Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Neale Coleman, Mayor's Senior Advisor (AFH 38)

  The Mayor has stated the high priority he gives to the issue of affordable housing in London. The Mayor's main policy on affordable housing will be in the London Plan that is going to be published early in June. I look forward to presenting the policy approach in the London Plan to the Sub-committee on 12 June and I will send a copy of the London Plan to your committee when it is available.

  Much of the background to the affordable housing policy is based on the Mayor's Housing Commission Report, "Homes for a World City" and research by the Three Dragons and Nottingham Trent University, "Affordable Housing in London" and the policy directions in "Towards the London Plan". I enclose copies of these reports.


  The definition of "affordable" in terms of housing has come to mean housing for people who cannot affordable to rent or buy market housing.

  The Mayor agrees with government guidance that affordable housing should include the full spectrum of housing need. The Mayor's Housing Commission Report, "Homes for a World City", identified a broad section of the population who are excluded from private housing but on the other hand earn too much to qualify for social rented housing. This housing need is termed intermediate housing, that is housing that is below full market value but more expensive that social rented accommodation. It can take the form of shared ownership or subsidised rented housing and includes what is referred to as key worker housing.

  In the London Plan, the Mayor defines affordable housing as social rented and intermediate housing, including key worker housing. In a few areas, low cost market housing is also affordable but only where the difference between it and socially rented housing are negligible.

  In London, the shortage of affordable housing has led to local housing authorities giving priority to social rented housing. This is appropriate in terms of their statutory duty to meet priority housing need, but its cumulative impact is to increase social polarisation and to impede London's economy and the delivery of key services.


  In London the need for affordable housing comprises both existing households in housing need and those households who in future will need affordable housing. National planning guidance requires local planning authorities to carry out local housing needs assessments. In London most boroughs have up to date housing needs assessments and the GLA has also assessed housing need at a regional basis. This detailed assessment, based on the Mayor's Housing Commission's conservative assumptions followed as far as possible government guidance on assessments and will be updated in light of the results of the 2001 Census and the GLA's household survey.

  This assessment indicates that the scale of additional affordable housing needed annually is 25,700 homes. It is estimated that there are about 112,000 households in existing housing need who require new accommodation. Meeting this need over the next 10 years will require 11,200 new affordable homes each year. This represents nearly half (47 per cent) of the total affordable housing requirement.

  In addition London's population is growing rapidly and the GLA forecasts that households will grow by 20,700 per year between 2001 and 2016. About 24 per cent of these future households (5,000) will need social rented housing. The impact of Right to Buy/Right to Acquire has reduced the social rented housing stock and a conservative estimate of 2,000 is included for replacement accommodation. House prices in London are rising faster than incomes so that over time more households will be priced out of the market. An estimate of 2,500 in included representing extra affordable housing needed due to market changes. Increasing intermediate housing is both important to London's economy and to promoting social inclusion and so a target figure of 5,000 is included for intermediate housing. Together these different components total 25,700 affordable homes per year in London.

  So in addition to the demographic forecasts, the current housing demand is illustrated in the following points:

1.   Borough housing registers

  Numbers on London borough housing need registers rose last year, by 7 per cent between April 2000 and April 2001, to over 211,000. Of these, almost four out of ten households (38 per cent) contain children or someone who is pregnant.

  These figures do not include hidden homeless:

    —  non-statutorily homeless people living in temporary accommodation, such as hostels and B&B; and

    —  people living as part of someone else's household who need their own separate accommodation.

2.   Homelessness

  It is estimated that around a quarter of those on housing registers are households that have been accepted as homeless. The number of households accepted as homeless by London boroughs has been increasing year on year since 1998-99. Although the rate of increase slowed last year (4 per cent in 2000-01), figures from the DTLR P1E returns for the first three quarters of 2001-02 suggest that this will not continue.

  London's acceptances account for more than a quarter of the national total and over 52 per cent of acceptances are households from black and minority ethnic groups. It is anticipated that the extension of the priority need categories will result in a substantial increase in the number of homeless acceptances. The ALG has estimated that an additional 6,600 households will be accepted per year by the London boroughs.

