London mayor battles to keep pace with ever fiercer housing crunch

London mayor battles to keep pace with ever fiercer housing crunch

  • Labour mayor vowed to ‘fix the Tory housing crisis’ in capital
  • Sadiq Khan has some success with affordable housing targets
  • Pressure grows to build more homes as market falters

As Labour’s candidate for mayor of London in 2016, Sadiq Khan told voters he would be the “council-estate boy who fixes the Tory housing crisis”.

“This election is not just a referendum on the housing crisis,” he said at the time. “It is a referendum on the type of homes we build.”

Two years later, Mr Khan’s opponents are already gearing up for a fresh mayoral race in 2020. And while there are signs that his push for affordable housing is bearing fruit, the capital’s housing crunch is becoming more acute.

Even as Mr Khan seeks to push up construction rates, he is being forced to increase his targets at an ever faster pace. The mayor’s latest needs assessment says the annual rate of housebuilding in the capital should rise by almost 70 per cent.

Mr Khan also faces suspicion from property developers, many of whom argue he has shown less support to the sector than his business-friendly predecessor, Boris Johnson.

“We should give credit to Sadiq that he has set challenging targets and negotiated with the government for increased funding for affordable housing,” said Craig McWilliam, chief executive of Grosvenor Britain & Ireland, an estate more than 300 years old that owns swaths of Mayfair and other developments in the capital.

One criticism of Mr Khan is that he makes little personal contact with the industry, but Mr McWilliam said: “He leaves a lot of the day-to-day engagement to his deputy mayors and officials, but we do know he is engaged.”

He added: “There is a confrontational public debate about development and growth that makes it difficult for everyone.”

Developers greeted Khan with scepticism

Mr Khan’s Conservative predecessor, Mr Johnson, was seen as a close ally of the property industry, pushing forward big schemes such as the high-end Nine Elms housing area, and making public appearances with developers.

By contrast, Mr Khan’s election was greeted with gloom in parts of the sector. He had pledged to demand that half of all homes built fall in the “affordable” category, prompting one developer to say the new mayor would get “50 per cent of nothing”.

A large chunk of the capital’s new affordable housing is built through planning agreements requiring developers to build cut-price homes along with those sold at market rates. But developers generally seek to keep this requirement as low as possible, since these homes are less profitable.

High-end flats going up at Nine Elms, a development zone pushed by Sadiq Khan’s predecessor as mayor, Boris Johnson © Justin Tallis/AFP

The 50 per cent figure was later softened to a “strategic target” but still applies to developments on public land. Elsewhere, Mr Khan has also offered housebuilders a fast-track planning process if they make 35 per cent of homes they build affordable.

There are signs the strategy is working. Ahead of Mr Khan’s election, spiralling land values resulted in developers paying so much for land that they told planners they had little spare cash for affordable homes.

But Savills, the property agency, said in May that central London residential land values had dropped 2 per cent in a year, bringing falls over three years to almost 12 per cent.

“Developers continue to factor in the need to deliver 35 per cent affordable housing on site following the mayor’s strong position on the issue,” the agency said.

Meanwhile, according to the Greater London Authority, construction began on 12,555 GLA-financed affordable homes in 2017-18, the highest number since state funding for such homes in London was devolved to City Hall six years earlier.

That figure, which is heavily dependent on funding cycles, was aided by a record settlement of £3.2bn — later increased to £4.8bn — of affordable housing funding from central government.

Mayor under pressure to lift ambitious targets

In 2016-17, the most recent year for which data are available, more than 39,000 homes were completed in London, the highest figure in at least 15 years. But Mr Khan must now contend with a falling property market, which decreases incentives for developers to build.

“There’s a headwind in the market and that does have an impact on the confidence of developers,” said Gerry Hughes, chief executive of GVA, a property agency.

Privately, developers say they feel Mr Khan has added barriers in the planning process.

“The mayor has made it quite difficult. You are being hit right, left and centre with [demands for] contributions, particularly for affordable housing,” said one developer.

The need for new homes is growing ever greater. In his draft London Plan, currently under development, Mr Khan has said that Londoners need 66,000 new homes to be built each year, up from a previous target of 50,000. Of the new figure, 43,000 should be “genuinely affordable”, Mr Khan has said.

But Whitehall has reportedly pushed him to increase the total target even further. James Brokenshire, the housing secretary, wrote to Mr Khan urging him to set a higher target, according to the Evening Standard, and central government currently assesses London’s need at 72,000 a year.

Public awareness of the need for new homes is rising, according to polls. But local objections remain fierce, especially to “regeneration projects” on council estates, where homes are knocked down and rebuilt in higher numbers.

Protesters register their opposition to Haringay council’s partnership with a private development group in ‘regeneration projects’ on the borough’s council estates © Patricia Phillips/Alamy

Mr Khan is showing signs of a more decisive approach as his term proceeds, “calling in” for further consideration on two large Greenwich housing schemes refused at a local level. He has also removed limits on how densely builders can pack new homes on to development sites.

‘Real effort’ required to shift the market

James Murray, Mr Khan’s deputy mayor for housing, said the administration was “proud” of its achievements so far but limited in the levers it could pull.

“The calls on government to give us the powers we need for a step-change in property are growing ever louder,” he said.

Mr Murray wants central government to enable councils to borrow more to finance housebuilding and to adjust how land is valued to make it easier for councils to assemble plots for residential construction.

Failing those changes, Mr Khan must rely largely on developers to secure a significant uplift in housebuilding. He must also contend with the time lag inherent in the construction industry, where planning and building new homes takes years.

Mr McWilliam of Grosvenor said a big shift was possible but “it will be a real effort, which the mayor can lead”.

He added. “It also requires local political leaders to advocate more housing in their own boroughs, and be willing to really explore the trade-offs.”

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