The publication last week of ‘A City for all Londoners’, a document outlining Sadiq Khan’s plans across a range of policy areas, has thrown the Mayor’s proposals for achieving affordable housing into sharp relief. The report, which is currently open to consultation, reaffirms Khan’s goal of setting affordable rents in the capital at the level dictated by the Mayor’s London Living Rent scheme.
City Hall’s plans to set affordable rent at one third of median income in a borough, in accordance with the London Living Rent scheme, has caused consternation amongst city property developers. Developers, particularly those in the build-to-rent sector, who are already worried about the impact of Brexit on London property values, say that Khan’s plans requiring half of all new homes built in the city to fulfil the new affordability criteria will impact the viability of future developments.
Affordable rent is currently set at 80% of market value, but under Khan’s new scheme affordable rents could fall as low as 60% of market value in some boroughs. Those developers that fail to meet the Mayor’s targets for provision of affordable new-builds would face increased scrutiny from City Hall’s viability unit, incurring greater administrative costs and burdens.
This approach to improving the affordability of homes in the capital could have the effect of reducing the number of new build-to-rent homes, as investors already anxious about the possible impact of Brexit on the London housing market baulk at the prospect of diminished margins and increased bureaucratic oversight. If Sadiq Khan wants to stimulate increased home-building from the private sector to help meet his target of 50,000 new homes every year, he will need to offer more carrot, and less stick, to developers.
To boost take up of the new affordable rent scheme without denting levels of investment in new homes Khan will need to assuage the concerns of developers over shrinking margins. City Hall policy needs to focus on ways of reducing costs in the property market in order to settle the nerves of jittery investors. The Mayor could then introduce policies to ensure that lower costs for developers are transferred to renters in the form of more affordable housing.
A good place to start would be to address the instability that Brexit has induced in the property market. The fallout from Britain’s decision to leave the EU triggered stalling growth in house prices, with many potential home-seekers choosing to delay deals. The Centre for Economics and Business Research anticipate that London, and especially the prime segment of the capital’s housing market, will be most impacted by this slowdown, leading to a fall in prices of 5.6 per cent in 2017. If Khan can reassure both consumers and developers about the long-term health of the sector and stimulate demand, it will go a long way towards restoring developers’ confidence in the London housing market.
While making the housing market more accessible for people at the lower end of the property ladder is a laudable, and very much necessary, objective, Khan must be wary of pushing property developers beyond their capabilities. While consumers are struggling to find affordable housing in the city, developers are struggling to maintain profitability in a post-Brexit market. If London’s housing crisis is to be solved, the Mayor will need to pay as much attention to the concerns of developers as he does to those of consumers.