London is in the midst of a housing crisis, as the city faces a need for some 49,000 additional homes a year.

This shortage of homes is intrinsically linked to a shortage of land, particularly land that is developable, deliverable, and close to transport infrastructure. Building on the green belt is not supported by government or the Mayor of London, and brownfeld land is in limited supply. Hence, densifcation of existing land uses will play an increasingly important role in coming years. Given the single land ownership of housing estates, several reports have suggested that densifcation of these estates – through infll, or demolition and rebuilding – could be an important source of new capacity.

Our report seeks to assess the potential and the fnancial viability of such densifcation projects. Our research began with an analysis of large housing estates in four London boroughs: Lewisham, Barking and Dagenham, Waltham Forest, and Hounslow.

Using census data to identify areas with a concentration of social tenants, we cross-referenced these with various maps to identify housing estates of over 200 homes or more. This process identifed some 17,500 homes across 36 large estates. We then calculated the density of these estates, and compared this to surrounding ward areas and London Plan density guidelines.

With the exception of those in Lewisham, large estates were as dense as their average ward densities. This is not say that these estates constitute the best possible use of land, but for suburban estates in particular, density levels are not signifcantly lower than surrounding areas. Using the London Plan density guidelines, we then calculated the potential for estate densifcation by turning up the dial to either ‘urban’ or ‘central’ levels.

We found that three out of the four boroughs could gain an uplift of at least 50 per cent by increasing the density of large estates to SRQ ‘urban’ levels. Densifying estates up to the SRQ ‘central’ setting would produce substantial housing gains in all boroughs except Waltham Forest, which already has an average large-estate density double that of Lewisham. The other three boroughs have the potential to double their current estate housing capacities – in fact, estate densifcation could increase Barking and Dagenham’s total housing stock by 10 per cent.

We then used these fndings to generate an estimate of the number of additional homes that could be delivered across London. We estimate that densifcation of large estates has the potential to add between 80,000 and 160,000 homes to London.

Given the long lead time of such projects, and based on recent outputs, we estimate that this could add between 4,000 and 8,000 homes to London each year – up to 20 per cent of London’s annual additional housing target.  London’s housing shortage needs to be tackled strategically, and densifcation also needs to take into account design quality and social considerations.

One must also take into account that introducing ‘central’ level densities to estates could severely change neighbourhood characteristics, particularly in parts of Outer London. Design is not the only challenge. In order for estate densifcation to deliver additional homes while ensuring that the supply of affordable housing is maintained or increased, it is also essential that projects are fnancially viable – that is, that they can cover their costs.

The Sustainable Residential Quality (SRQ) density matrix forms part of the London Plan’s policy on the density of new housing, setting density ranges on the basis of public transport accessibility and neighbourhood setting (defined as ‘suburban’, ‘urban’ and ‘central’). This is based on the figure of 42,000 new homes a year, for the next 20 years, as stated in the Mayor’s Housing Strategy (prepared under the previous Mayor, Boris Johnson).

These estimates do not include homes gained through infill on estates. The second part of this report uses fnancial modelling to examine the fnancial viability of estate densifcation projects, and the principal factors that infuence this. Using a scenario based on costs and values for a two-hectare estate, with 180 dwellings remodelled into 360 dwellings as our base case, our sensitivity analysis shows that by far the most infuential factors are the following:

1—The before- and after-values of the housing stock.

2—The potential for increase in density.

3—The tenure mix at the beginning and at the completion of the regeneration.

The effects of these variables are summarised below:

We calculated that the base case project could double the number of homes on site, increase the asset value of the estate by three to four times, and increase household spending power in the neighbourhood by four to fve times. This provides benefts to the local economy, and also to the local authority (on the basis of increased council tax revenue). However, once projects begin to deviate from the base case in terms of starting values, densities and current tenure mix, the complexities of estate densifcation become apparent.

Our modelling shows, for example, that the gains to a local authority of densifying a low-density suburban estate are far lower than the preparation costs – in particular, the costs of buying out those who have bought their property through Right to Buy.

Summary of recommendations

• The analysis in this report has highlighted the need for more accurate information regarding the location and density of London’s estates. – A full analysis of where London’s existing estates are, and their current densities, should be used to inform the next iteration of the London Plan. The Mayor should use this analysis to identify the potential for estate densifcation.

• Our analysis has also shown that the capacity for estate densifcation is often overstated, both in terms of the number of additional units that could be gained, and the density of existing estates compared to their surrounding areas. – Densifcation should not stop at the edge of housing estates. We recommend an approach that combines densifcation both of estates and other uses such as privately owned residential land and publicly held land such as car parks. Estate densifcation also needs to be carried out in a way that integrates the densifed site with the surrounding urban fabric, adopting a mixture of block types and increasing in density nearer to urban centres and transport hubs.

• Our modelling has shown that in a number of cases, estate densifcation is not viable, particularly in low-density suburban areas. – Where suburban, low-density estates are densifed, this should be supported by a programme of gap funding if necessary. This could be through a combination of central government grant, housing association crosssubsidy, private fnance through stock transfer, and local authority contribution.

• Our modelling has shown that there is a clear difference between the amount of compensation given to tenants and that given to owners, and that no one household will experience the same range of impacts. – Home Loss Payments should be increased to ensure the fair treatment of tenants in the demolition and densifcation process. There may 8 also be a case for varying the amount depending on the length of time in the dwelling; its value; and whether the move is outside or within the estate.