Darren Johnson AM represents the Green Party in the London Assembly
Are you willing to wait 30 years to buy or rent a genuinely affordable home in London?
The Mayor of London is pinning his hopes on the supply of new homes from private developers to stabilise house prices and rents, but a new report (pdf) I have published shows that is how long his approach could take.
Rents in London are so high a worker on the minimum wage can’t even afford to rent a room in a shared flat – you can use my interactive map to explore London’s rents.
House prices in London are so overinflated they would need to drop between 40-65% overnight to become genuinely affordable again for the average Londoner.
The Mayor prefers a less disruptive approach. He wants to see enough homes built to keep prices flat, letting incomes catch up. Building all these homes, he hopes, would also stop rents spiralling ever farther away from affordable levels.
But my report finds two problems with this solution: it’s highly unlikely private developers will build half a million homes in London in the next decade, and even if they do keep building at that pace, it could take up to 30 years to work raising the question of what exactly the priced-out generations do in the meantime?
The trouble is demand is driven by more than people looking for a roof over their head. Private developers might be able to build enough homes to meet the needs of our residents – but can they also satisfy the demands of parents investing in a flat while their children study at university; second home owners; third home owners; wealthy under-occupiers; buy-to-let investors hungry for price rises; and overseas buyers looking for a safe haven for their money?
Is this market-driven supply likely to build enough to drive prices down so workers on the minimum wage can pay their rent without housing benefit?
If you agree with me that the evidence suggests it’s unlikely, then the Mayor needs to consider other solutions to complement market supply.
There has been no shortage of bright ideas in recent years. For example, to boost house building people have suggested directing quantitative easing into house building, a huge council building programme and land auctions.
To constrain demand the Mayor could look at land value taxes; constraints on overseas investors; scrapping buy-to-let tax breaks; smart continental-style rent controls; and pushing councils to charge higher council tax on second homes.
Unfortunately, making a God of market supply has also led the Mayor and the government to argue against many of these ideas.
For example, the Mayor’s manifesto (pdf) pledged to fight any further regulation of the private rented sector such as rent controls. He has argued it would put off investor landlords by reducing the likely rental yield and flexibility, and so reduce supply. He hopes supply will make the market more competitive, so tenants can be choosier and find a better flat with a better landlord.
But presumably that landlord still won’t want to agree to reasonable rent increases and long-term stability, otherwise there would be no problem with rent controls and other regulation.
The Mayor is effectively admitting he doesn’t think the market will supply high quality, stable rented homes of the sort tenants on the Continent enjoy, and that he is willing to put quantity before quality.
The government even wants to let developers ignore affordable housing requirements in order to boost supply. We have reached this point because the government cut the affordable housing budget in London by 66%, confident again that with more housing association debt and planning reforms the market would deliver.
The Mayor and the government are increasingly betting the whole house on private market supply. But the housing market in London is dysfunctional, satisfying investors more than residents; pricing increasing numbers of young and low income people out of swathes of the city; and driving the widening gap between the rich and poor, the wealthy and empty-handed.
In publishing this report, I hope to persuade the Mayor and others to consider other solutions more carefully, and to stop thinking market supply is going to satisfy demand in London anytime soon.