  In recent years, the rise in the number of statutorily homeless households in temporary accommodation has been far steeper than the increase in the number of acceptances. Between December 1997 and December 2001, the numbers in temporary accommodation rose by 87 per cent (compared to a 15 per cent rise in acceptances).

  In December 2001, there were 52,379 households in temporary accommodation in London, compared to 48,867 in December 2000. Of the total in December 2001, 7,128 were in bed and breakfast hotels and a further 578 in shared annexes (private sector accommodation with shared facilities, paid for on a nightly basis). The numbers in bed and breakfast increased from 6,079 to 7,128 (17 per cent) between the end of December 2000 and the end of December 2001.

  The GLA acknowledges the new target announced in March 2002 by the Secretary of State in response to the DTLR report More than a roof: A report into tackling homelessness. Stephen Byers pledged that, by 2004, no families with children will be placed in B&B hotels—unless there is an emergency. The GLA and the boroughs and their partners will do their best in identifying and bringing into play alternatives to B&B hotels and shared annexes (eg empty property strategies, acquisitions, use of the planning system, mobility arrangements and so on) but there remain questions of supply and resources, especially resources to increase supply.

  In addition to the increase in homelessness acceptances, the other main reason for the high numbers in temporary accommodation is the fall in the number of social rented lettings (28 per cent fall in lettings between 1996-97 and 2000-01).

  At the end of December 2001, according to DTLR homelessness statistics, London was responsible for 58 per cent of the country's temporary accommodation placements.

3.   Overcrowding

  Overcrowding and sharing are more acute in London than in the rest of the country. According to the most recent DTLR analysis, London has 43 per cent of England's most severely overcrowded households and 32 per cent of all overcrowded households. This compares with London having, in total, 15 per cent of England's households. According to the same data, London has 29 per cent of all sharing/concealed households.

  Larger households frequently those from Black and Minority ethnic groups remain in overcrowded conditions in the social rented stock, through lack of possibility to transfer. Similar households remain for too long in temporary accommodation because there is insufficient large affordable permanent accommodation. Research published in 2000 by the Housing Corporation/London Research Centre showed that nearly half of BME households in housing need in London required three or more bedrooms. And there is a particular disparity for those households requiring four or more bedrooms: over 20 per cent of BME households need such a dwelling, but these comprise four per cent of the social rented stock.

4.   Access to affordable housing

  High property prices in London have led to severe shortages of affordable housing in the capital, leaving most first time buyers unable to purchase properties in the private market. Those on low or moderate incomes are unable to raise mortgages or deposits sufficient to buy in London.

  Land Registry data shows that the average price of a property in London (all property types and sizes) was £205,846 for the year to December 2001. Average prices doubled in the five-year period between 1996 and 2001, rising by over 25 per cent in the year 2000 alone.

  Average property prices in different parts on London varied widely in 2001. In Kensington and Chelsea, for example, the average price for all property types was £581,476. The only borough with an average of less than £100,000 was Barking and Dagenham, where the average price was £93,576.

  In a report on first time buyers in March 2002, Halifax Bank reported that the average house price in Greater London stood at a multiple of five times the average earnings of first time buyers in London. This ratio compares to 3.08 for the UK as a whole. In the same report, it is estimated that the average first time buyer now requires a deposit of over £34,000 to buy a typical first property in London—over five times greater than in the North or Scotland.

  According to figures produced by the Office for National Statistics, average gross annual pay in London in April 2001 was the highest of any region in the country at £34,777, compared to £23,607 for Great Britain as a whole. A report by Barclays Bank in March 2002 points out, however, that London has the greatest division between rich and poor. The average earnings in Kensington and Chelsea, for example, are over one and a half times the national average, whereas the average earnings in Newham are only 75 percent of the national average. The Barclays report also emphasises that the cost of buying a property has a major impact on relative wealth, with property prices in the North and Scotland substantially lower than those in London.

5.   The need to maintain affordability in the social housing sector

  The average local authority rent in London was £62.21 on 1 April 2001, a rise of 3.1 per cent compared with the previous year. The average RSL rent in London was very similar at £62.61, a rise of 2 per cent compared with the previous year.

