Tuesday February 12th, 2019

Affordability and feasibility

How much affordable housing do we need?

Issues around affordable housing have been on the EiP agenda since day 1. Still, the topic is only just coming to the forefront of debate as the Panel moves on from overall numbers to the more detailed question of who is housing need. The core issue is that if the Mayor’s estimates of who needs affordable housing are correct, what is required is not the 30% threshold for private development; nor the 50% threshold for public land; nor the Mayor’s aspirational objective of moving towards 50% across the board. Rather the numbers in the draft plan suggest at least 65% of total output needs to be affordable –which is clearly infeasible given current methods of delivery.

But, as several participants made clear, it is not just the proportions that matter. There are significant issues around what is meant by affordable rents for lower-income households – as well as how long it is reasonable to suggest it will take to clear the backlog. The tension in the discussion was primarily between those that felt that too many private homes were being provided at the expense of affordable homes and those who accepted that the private homes were needed if the affordable homes were to be produced.

Basically, those who saw genuinely affordable housing as the priority also argued that much of what was being provided in the draft Plan would not be accessible for lower-income households. They, therefore, saw the only option to be large scale grants to local authorities and housing associations to deliver social housing at very sub-market rents. Those who were mainly going to deliver the affordable housing argued that a range of sub-market products was necessary, including intermediate rents, rent to buy, and shared ownership – and implicitly accepted that housing benefit/universal credit would have to take the strain in the private rented sector.

Regardless of the practical issues that entails, one thing was agreed: the term ‘affordability’ is being misused with competing entities in the market, state, and society using different definitions that suited their economic and political models. One might say that poverty is not well mapped when it comes to defining ‘affordability’ in housing terms.

Can the threshold approach to viability be effective in delivering the quantum of affordable housing required?

A critical issue in delivery was seen to be around viability – as most affordable housing delivered by housing associations and potentially by local authorities is currently delivered through S106 (around 20-25% of London’s output in the past few years). This is clearly not going to go anywhere near delivering the numbers specified as in need in the draft Plan.

It was also stressed that the government puts more money into supporting market housing supply – with, on some definitions,79% of government grants for housing going towards market housing. Several participants continued to stress the need for both more government funding for supply and a redistribution of funds towards social housing. In this context, the draft Plan suggests a minimum of 30% should be Social Rent/London Affordable Rent and a further 30% should be intermediate products W(meant for households with incomes up to £80,000) while the remaining 40% is to be determined by the Local Authority.

Rents have been increasing faster in the social sector than in the private sector – because rents for new lettings have been increased towards affordable rents levels. Some participants argued that social landlords had incentives to raise rents up to LHA levels. Rents will also be allowed to rise by CPI plus 1% in the coming years.

Land prices, grants, and densities

Everyone agreed that land is a central issue in the delivery of affordable housing, particularly for Housing Associations. However, one question that was raised was about the role grants plays, other than increasing the prices they are prepared to pay for land. As it stands, HAs sometimes pay more than the market and compete with one another. The London Plan could do more to clarify these matters.

There was disagreement over the role of the density policy and the density matrix and its effect on land prices and the delivery of affordable housing. LSE London has written in support of its withdrawal, while others felt strongly that this would simply allow developers to bid up the price of land – it would, therefore, be much better if the density matrix was enforced. Increased density does not necessarily mean increased numbers of affordable housing. Some stressed there is a direct link between high-density levels and how much affordable housing was delivered. High density and high rise housing are problematic for rental units and for social units because of the service charge.

Guidance on Mix of Dwellings 

Another issue where there was some disagreement was around whether the guidance on the size of dwellings (market and affordable) was consistent with achieving the Plan’s overall goals. A straightforward suggestion was that the target should be set in square metres rather than units. This would allow greater flexibility in what is delivered. The draft Plan is more traditional and for instance, classifies a 2-bed flat as a ‘family unit’ – definitely a matter of concern as it puts all the emphasis on numbers without considering the social aspects of what is being built. There was a strong belief among those working with tenants that what was required was more significant numbers of larger dwellings without any reductions in overall totals. Others thought that what was needed was far more smaller units – as long as there was flexibility in how the existing stock was used. In this context, it was noted that many larger private homes are likely to become HMOs in the private rented sector over the next few years. In this context, what happens in the existing housing is far more critical that what happens in the new build sector as 95% of the housing in 10 years is already in place. Yet the Plan can only influence the later. 

Market vs affordable homes or market and affordable units? 

Underlying all these tensions was the simple truth that the Plan would not make it possible to deliver anything like the total number of dwellings it estimates is required. Further, it was likely to fail particularly heavily in the context of affordable housing in general and social housing in particular because these numbers depend on the extent to which market housing can be delivered. This cannot be addressed without changes in central government policy. Participants in the main left feeling depressed because we were of necessity dealing with details rather than answering the core question of how to expand levels of affordable housing – whether planned or actual.