need and the extent of future housing need arising from the growth in the household population.

  The backlog in unmet housing need is much greater in London than in other regions. There are now over 54,000 homeless households placed in temporary accommodation by London boroughs. This figure is significantly more than the figure for all other regions in England put together. The most recent government figures show London as having 58 per cent of the national total. Over 70 per cent of the households placed in bed and breakfast or shared annexes are placed by London boroughs. The Government has announced a target of having no homeless households in Bed and Breakfast or shared annexes by March 2004. For this target to be achieved the major share of available investment resources for additional housing provision will have to be invested to meet the needs of London households.

  The need for intermediate housing for key workers is also more acute in London than in most other parts of the country. This was recognised by the Government in the distribution of the Starter Homes Initiative programme, with over 60 per cent of the initial £230 million budget being allocated in London. The average house-price in London is now over £230,000 (Land Registry, April—June 2002). In a recent analysis, FPDSavills estimated that 80 per cent of households in London could not afford a £150,000 property. Recent research by Fordhams commissioned by the Mayor concluded that there was a need for 51,000 "intermediate" homes in London over the next five years—"intermediate" being defined as housing at prices or rents above social housing rents but below full market price for reasonable second-hand housing.

  London also has the greatest anticipated regional population growth. The Mayor's most recent population estimates project that London's population will increase by 700,000 by 2016. It is projected that there will be an annual increase in households of 20,700 a year.

  The Mayor's draft London Plan proposes that 50 per cent of additional housing provision should be affordable. Within this broad category, the division between social rented housing and intermediate housing should be on a 70 per cent/30 per cent basis. These proportions are supported by the Fordhams study referred to above. The intermediate category could include subsidised sub-market rented accommodation as well as shared ownership and discounted home ownership provision. The Mayor welcomes the fact that Government is now considering mechanisms for funding such a programme. The level of subsidy will vary depending on local market costs, the income of the key worker group on who the provision is targeted and the size of accommodation required. Subsidy could operate on a revenue subsidy basis rather than as a capital grant.

  In determining distribution of investment resources, unit subsidy requirements should be considered as well as the number of homes required. Current average subsidy requirements in London are for rented homes £96,300 per unit and for shared ownership homes £49,600 per unit. Assuming sub-market rented provision for key workers would require an average subsidy of £40 per week, subsidy over 15 years would be equivalent to a capital grant of £31,200. The purpose of the proposed rented programme is to

    —  enable access at lower income levels than the existing shared ownership programme

    —  provide a wider range of accommodation for family households than that programme which generally focuses on smaller units, and

    —  provide medium term accommodation for mobile households, for whom shared ownership or home ownership is not an appropriate tenure.

  On the basis of affordable housing output in London being distributed as follows:

  Rented provision: 70 per cent; Shared ownership:10 per cent; Sub-market rent: 20 per cent. Investment requirements would be distributed: Rented provision: 86 per cent; Shared ownership: 6 per cent; Sub-market rent: 8 per cent

  This is on the assumption that planning gain contributions to affordable housing are distributed between different types of affordable housing on a proportionate basis.

  Resources need to be distributed at a sub-regional level between authorities based on their relative housing need. There is a strong argument for a proportion of investment resources to be made to sub-regional borough groupings based on prior agreements for pooling access to major development opportunities. The Mayor is working with the Housing Corporation, GOL and other partners to develop a framework for sub-regional allocations which both assists local authorities in meeting their statutory duties and ensures the most effective use of available investment resources and the most appropriate development of available sites. There is also a case for resources for key worker housing, both shared ownership and sub-market rent, being allocated on a sub-regional basis with location of provision linked to the transport access to key worker employment locations. These may vary according to the nature of the job and the type of provision, which is appropriate for different key worker households.


  The Mayor's draft London Plan assumes a significant contribution is made to the provision of affordable housing through the application of planning obligations. The Plan's assumption is that 25 per cent of residential sites will be developed entirely as social housing, funded primarily by Housing Corporation and local authority social housing grant, with the remaining 75 per cent being developed as private residential developments. Economic modelling set out in the report Affordable Housing in London (SDS Technical report 1, July 2001) by Three Dragons and Nottingham Trent University shows that private residential development can support between 35 per cent and 50 per cent affordable housing through planning obligations. It is considered that in a few central London boroughs this can be achieved without recourse to direct investment subsidy.

  In his previous submission, the Mayor supported the broad principles of the tariff regime proposed by the Government. However, the previous submission also put forward a number of options for improving the current regime. Given the Government's decision not to legislate for a tariff based regime, it should give urgent consideration to the recommendations put forward by the Mayor. These are set out more fully in the report by Professor Rob Lane on Planning Obligations in London, published by the GLA in June 2002 as SDS Technical Report 7. The report includes a proposal that Circulars 1/97 and 6/98 are revised to:

    (a)  provide specific encouragement of pooling of contributions between local authorities;

    (b)  allow planning obligation contributions to be used in another local authority where it can be demonstrated that this meets local or sub-regional needs.

