London's housing shortage is putting the capital’s future at risk. The success of this great city is fuelled by its ability to attract talent, both nationally and internationally. But there is a danger that young professionals will be put off working here by growing housing costs, cramped and insecure conditions, or long and expensive commutes.
One of things that makes London so attractive to young talent is its diversity – the unique lifestyle offered by the city’s mixed neighbourhoods. So the response to the housing shortage should come not just with units, but with new and growing urban neighbourhoods. Mixed neighbourhoods with rich histories that people of all incomes, backgrounds, life stages and jobs can call home.
The shortage makes this a profound challenge. Too often we see supply pushed into two directions: housing for the relatively few who can afford to buy it, and housing for those who need (and are eligible for) social rented accommodation. Much more needs to be done to meet the needs of those on middle incomes.
The embryonic build-to-rent sector, a market of rental homes held by long-term investors, can build quickly housing that is affordable to a wide spectrum of people. Yet in the UK, this sector attracts just 3 per cent of institutional investment in property. In the US, it attracts a quarter. We need to catch up.
In America’s largest cities, renters are on a par with, or outweigh, owner-occupiers. In New York, two thirds of the population rents – double the country’s national average. I see no fundamental reason why London cannot similarly respond to what is a generational shift in renting.
So what is needed to catalyse the market? Many things, but I would prioritise two. First, a muscular approach from the mayor to bring land to the market. London needs a delivery body with teeth to bring together sites for new homes, put in place necessary infrastructure and sell plots to those who want to build – not just to housebuilders, but to housing associations, build-to-rent investors and perhaps boroughs.
And second, we need a unambiguous city-wide policy that recognises the benefits of new rental homes. At present, build-to-rent investors just don’t know where they stand. City Hall has a broad, draft policy which each borough is interpreting differently. This ambiguity is creating a stand-off between planning authorities and the private sector, holding back substantial private capital.
Today, London First is bringing together 400 opinion formers from the property industry and housing minister Brandon Lewis to discuss the future of the build-to-rent sector. I will argue that investors and developers who want to build new rental homes in London should know what policy wants from them. So instead of the current horse-trading over a development’s contribution to affordable housing in a prolonged and open-ended negotiation, I will argue that build-to-rent developments should provide a fixed percentage of rental homes at market discounted rates for a set number of years. That’s because a fixed tariff brings certainty. These discounted homes could be held by long-term investors and be integrated with homes rented at market rates and with private, for-sale homes, to help create and sustain mixed neighbourhoods.
Solving the affordability crisis in London needs action on a number of fronts. If we move now with pace and urgency, London can get the investment in new homes that it needs to remain a global hub for talent.