  The similarity between average local authority and RSL rents across London masks the greater variation in average local authority rents between boroughs by comparison with RSL rents. Average local authority rents ranged from £49.79 per week in Havering to £77.50 in Westminster (a difference of £27.71). Five boroughs had average local authority rents over £70 per week. For RSL average rents there is only one borough, Croydon, were average RSL rents were over £70.

  The intention of rent reform, which will take place over ten years and will proceed from April 2002, is to end the situation where rents in a particular area can vary widely depending on who the social landlord is. The aim of rent reform is for all social rents to be set on the same basis, according to a formula that gives 70 per cent weighting to regional earnings and 30 per cent to property values. In response to concerns about high rent increases for tenants in areas such as London, where there are high property prices, the government has agreed to "caps" on rent levels as a safeguard. The government has also agreed to a phased introduction of the scheme, allowing local authorities more time to consult tenants and develop IT systems.

  The rent-restructuring framework indicates average borough rent rises up to 4.6 per cent in 2002/03 (excluding the impact of the caps) with a London average of 3.3 per cent. The maximum increase of any individual rent is capped at £2 per week plus 2.2 per cent (based on the rate of inflation plus 0.5 per cent).


Private rented stock condition

  In April 2001, local authorities estimated that there were 180,371 unfit private sector properties in London, 7.8 per cent of all private sector properties in London. Taking the owner-occupied sector separately, 5.6 per cent were estimated to be unfit. In the private rented sector, 15.1 per cent were estimated to be unfit. There is a significant investment requirement in relation to private sector housing in London, especially houses in multiple occupation and other properties at the lower end of the private rented sector market. The DTLR Private Sector Stock Condition indicator estimates that London has 14 per cent of England's poorest quality private sector stock.

Local authority stock condition

  On 1 April 2001, 6 per cent of local authority dwellings in London were classified as unfit. While London had 18.9 per cent of England's local authority stock, it had 19.4 per cent of England's unfit local authority stock. London's council stock is therefore in a poorer condition than the country as a whole. This is recognised in the Local Authority Stock Condition Indicator for 2002-03, where London has a 21 per cent share of the national total. It is also significant that a 1997 DoE research report that mapped local authority estates using the index of local conditions, concluded that 879 of the 1,370 (64 per cent) most deprived local authority estates in England were in London.

  The Government has also introduced the Decent Homes standard, applicable across all tenures, but with specific targets within the social rented sector to be met by 2010. However, there are not yet any London-wide estimates of how many homes do not reach the decent home standard.

RSL stock condition

  It was estimated by local authorities that 9,038 RSL properties in London were unfit in April 2001 (3.2 per cent), compared to the national proportion of 1.5 per cent. It should be recognised that although RSL stock in London is generally in better condition than local authority stock, the transfer of local authority stock in poor condition is changing this picture. In addition, limitations on RSLs' ability to fund repairs from rent increases may affect the ability of RSLs to continue to maintain the quality of their stock over time.


  Neighbourhood regeneration is a central element of regional, borough and area housing strategies. A key feature of neighbourhood regeneration is improving the quality of housing as well as social, economic and environmental conditions. Good quality housing can have a significant positive impact on the quality of life and health of all residents, the educational opportunities for children and success in tackling crime and anti-social behaviour.

  Increasing priority is being given to regeneration by government and other providers of housing investment. However, regeneration can involve a reduction in density and loss of affordable homes. The GLA's 1999 Housing Capacity Study identified that the proportion of affordable homes, particularly at large sites, is significantly reduced as a result of estate renewal schemes where re-development takes place at lower densities. It was noted that regeneration in three boroughs—Lambeth, Southwark and Waltham Forest—is expected to lead to a net loss of social housing (irrespective of right to buy) over the next twenty years.

  Given the demand for affordable housing, it is important that the lost homes from regeneration are replaced, whether on-site or off-site. The critical issue is that the replacement properties must be affordable to local residents who want to stay in the area. The Mayor supports the Housing Corporation's new policy position to resist renewal schemes that result in a net loss of affordable housing.

  There is a view that in London major regeneration objectives are adversely affected by the lack of supply of affordable housing.

