Housing is the key issue in this week’s elections to the London assembly and for a new mayor.Each of the candidates acknowledges this, and we have seen a wide range of proposals in the manifestos.
Bernard Clarke of the Council of Mortgage Lenders looks at the main proposals and sets out how lenders stand ready to work with the newly elected mayor to fund the increase in housing that London so badly needs.
From the start of the campaign, housing has been the key issue in this week’s election for a new London mayor. In all three tenures, London faces challenges that are unique compared to the rest of the UK, and this is reflected in the election manifestos. All candidates have given prominence to proposals for addressing the capital’s acute housing problems.
People living in London have the highest incomes in the country – and the greatest average wealth – yet only around half the population are owner-occupiers, compared to around 64% for the UK as a whole. Average house prices are much higher in the capital than in the rest of the country, and affordability for would-be owner-occupiers is particularly challenging.
A corollary of this is that London has the highest proportion of people living in private rented accommodation. It also has the highest rents and the highest current rate of rental growth. Thelatest datafrom Office for National Statistics showed that rents were rising at an annual rate of almost 4% in London, compared to less than 3% in the east of England, the region with the next highest rate of growth.
Given the affordability problems for both owner-occupiers and those renting privately, there is a particularly strong demand in London for affordable housing. Shared ownership is also an option that a number of mayoral candidates are keen to promote in the capital.
London has a higher proportion of people living in social housing than anywhere else in England (only Northern Ireland has significantly higher proportion), and the need for more affordable housing is a key issue in the election.
Ultimately, the problems in all tenures are rooted in a shortage of housing supply, and this has been exacerbated by the extent to which population growth in the UK over the last decade or so has been concentrated in London. In this article, we look at the housing proposals by the main mayoral candidates, and give a Council of Mortgage Lenders perspective on how to address the challenges in each tenure.
Home-ownership
The Labour mayoral candidate, Sadiq Khan, has pledged to build more homes for first-time buyers to part-own, part-rent. Where these homes are built on public land, he wants to cut their cost – and give “first dibs” to Londoners who have rented for more than five years. He wants to use the mayor’s powers to promote building on brownfield sites, and proposes to provide “high-quality advice” on service charges and lease extensions for the large proportion of leaseholders in London.
For the Conservatives, Zac Goldsmith wants homes built on mayoral land to be ring-fenced for Londoners. He would also like to be able to help more people in London to buy off-plan through a new “mayor’s mortgage” – which would have an offer period of nine months. Lenders are generally cautious about extending a mortgage offer for more than six months because a borrower’s circumstances may change, but some firms are prepared to consider a longer period in individual cases.
Both Labour and the Conservatives have adopted an ambitious target to increase the construction rate to 50,000 homes a year. Zac Goldsmith wants to promote a more competitive construction market, with smaller builders having priority access to smaller sites. He would also like to split up building plots to enable smaller builders to compete more effectively. Sadiq Khan has proposed that half the target of 50,000 homes a year should be “genuinely affordable to rent or buy.”
Liberal Democrat candidate Caroline Pidgeon has adopted a similar housing construction target, with the goal of building 200,000 new homes over the next mayoral term. She wants to set up a new London Housing Company to match public land with funding from private institutional investors. The Liberal Democrats would also like to introduce a ‘right to buy’ scheme for existing tenants when a private landlord decides to sell up.
The CML’s view
Lenders welcome measures to promote home-ownership, but they must be sustainable – for individual borrowers and for the market more widely. We already have a complex and overlapping range of schemes and initiatives intended to promote affordable and low-cost housing. With the introduction of Help to Buy London and the large number of initiatives proposed by the mayoral candidates, this complexity may become an even more marked feature of the London market than elsewhere in the UK.
Whoever is elected mayor, we would like to ensure that this increasingly complex matrix of schemes and initiatives is developed and implemented in a streamlined and co-ordinated way. While welcoming measures to promote home-ownership, we are keen to ensure that their range and complexity does not increase the potential for market-distorting effects and unintended consequences.
The CML stands ready to help the new administration develop and implement schemes that lenders are able to support. We would like to ensure, for example, that delivery by one initiative does not cannibalise provision through another. We also want to be confident that the potential layering of subsidies and incentives does not introduce instability to the market.
