Young people in London face a double whammy.
Half their gross income leaves their bank account in rent every month, and when tax, utility, transport and food costs land, and they are lucky to be left with a quarter of their income as “disposable”.
Meanwhile, house prices continue creeping ever further out of reach.
Some of the key statistics are eye-watering. Back in 1997, the average house on the market was four times median earnings. Today, it is 12 times. The average buyer either needs a colossal income to get a sufficiently large mortgage, or they’ll need to save for decades even to get enough cash to underwrite the purchase.
While some call for more regulation or for the government to build more houses, others – myself included – believe that the existing regulations are part of the problem, and want to remove the barriers to more smaller developers taking on the larger housebuilders.
There are some good examples of smaller housebuilders offering innovative solutions to meet demand.
I recently met Marc Vlessing, chief executive of Pocket Living, a fantastic new company that has come up with an innovative solution to the problem of first-time buyers not being able to get on the ladder.
This SME has been building homes – without the aid of the public purse – specifically aimed at first-time buyers (typically someone aged around 32, with an average income of £42,000 per year).
Their compact homes are put together elsewhere, then transported, lifted and fixed in place on site. The typical modular build flat goes on the market at a starting price of £165,000, which is a huge discount on the £538,254 average property price in London.
The system does not require us to start bulldozing the green belt, but is all about getting smarter in terms of how we use the land available to us in London.
More must be done to create a policy mix that supports rather than hinders these smaller developers to meet the unique housing needs of all our cities.
A few small but bold moves would help them build more of these properties for our young people.
The Community Infrastructure Levy is often a significant burden for smaller developers. I believe that it is only fair that we begin to ask if it is right to place the burden for infrastructure solely on builders – especially smaller ones – that are seeking to build affordable housing.
My concern is that while the big developers can afford to “pay to play” with their substantial cash on their balance sheets, then selling their properties at a healthy margin to cover the costs, a smaller developer with less cash and selling at lower margins is perversely squeezed out.
The patchwork of various levies (there are currently four different ones) should be consolidated into one to bring a degree of consistency for developers. We should also speed up the planning process for this type of new build, where tried and tested, safe ways to speed up the construction process have been developed.
Pocket Living has used modern construction methods to reduce construction times by 30 per cent. The planning system should also up its game to ensure we get these homes built as quickly as possible. A target of eight weeks for such planning applications could be a workable timeframe.
Smaller developers believe that a tangle of regulations are holding back construction and skewing the market in favour of larger, cash-rich developers. We need to look at which regulations to fine tune in order to allow market mechanisms to deliver more affordable homes for our young people.
A key part of a successful, vibrant market economy is to have lots of players of different sizes, building a wide range of homes, rather than the oligopoly that housing has become. If we are bold, I am confident that the market will deliver the homes people want and can afford to buy.