Energy efficiency measures

  Energy efficiency measures are important for affordable housing residents because fuel costs represent a higher proportion of household income. Therefore it is encouraging that the findings from the English House Condition Survey, Energy Report, DETR 1996, show that energy efficiency ratings are highest for social housing, followed by owner occupied housing. The lowest ratings are for private rented housing. Most homes in London do not have adequate insulation, particularly true of the private rented sector.


Declining supply of social rented housing

  There has been a significant reduction in the overall supply of social housing in London over the last 10 years. This is because the losses from right to buy sales and demolition have been significantly greater than the level of new provision:

    —  in April 2001, there were 526,739 local authority and 284,240 RSL homes in London out of a total stock of 3,126,358 (26 per cent); and

    —  in April 1990, there were 723,508 local authority and 153,529 RSL homes out of a total stock of 2,905,849 (30 per cent).

  This shows that although there has been an increase in total stock of 220,509 (7.6 per cent) over eleven years and RSL homes have increased by 130,711, the number of council properties fell by 196,769 (27 per cent). This has resulted in a net reduction of 66,058 social housing units—over 6,000 a year.

  The major cause of the loss of social rented housing in London is the Right to Buy (RTB). Views vary on the overall costs and benefits of the RTB regime. The loss of dwellings to London boroughs has included loss of the family sized homes and housing of a higher quality. There is some evidence that where regeneration activity and investment is a prospect that occupiers are buying (or a private element is buying) solely for the purposes of realising capital gains through repurchase by the local authority. Other RTB purchasers have let dwellings at high rents and sometimes at high public cost as temporary accommodation for homeless households.

  In the three years 1998-99 to 2000-01 losses through the RTB were around 30,500.

Supply of lettings

  There has been a substantial reduction in the supply of new lettings in the social housing sector. The supply of social rented lettings available to local authorities in 2000-01, including nominations to RSL stock, was 36,755, a fall of 28 per cent in the four years between 1996-97 and 2000-01. This reflects not just the reduction in stock mentioned above, but a lower rate of relets within local authority and RSL stock, as fewer people move out into the private sector.

  It is significant that this total social lettings figure is considerably lower than the total number of households in temporary accommodation. Across London, almost half (47 per cent) of all lettings to new social rented tenants went to homeless households in 2000-01. Opportunities for other applicants in housing need are therefore limited.

The private rented sector

  There has been a significant decrease in the number of private sector tenancies available to low income households, as indicated by the drop in the number of private sector tenants in receipt of housing benefit over the past five years. There has been a fall of 56 per cent in the number of private sector tenants in receipt of housing benefit, from 237,000 in May 1996 to 104,000 in August 2001. This should mean greater availability of private renting for others (for example key workers) unless the property has gone out of the sector through sale for ownership. However, there are issues surrounding the condition and management of housing in the lower (more affordable) end of the private rented market.

  The need for more affordable housing in London has been the subject of a number of housing research studies and investigations. Fewer studies have investigated the provision of affordable housing. One such study is the GLA's London Housing Capacity, 2000. This comprehensive study into future housing capacity in London was carried out with the cooperation of all the London boroughs and the boroughs through LPAC agreed the study's findings.

  The study indicates that there is housing capacity in London to accommodate 23,000 additional households of which 19,000 are net additional dwellings and 4,000 are vacant properties brought back into use and multi-occupancy accommodation. Affordable housing capacity is estimated to be 20 per cent of total dwelling capacity or 3,750 net additional dwellings a year. Separate affordable housing estimates were made for large identified sites; these are 29 per cent of gross dwelling capacity but 18 per cent of net capacity. This shows the amount of affordable housing renewal that is replacing existing substandard provision, sometimes on a like for like basis and sometimes at a net loss. These estimates predate the Mayor's London Plan and are based on the boroughs' existing planning policies, many of which have since been revised and strengthened.


  In view of the scale of housing need and the low estimates of affordable housing in the housing capacity study, the Mayor set up the Housing Commission. One of its key recommendations was to increase the affordable housing provision target in London to 50 per cent of new residential development subject to an economic viability appraisal.

  The Three Dragons and Nottingham Trent University carried out this subsequent research, which was reported in "Affordable Housing in London", GLA, 2001. This research developed a strategic economic model based on residual value and it was used to test the viability of various policy scenarios, in particular the 50 per cent target.

