Making a place for low cost housing A Housing Forum report on funding and delivery for low cost homes in mixed communities beyond 2015 SUPPORTED BY: Making a place for The Housing Forum 2 low cost housing The Housing Forum is the only cross Working Group Chair, Mike De’Ath, sector, industry- wide organisation that Partner, HTA Design LLP represents the entire housing supply January 2014 chain as the voice of the industry. We have over 100 member Acknowledgements organisations, from both public and The Housing Forum would like to private sectors, collaborating to inform, thank all those that contributed to network and influence with the shared this report (listed at the back) and objective of more homes and better also our sponsors: HTA Design homes for the nation. LLP, Hunters, Silver, Airey Miller The cross sector representation of Construction Management, PRP, Kier, our membership equips us especially Baily Garner, calfordseaden LLP and to investigate issues that require Legal & General Property. collaboration to achieve successful outcomes. The views in this report are the views of The Housing Forum and have been contributed from Working Group discussions and conference debates. If you are interested in joining please contact: Chief Executive [email protected] 0207 648 4070 www.housingforum.org.uk Contents 05 12 26 3 Foreword Part one. Part three. Making the case for Current and emerging 06 low cost housing models for the Executive provision of low summary 20 cost housing Part two. 10 The challenges of 38 Introduction and funding and delivery Part four. scope of the of low cost housing Policy game report changers, ‘15 for 2015’ 44 Part five. Concluding remarks Cover image: Sheppard Robson’s award-winning Barking Riverside is one of the UK’s largest residential regeneration schemes. The design balances the needs of people and the environment to create a sustainable long-term community. 4 Foreword Housing is becoming the most pressing priority for policy makers in London and the South East, possibly surpassing transport in terms of its economic and social consequence as both population and land values rise. It cannot be a solution to the demand for housing in thriving places like London to move people ever further out in search of cheaper places to live. The critical issue is how to bring about significant increases in supply without resorting to building extensively in the green belt, or beyond. I believe that this calls for us to find new ways to deliver homes at scale within our urban centres to cater for all income groups. We have the 5 space; building to the same density as we have in desirable Islington could accommodate 20 million people in London, for instance. This will require a new era of political determinism and directive policy action, harnessing electoral legitimacy and incumbent powers to overcome barriers. It will also require politics to align with housing providers, new financial models and the market and the support for low cost housing, essential to creating economically successful and enduring places. I welcome The Housing Forum’s report and its contribution to this important debate. Professor Tony Travers, Director of London School of Economics (LSE), London Executive summary his Housing Forum inquiry into the future financing and delivery of low cost housing has, over the past six months, explored the context, current approaches and future models for provision against an increasing concern regarding affordability. This is largely focused on London and the South East where pressure is greatest but will be extended by The Housing Forum in 2014 through its theme “Building Homes for the Future” into a national study of housing markets. What has become immediately clear is that we are in the midst of the most radical change in the way sub-market homes are provided since the creation of 6 state supplied housing under Clem Atlee 70 years ago. The combination of Welfare Reform and funding principles embodied in the Affordable Housing Programme has created a new dynamic in the relationship between state, provider and occupant, while the impact of the global financial crash has applied a major brake on mortgage availability and prompted prohibitive deposit requirements for new entrants to the market. Moreover, reason that we are mainly concerned at while much attention has been given to this stage with London and the South the ‘squeezed middle’, there has been a East. Indeed, if the London property serious decline in activity to support the phenomenon continues as many predict, needs of those who fall below this target we may be witnessing the beginnings of group. The Working Group believes that mixed We are in the midst of income communities are the lifeblood the most radical change of strong, sustainable communities. in the way sub-market Our work has identified that, such are the complexities of the UK housing homes are provided since market, current changes in policy have the creation of state the potential to effect dramatic impacts on those living in localities with high supplied housing under land and property values. It is for this Clem Atlee 70 years ago Transformation of the South Acton Estate, West London by HTA Design LLP for London & Quadrant Housing Association 7 a demographic shift in population based market but are unable to access current on economic circumstance that reverses planned or available supply either the inward migration sparked by land because of economic circumstance or enclosures in the eighteenth century. stage in their lives. Such unintended consequences would have a profound impact on business, » We define affordable as 30-35% of local economies, those in need of support household income for those at the from the low waged and importantly, benefit cap of £26,000 or £32,000 if those who provide services in locations waged (acknowledging that even this is to which those impacted migrate. a high bar, for example a newly qualified teacher earns less that £25,000 before The key parameters tax in London.) At this level households for our report are: have residual income to enable participation in the local economy and » Housing that is affordable to those a level circa £650 per month for rent or entering, or already in the housing mortgage payments. » We acknowledge the regional add to supply and alternative emerging variations in housing markets and have approaches, and are, as yet, unproven in largely limited our report at this stage to terms of delivery at scale. areas of higher value where the supply of such housing is particularly problematic. Our Working Group strongly reinforced Inevitably that has meant a focus on the the need for capital subsidy to assist the London area. We have noted recent data viability of sub-market homes for sale which suggests that homes delivered and rent. using 80% of market rent, recently reinforced by Mayor Boris Johnson, Our conclusions are: would require a household income of £100,000 in Westminster, £80,000 » Current delivery mechanisms will fall in Camden and £40,000 in the most short of the delivery of homes required affordable London Borough, Barking and in ALL tenures and, even with subsidy, Dagenham. and delivery of low cost homes will be even harder hit. » We note the dramatic decline of supply of homes at ‘social’ rent. A report » The delivery mechanisms are so commissioned from Savills by the G15 fragmented, new, uncoordinated and group of the larger London housing complex, that it is very unlikely any 8 associations forecast that the maximum minor or short term intervention or delivery of affordable homes is likely private sector-led solution can deliver an to fall well short of expectations with outcome at scale or in the time required. completions for homes at social rent falling from 34,190 to 9,577 between » That, despite this inelastic supply- 2009/10 and 2012/13, with just 3,102 side, there is a phenomenal elasticity starts predicted in 2012/13. We believe in demand. The real problems being that if this trend continues it will created may take generations to manifest inevitably create an unsustainable themselves. division between those able to access housing which is affordable to their » That there is the danger that at some income and those who cannot. stage there will be a reactive Government intervention programme similar to We have explored the current models post war housing with the potential of pursued by providers who see the link ‘the wrong housing in the wrong place’, with household income as being key low quality and inappropriate loss of to the affordability issue and we have greenbelt. researched and met with organisations and funders crafting new approaches Our current thoughts are that a that can deliver these homes in an rebalancing of strategy is necessary environment of reducing government and we have come up with ’15 for 15’ capital subsidy. We have discussed the – policies we see as ‘game changers’ to various merits of 10 different approaches bring about a step change in supply. in the report. While supporting and indeed celebrating these models, we One of the game changers we are consider that they will not significantly promoting is a National Housing Millennium Village, Greenwich, South London Investment Bank. The virtue of this would be to create a state backed institution able to raise finance through bonds, ISAs, on-lending or even recycled tax (on capital gains from overseas investors or Stamp Duty Land Tax for example) to invest in products like social housing (at social rent) and shared ownership and also development finance so far eschewed by retail banks. Moreover we are calling for the ‘affordable housing’ asset class to be seen as ‘infrastructure’ and removed from the public sector borrowing requirement (PSBR) thereby increasing investment available from public institutions and local authorities.