    (c)  allow local authorities to apply planning obligations relating to affordable housing provision to commercial and industrial developments as well as to residential developments.

    (d)  require local authorities to publish the details and financial basis of section 106 agreements.

  In its Planning Green Paper and in the related consultation paper on planning obligations issued in December 2001, Ministers supported the proposal that planning obligations to provide affordable housing be applied to commercial and residential developments. The Government should implement their proposals as soon as possible through changes to guidance.

  The Mayor also believes that, where a development falls within the remit of his planning powers, he should be party to any section 106 agreement relating to the development. The Mayor also considers that the thresholds set out in circular 6/98 should be abolished in London given the scale of need and the large potential contribution from small sites to affordable housing.

  The Mayor's draft London Plan seeks to set a framework for the determination of the level of planning obligations available in a specific case. The plan recognises that, in applying affordable housing targets to planning obligations for specific sites, targets should be applied sensitively, taking into account individual site costs, economic viability, the availability of public subsidy and other planning objectives. This recognises that in some cases the local authority will have an objective of using planning obligation contributions to support the costs of other infrastructure requirements, and that not all the planning obligations contribution will be available to support affordable housing.

  The potential for the operation of a planning contributions regime to contribute to the costs of affordable housing provision varies not just between boroughs, but is also affected by the value and other factors relating to specific sites. Value is also affected by external factors other than local authority planning policy. The potential contribution of planning gain obligations should not be overstated. Given its unpredictability, in terms of national and regional investment planning, the contribution from planning obligations to affordable provision should be treated as a supplement to direct investment subsidy rather than as a substitute for it. On this basis, there remains a need for a significant increase in direct Government investment in affordable housing in London. The actual contribution of planning obligations should be monitored prior to any assumptions being made at a national or regional level as to the potential for savings to be made in the level of direct investment subsidy. This outcome will also be influenced both by any revised guidance in relation to contributions from commercial and industrial sites and the out of borough provision referred to above.


Comprehensive Spending Review and the Decent Homes target

  The Mayor supports the Government's Decent Homes targets, and the review of funding mechanisms to assist local authorities to achieve these targets. Resources should be targeted on those authorities where there is a funding deficit. Need for investment is more important than existing local authority management performance. The Government's decision to lower the performance threshold for eligibility for Arms Length Management Organisation (ALMO) funding is therefore welcomed. The Government however needs to work with boroughs for whom an ALMO may not be a realistic option to develop alternative funding mechanisms for achieving the target.

  Additional funding should not be provided for authorities to meet Decent Homes targets through the diversion of resources from the provision of additional housing. Given the Government has set a CSR target to ensure all social housing achieves the Decent Homes target by 2010, a parallel target of meeting the housing needs backlog by 2010 should also be established. Otherwise there is a risk that the need to meet housing needs will be treated as a lower priority than improving the condition of the existing stock. The Mayor also considers that the Government should set a Decent Homes target for both the private rented and owner-occupied sectors.

The effectiveness of the Housing Market Renewal Fund

  As low demand is not a significant problem in London, and the housing market is booming, the role of the Housing Market Renewal fund is limited in London. The Mayor is concerned at the potential use of significant investment resources to support demolition of properties in low demand in other parts of the country, if this diverts resources from investment in existing or additional housing in areas of the country where it is required. Projects seeking funding for market renewal should test the potential use of housing by households prepared to move from higher demand areas, such as London, prior to progressing plans which involve the loss of fit housing stock. There is a greater potential for partnerships between low and high demand areas, which could relieve housing pressure in London while supporting the development of sustainable communities in areas which might otherwise be at risk of market or neighbourhood decline.

Ensuring quality in new affordable housing

  London faces a major challenge—significantly increasing supply while land is constrained requires higher residential density than is currently applying in most areas of London. Higher density must be achieved through higher quality of development and ensuring new development is appropriate to the needs of prospective occupants. This is especially critical for social rented housing where most occupant households include children. High quality higher density provision does not require high-rise development and a return to the unsuccessful forms of housing provision predominant in the 1960's. The Mayor's draft London Plan stresses the importance of design of individual dwellings and environmental design. The Architecture and Urbanism Unit at the GLA, led by Lord Rogers, is reviewing appropriate design approaches to achieving quality at higher density.

  The GLA and its predecessor body, LPAC, carried out significant work on the criteria for achieving successful higher density development. In pursuit of the development of major site opportunities, the development of appropriate social and physical infrastructure, including public transport access, is a critical precondition. Achievement of sustainable new communities cannot be achieved on the cheap, and housing investment resources must be supported by regeneration resources, especially to bring forward the development of brownfield sites, and for transport investment and social infrastructure.

  In terms of the physical standards applicable for the development of social housing, the Housing Corporation scheme development standards must be maintained and extended. The Mayor supports the provision of all new development, including private development, being on a "Lifetimes Homes" basis. The level of Housing Corporation grant for both rented and shared ownership schemes should be sufficient to achieve the require standard while ensuring that the homes provided are affordable by the households for who they are intended.

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Prepared 22 October 2002