  The findings from the study can be summarised as:

    —  the analysis undertaken for this report suggests that 50 per cent affordable housing provision is possible in nearly two thirds of the London boroughs, but there are 12 boroughs where 50 per cent affordable housing provision is not a realistic option and a 35 per cent affordable housing target would be more readily achievable;

    —  if these targets were adopted, over the period from 2004-16 provision of affordable housing would amount to 53 per cent of all development, about 130,000 units in total or about 10,000 units pa of which approximately three-quarters would be on mixed-tenure sites and one-quarter on stand alone sites;

    —  ability to support affordable housing provision is affected by other costs borne by the development. They have a potentially serious negative effect on ability to deliver affordable housing;

    —  in most boroughs provision of affordable housing at these target levels relies significantly on the availability of public subsidy. The total public subsidy requirement would be of the order of £600 million per annum (2004-16) for newbuild social housing. This figure would be reduced if some boroughs were to provide affordable housing without public subsidy;

    —  in most London boroughs residential development already produces lower residual values than commercial development. If residential development is further affected by the introduction of affordable housing targets the temptation for those landowners who are in a position to do so will be to go for commercial development instead;

    —  payment in Lieu (PiL) has a possible role to play in assisting affordable housing provision. The report suggests a formula for assessing PiL on a consistent basis. Any PiL should be properly accounted for in a separate account and there should be a clear undertaking from the local authority as to how, and in what time it will be used, with appropriate sanctions if that undertaking is not honoured;

    —  if policy rules enabled PiL to be transferred between boroughs, potential gains in affordable housing delivery could be achieved. For example funds generated in boroughs with large potential residuals but low capacity could be transferred to boroughs with lower residuals but large capacity. Such transfer might have regard to existing levels of social renting in each borough, but could contribute to the development of a London-wide approach to meeting housing need; and

    —  the Model developed for the GLA offers a platform for evaluating development economics and affordable housing (in relation to other planning contributions) both at the borough level and, with modifications, on a scheme-specific basis.

  The report and its findings are currently the subject of further appraisal by GOL, DTLR and the GLA.


  The Mayor supports a range of affordable housing with 35 per cent social rented and 15 per cent intermediate housing for social and economic reasons. London's world city has a growing economy and needs homes for the additional workers needed for the forecast 600,000 additional jobs by 2016. A wide range of affordable housing provision is also of strategic importance in promoting mixed and inclusive communities. These policy directions are reflected in the affordable housing policies in the London Plan.

  The Three Dragons and Nottingham Trent University research shows that high value areas are better able to cross subsidise affordable housing and that public subsidy is actually more critical to the viability of affordable housing in private housing developments in lower value areas. The study findings also show the significant difference in affordable housing provision with and without public subsidy. The study helps show that private/public funding offers the best way to maximise affordable housing. However a more strategic approach to the use of scarce public subsidy could provide more affordable housing.

  The Mayor is discussing with GOL and the Housing Corporation the role of public subsidy in supporting affordable housing provision in London, including more intermediate housing and the relationship between public funding and planning system. The policies in the London Plan take account of the different levels of development value across of London and the availability of public subsidy as well as existing level of affordable housing in local area and types of affordable housing appropriate for the development (ie family vs non-family).

  The Mayor supports the proposals in the Planning Obligations proposal paper for commercial sites to contribute to affordable housing provision. As commercial development adds to the pressure for affordable housing in London, it is sensible for it to make a reasonable contribution. The Mayor also supports the proposal for the pooling of payments in lieu and thinks it could make a significant contribution to funding more affordable housing provision on a sub-regional basis.


  London Plan will replace RPG3 and become the regional planning guidance for London. Circular 1/2000 paragraph 3.16 states the London Plan should set priorities, strategic objectives and monitoring targets. As housing and affordable housing are strategic issues, London Plan will set an overall London target and borough indicative targets of housing and affordable housing.

  Such targets are necessary to plan, monitor and manage. There is a need for a more consistent approach to policy making in borough Unitary Development Plans and the London Plan can provide that through setting the regional policy framework. The various targets are necessary to facilitate effective plan monitoring across London and on a borough or sub-regional basis. Finally the targets are a necessary instrument for managing the implementation of the plan and seeing that the required resources are in place. This level of policy coordination can most effectively be carried out at a regional level.