The private rented sector
Zac Goldsmith wants to change the planning rules to produce more homes for rent. He also wants to encourage provision through a build-to-rent initiative, rather than buy-to-let model. His goal is to deliver more private rented accommodation through large, purpose-built developments managed by professional landlords over the long term. He also wants to strengthen theLondon Rental Standard, with three-year tenancies offered as standard and lower estate agents fees.
One of Sadiq Khan’s key proposals is for a London “living rent,” based on one-third of average local incomes. Like Zac Goldsmith, he also wants to promote institutional investment in homes for long-term secure rent. He has also proposed a not-for-profit lettings agency and stronger rights for tenants over matters like the length of tenure, rent increases and the quality of accommodation.
UKIP candidate Peter Whittle opposes caps on rent and the registration of private sector landlords, but wants to apply punitive council tax rates to empty homes in London – at twice the rate applied outside the capital – to encourage owners to let them out to private tenants.
The CML’s view
As in the owner-occupied market, we would like to see policy that promotes stability and sustainability in the private rented sector. It is also important to strike the right balance between seeking to promote the interests of tenants and ensuring that landlords have confidence in the long-term stability of the sector to want to invest in greater provision of rental property.
Over the last two decades, buy-to-let has made a significant contribution to increasing the number of rental homes, and to raising standards and improving choice for tenants. Recent changes in taxation, however, will affect the future earnings of buy-to-let landlords and the potential further expansion of the sector. Regulatory proposals could also make buy-to-let funding less readily available and more expensive.
We would like to work with the next mayor to help shape a regime that reinforces stability in the private rented sector, and encourages lenders and landlords to increase the number of homes available to tenants.
The social rented sector
Sadiq Khan has pledged to support housing associations and councils to provide more social housing, while also keeping rents down. He also wants councils to protect tenants that are unable to afford market rents. The Labour candidate is also opposed to the regeneration of housing estates, unless it is supported by tenants and avoids the loss of social housing.
Zac Goldsmith proposes to work with central government to increase the power of housing associations to set their own rents and have greater access to publicly owned land. He would also like to exempt newly-built council homes from government measures enabling the sale of high-value properties to fund the extension of the Right to Buy initiative.
For the Greens, Sian Berry has committed to the same annual construction rate of 50,000 adopted by most of the other candidates. Within this broad target, however, she wants 16,000 units a year to be social rented homes, with a further 10,000 set aside for low-cost rental or ownership.
The CML’s view
Lenders already make a major contribution to the funding of social housing, and are keen to be able to continue to do so. Given the size of the social rented sector in London, lenders can make a significant contribution towards funding the capital’s housing needs.
As with other tenures, lenders are encouraged to invest where they can be confident of long-term stability. Investment is underpinned by the value of existing housing assets, and it is important that ambitious plans for reform of the sector do not unintentionally present a threat to these assets, and therefore discourage future funding by lenders.
Conclusion
Housing provision in London is more evenly spread across tenures than anywhere else in the UK. In all tenures, however, strong growth in demand has exacerbated affordability problems that are rooted in a shortage of supply. The long-term persistence of high costs and a shortage of housing have projected the issue to the top of the political agenda, and housing is the key issue in the forthcoming elections for the mayor and for the London assembly.
The significance of housing in the election – and the enormous challenge of addressing the capital’s intractable problems – has led each of the main mayoral candidates to commit themselves to ambitious targets. In pursuit of these, each has adopted a series of complex, inter-related and often radical measures for delivering more housing.
Lenders have made a significant contribution to the funding of homes in all tenures in London. They want to be able to continue to do so, but need a policy approach that is stable and sustainable over the long term. The security of assets underpinning the provision of funding is crucial to creating favourable conditions for lenders.
Many of the challenges for the lending industry lie in the sheer diversity of proposals, and the potential for conflict between different initiatives, market instability and unintended consequences. The CML – and individual lenders – stand ready to work with the new administration to help implement a workable, coherent set of housing policy initiatives that maximise the potential for lenders to support them.
Before the last general election, the CML published its ownmanifestosetting out the challenges in housing for the next government up to 2020 and beyond. Many of the issues we set out there are particularly relevant in considering what is now needed in London.
