This chapter outlines the key housing challenges in London, including slow housing delivery, lack of variety in housing providers and the loss of social housing in the capital over time.

London is not building enough new homes. Between 2012 and 2016, there was a shortfall of 177,600 homes built in London against household projections, the worst shortfall in England. ² The draft New London Plan published in December 2017 set an ambitious target of 65,000 new homes to be built per year across London from 2019, even though only sixteen boroughs delivered against the targets of the previous London Plan in 2016/17. These slow rates of housebuilding have contributed to rising prices and rents, increasing pressures on the cost of living.

The supply of affordable housing has also declined, though the government has recently made grants available to deliver more affordable homes in the capital, ³ with the Mayor having a target of 116,000 affordable homes by 2022. Indeed, data on additional affordable housing completions in Figure 1 showsthat the number of social rented units built has fallen progressively, with a sharp fall around 2012, despite a peak in affordable and intermediate housing delivery in 2014-15, and more starts in 2017/18.

Housing providers

The housebuilding industry in London is not diverse, with large housebuilders developing the bulk of housing, including affordable housing, alongside housing associations.

In 2013, half of housing delivery in London on large sites was provided by nine firms. ⁴ Local authorities are currently much smaller players. Table 1 shows the breakdown of affordable housing delivery in London by provider (similar data is not available for other types of housing) ⁵. Currently, neither the Ministry of Housing, Communities and Local Government (MHCLG) nor the Greater London Authority (GLA) separate out data on housing provided by local housing companies.

Slow delivery

Research has indicated that in London, permission was granted for nearly 55,000 homes in 2014: however, in 2017 fewer than 30,000 homes had been built or were under construction, an attrition rate of 46 per cent. ⁶Although this may be characterised as “land banking”, an alternative analysis is that housebuilders are motivated by “absorption rates” and are reluctant to build too many homes in one area at any one time for fear of lowering sale prices. ⁷

Loss of social rented homes to Right to Buy

The period between 2006 and 2016 saw local authority housing stock in London fall by 13 per cent, with 456,800 dwellings in 2006 compared to 397,600 in 2016. ⁸ One factor in the reduction in social housing stock in London is the implementation of the Right to Buy (RTB) policy, which enables council tenants to buy their properties at a significant discount to market values, and the failure to replace social housing that has been sold through this scheme. The RTB scheme has seen sales of 285,000 homes in London since it began in 1980, ⁹ bolstered by discounts for buyers of up to £100,000 in London from 2013. ¹⁰ A 2012 report ¹¹ found that in London it takes 1.6 RTB sales to fund a new council home, and previous Centre for London research has highlighted the difficulties councils have in mixing funding streams to fund replacements. ¹² For instance, between 2012 and 2017, of the 15,000 homes in London sold under the scheme ¹³ fewer than 5,000 have been replaced. ¹⁴

As a result, several councils have had to return RTB funds to the Mayor because they have been unable to spend them locally within the three-year deadline imposed by MHCLG: more than £50 million has been returned to the GLA since 2012. In his Housing Strategy, the Mayor has indicated that he wants to see fundamental reform of RTB and an effective approach that will enable like-for-like replacement; ¹⁵ in the meantime, he has offered to ringfence council RTB receipts for later use by councils. ¹⁶

Why we need councils to build more

Diversifying housing providers

In the Autumn Statement 2017, the Chancellor announced a review into the disparity between the numbers of homes built and the number of planning permissions being granted, to be led by Sir Oliver Letwin. Emerging findings from the build-out review show that housebuilders are concerned about the “absorption rate” of their products into the market: that is to say, the speed at which homes can be sold without lowering prices locally. Sir Oliver acknowledged a number of other challenges – including availability of capital, labour and materials – but suggested that broadening the range of tenures and of housebuilders could make a significant difference to build-out rates. ¹⁷ Alongside a more diverse pool of private developers, there is a clear opportunity for council delivery to play a part. Given the focus on affordable and rented homes, it is also possible that council-led delivery will be less susceptible to market slowdowns.

Providing affordable and secure homes for Londoners

Council building can plan an important role in providing more affordable and secure homes for Londoners.

This includes providing higher proportions of social and affordable rented homes than are delivered by private developers, but also means developing better quality products for rent (“build to rent”), as in many areas the private rented sector does not offer quality and secure tenancies for local people – especially the “squeezed middle”. ¹⁸

Placemaking and small sites

The draft New London Plan, which was published in December 2017, proposed that small sites should play a much greater role in housing delivery, and called for boroughs to proactively support delivery of new homes through planning decisions and plan-making. Beyond this, boroughs could play a key role in developing infill sites, and our research suggests that wholly-owned companies have focused their efforts on small sites so far. In bringing such sites forward, wholly-owned companies could contribute towards achieving the aims of the new London Plan, densifying London and contributing to placemaking.

Change ahead?

As the section above outlines, housing supply in London, including affordable housing supply, has failed to meet need for several years. Factors behind the failure to increase supply include a limited pool of developers, slow build-out rates, and challenges in replacing homes sold through RTB. A slowdown in the London housing market in early 2018 threatens to slow delivery by private developers further, but in May 2018, the Mayor announced a new programme to support the building of 10,000 new council homes by 2022, with initial funding allocations announced in October 2018. ¹⁹

Councils are starting to take a more active role in housing delivery in the capital, and the next chapter looks at the origins and scale of their contribution.