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.
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 hotelsunless 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.
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 Londonover 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
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
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 boroughsLambeth, Southwark and Waltham
Forestis 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
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
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 unitsover 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
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
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
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
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
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
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
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
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
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
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 infrastructuretransport,
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 Warwith
overall population projected to rise to 8.1 million people by
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 publichealth, education, police, transportto
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