  The government and local government targets could be met, if affordable housing were given higher priority amongst a range of community benefits and if there were sufficient public subsidy to fund affordable housing where necessary. Research carried out for the GLA shows that the planning system is capable of making a significant contribution to the future provision of affordable housing. There are a number of examples of London local authorities that give high priority at a corporate level to affordable provision and provide examples of good practice for making use of the planning system.


  Currently local authorities are giving greater priority to the provision of social rented affordable housing over shared ownership or part equity affordable housing. This needs to be seen in the context of increasing numbers of families living in overcrowded housing, temporary accommodation and bed and breakfast hotels. In terms of local authorities' statutory duties this must be correct and appropriate.

  This shortage of affordable housing however in the long term is detrimental to the promotion of sustainable communities and the residualisation of new affordable housing developments. There is clearly a need for a range of affordable housing provision with more intermediate housing being provided not at the expense of social rented housing, but in addition to it.

  For example, the Imperial Wharf development by St George's in Hammersmith and Fulham is providing 1,665 homes of which half are private and half are affordable. The affordable housing includes traditional social rented, shared ownership, student accommodation, housing for the frail and elderly and discount rented and discounted sale, where the discount is in perpetuity.


  The GLA and the House Builders Federation commissioned research into the barriers to residential development. The report by the University of Westminster and London Residential Research, "Future Housing Provision: Speeding up delivery" found that over the past five years housing completions have been generally static. The rate of affordable housing completions, linked to private developments has however increased, as has the proportion of on-site housing and there is no evidence that this has deterred developments from coming forward.

  In London, most development is on brownfield sites. The housing capacity study looked at land use of all identified sites. Where the source was known, it found that 97 per cent of overall capacity was on brownfield sites. Due to the nature of housing land provision in London, housing development will be predominantly on recycled land and increasingly at higher density. This highly sustainable approach to development recognised the objective in urban areas of protecting open spaces. It also provides the additional incentive to bring back into use underused or vacant land.

  Outside of London, the government's target of 60 per cent brownfield development implies that 40 per cent will be on greenfield sites, so a reasonable proportion of these should be affordable housing.


  The cost of the critical affordable housing shortage in London can be measured in economic, social and personal cost. It is best summed up by this quote from the Mayor's Housing Commission report:

    —  London is the engine of economic growth in Britain. It is the most diverse and cosmopolitan city in Europe. However, London has done less well than many other European capitals in improving the skills and the quality of life of its residents;

    —  the unequal distribution of the benefits of the capital's booming economy may mean that London is sowing the seeds of its own social and economic decline. The city's future is in danger of being undermined by a long-term failure to invest in its essential social and economic infrastructure—transport, schools, health, and people's skills as well as homes;

    —  the costs of crime, poor health, unemployment, housing benefit for inflated market rents and temporary accommodation will become a brake on London's economy;

    —  one result of London's economic boom has been greater inequalities in income, rising house prices and market rents as well as an increasing shortage of affordable housing in virtually all parts of London. These pressures can only intensify as London is set to experience increases in population and household numbers unprecedented at least since the Second World War—with overall population projected to rise to 8.1 million people by 2016;

    —  without determined action and new solutions the outcome will be human hardship. Homelessness, overcrowding and forced sharing are the more obvious housing indicators but there are others. The shortage of affordable housing also impacts on the quality of life for people having to pay too much of their budget on housing, on those who have to travel long distances to work and school and on the ability of businesses and public services to attract and retain staff;

    —  commission members saw graphic evidence of how the lack of adequate affordable housing is affecting a growing number and range of Londoners. There are now may more people who, although they have jobs, earn moderate incomes and cannot afford to buy or rent adequate quality market price housing but do not have priority for social rented housing. Once housing costs are taken into account London has a higher proportion of its residents on low incomes than any other region;

    —  housing has become a major constraint on the London economy and the ability of businesses and the public services, especially those seen as highest priority by the Government and the public—health, education, police, transport—to recruit and retain staff. The Commission believes that the lack of affordable housing in London has become a fundamental market failure which is undermining the region's sustainable economic development.

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