Select Committee on Transport, Local Government and the Regions Memoranda

Supplementary memorandum by Association of London Government (AFH 50(a))

  The ALG welcomes the initiative. Given house prices in London are dramatically higher than most parts of the country, with key worker incomes only slightly higher, the differential between average income and average purchasing power is greater in London than elsewhere. With the average house price in London now over £180,000, which would require an annual household income of £60,000, most single income householders in professional positions have little chance of buying into the market, while many double income professional households will struggle to find a property near to their employment, especially if they work in Central London. In seven boroughs, the average is over £200,000, with figures of around £500,000 in Westminster and Kensington and Chelsea (even if the £1 million plus properties are discounted). This is acting as a critical restraint on the ability of key public and private sector employers in London to recruit key staff, especially in the central London boroughs. Considerable publicity has been given to the problems of the Metropolitan Police Force, the Fire Service, Health Authorities and Local Authorities in relation to teachers and social workers. In terms of the overall need to staff London's basic services a much broader definition of key worker is required. Even with additional financial support, home ownership is not viable for most key workers in London, and consequently any initiative should also include a sub-market rented programme to be effective in London. The average manual workers' salary in London is £18,300 a year, while 30 per cent of white collar workers earn less than £18,200 a year.

  The Green Paper is clear that support for key workers, housing costs should be focused on key workers on lower incomes in areas where house price affordability is a significant problem and where there is demonstrable excess demand for housing. The ALG would endorse this criteria. It does however, need to be recognised that a range of options may be necessary in a single geographical area to meet the range of circumstances of different groups. In London, some households on "average" incomes may require assistance to live near jobs in high cost areas. In London, providing affordable housing near employment is also important in terms of seeking to reduce travelling to work and traffic congestion and to assist the maintenance of mixed income/mixed use neighbourhoods.

  It is essential that assistance is both geographically targeted and employment related. It is also important to ensure that subsidy is used to assist key worker housing in the longer term as well as the short term, and that investment leakage is minimised.


  The ALG would therefore support three parallel packages. These should all be seen as supplementary programmes to the existing SHG funded rented programme, though the programmes could be seen as contributing to the overall housing need target set out in the first section of this submission. At this stage these proposals are in outline and the ALG would welcome more detailed discussions with the DETR to model the costs and benefits of different options. At this stage, we would not wish to be prescriptive on ownership and management arrangements.


  This initiative would combine employer equity stakes with HC or LA supported social housing grant. SHG shared ownership procedures would need to be amended to remove the right of a share owner to staircase to outright ownership. The equity would be shared between employer, RSL and share owner, with proportions varying according to the level of employer investment, grant, and employee income. Employee equity shares below 25 per cent could be considered where there is sufficient employer equity investment. In exchange for the equity investment, the employer would nominate an employee to the RSL, and the employee would surrender their equity share on termination of employment. The employer could therefore make available an equity share as part of a recruitment process for a key post. On vacation, an employee would cash in on their equity share. An employer could increase or decrease their equity share in line with recruitment requirements, but only sell their whole equity stake to another employer who was prepared to maintain the arrangement. It is suggested that an initial programme of 1,000 units in London be operated for 2001-02.

  Local authorities should be requested to lead LA/RSL/employer (private and public sector) partnerships. These partnerships would then submit bids to the Housing Corporation including details of employer equity share levels, eligible employees, grant requirements and monthly cost to employees. Cross-borough proposals should be considered, together with pan-London proposals, to give RSLs and employers maximum flexibility in relation to developing/acquiring properties in appropriate locations in relation to their employment centres. This package would have the advantage of focusing grant only on employer/housing markets where it was essential to key worker recruitment and retention and ensuring that there was no investment leakage. It is recognised that the level of employer investment in such an initiative has not yet been tested, and an early announcement of such a package would be necessary if a significant start up in 2001-02 was to be achieved. It would be envisaged, that if successful, the programme would be expanded to a much higher level in future years.

  Assuming average grant cost at 15 per cent above current SHG shared ownership levels, to reflect inflation, a 1,000 unit programme would require grant of £41 million. Assuming an average 25 per cent employer equity stake, employer equity investment of about £33 million would be required. If levels of employer equity investment were lower, the grant requirement would be higher.


  This initiative would be based on the current shared ownership grant regime with a grant multiplier for key workers. Each local authority could specify the employment categories appropriate in their area. Allocations could initially be distributed between local authorities on an HNI basis. Multipliers could either be determined by TCI group, or (if data was readily available) by a more systematic analysis of incomes of specified key workers and lowest quartile house prices in each area. It is suggested that for an employee with an income of £30,000 per annum, an equity share of 60 per cent would be possible, requiring grant of £40,000, while an employee with an income of £15,000 would be able to buy only a 40 per cent equity, requiring a grant of £60,000. These figures compare with the average 2000-01 shared ownership SHG cost of £36,000. Taking a midpoint of £50,000, a 1,000 unit programme in 2001-02 would require £50 million grant.


  Some key workers in London could still not afford to buy into home ownership under the above arrangements, but would nevertheless not require norm rental grant rate subsidy levels. The effective norm grant rate in the Housing Corporation's current year's London rental programme is 52 per cent (discounting other public sector contributions). There is a case for considering a limited key worker rented programme on the basis of grant in the 35 per cent to 45 per cent range. Lettings would be exempt from normal housing needs based criteria, with each authority agreeing an appropriate list of key worker categories. The criteria would include an appropriate upper income limit to ensure assistance was limited to households who could not afford subsidised or open market shared ownership or home ownership options. Assuming an average 40 per cent grant rate, a 2,000 unit programme for 2001-02 would require grant of about £106 million.

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