It is seven years since Boris Johnson became mayor of London, and in that time the city has faced its biggest housing challenge since the Victorian era. As Johnson prepares to leave office early next year, the problem is still far from being solved.
Since 2008 the city has begun to boom once again, both in economic and population terms, pushing house prices well above their pre-financial crisis highs. On average the cost of a London home has risen 44 per cent over the past seven years.
As a consequence, housing has become the hottest issue on Londoners’ lips. Soaring prices have been accompanied by an influx of foreign cash, which has triggered heated arguments about who should live in the newly built towers that dot the skyline. Meanwhile, the affordability crisis has pushed a generation out of home ownership into the private rental sector, creating fertile conditions for amateur landlords and the emergence of a professional renting industry.
“History will see this as the residential commodification era, in which housing provision seemed to lose all contact between supply and demand of housing as a utility and simply focused on supply and demand of investment — and that is worrying,” says Peter Rees, professor of places and city planning at University College London. “Investment is good for the economy, but the investment you want is investment that goes into creating homes, workplaces and infrastructure, not investing in owning them and inflating asset prices.”
Few people had anticipated such a turn of events when Johnson wrote his first election manifesto. Since then, his administration has battled to gain greater powers to tackle what many regard as a mounting crisis.
Richard Blakeway, Johnson’s deputy mayor for housing, points to the evolution of City Hall’s housebuilding targets as evidence of its growing awareness of the problem. The mayor’s first target was 32,000 homes a year, according to Blakeway. “Now that is 49,000, a dramatic increase, and today people bandy around even bigger numbers. In under 10 years we’ve seen this complete rethinking about the level of housebuilding necessary to meet population growth in this city.”
Despite upping the target, London built just 20,520 new homes in 2014-15, according to the Department for Communities and Local Government. It is not good enough, says Campbell Robb, chief executive of campaigning housing charity Shelter, which argues for a higher target. “We are still building less than half of the 62,000 extra homes needed each year, and sadly when it comes to affordable housing the figures are even worse, with less than a third of the mayor’s own target being built. At a time when homelessness is rising and families on ordinary incomes are struggling to find anywhere affordable to live in the capital, the impact of this is stark.”
In a bid to deliver on his targets, Johnson has initiated the biggest expansion of local power since the mayoralty was established in 2000. He has taken control over housing policy and spending, adding it to transport, the mayor’s original primary area of responsibility.
“It has been an evolutionary period in the history of London government,” Blakeway says. Before Johnson’s election “there was plenty of talk about housing, but it was a bully pulpit rather than actually having many powers over spending”.
This devolution sets a model for other British cities, which are set to gain more powers from Westminster in the coming years under radical plans by chancellor George Osborne. And it may offer lessons for cities around the world that are struggling to cope with the global trend towards urbanisation.
The mayor believes that, as in the Victorian era, Londoners should be housed primarily within the city’s boundaries — unlike in that other great period of housing challenge that the capital faced: after the second world war. Then, the authorities, led by visionary planner Patrick Abercrombie, created a ring of new towns to which the capital’s slum-dwellers were moved, a policy Johnson has criticised. “The city went through one of its gloomiest and most depressing phases in the last 200 years. It wasn’t the right approach,” he says.
Instead, to cope with the city’s population growth, Johnson’s consolidation of power to himself has seen the Greater London Authority, the city government, shift from myriad fragmented funding programmes in which he had little say to a more holistic approach focused primarily on the needs of specific neighbourhoods, known as Housing Zones, with the mayor as the driving force.
The means City Hall can be “much more flexible than other parts of government”, says Blakeway: “We just said to councils, ‘Tell us an area and tell us what it needs to build a lot more homes very quickly.’”
There are currently 18 Housing Zones, with the total set to rise to 30 by the end of the mayor’s term in office next spring. They are in their early stages, but City Hall hopes they will become London’s most important source of new homes under his successor.
Another key idea, the deputy mayor says, has been to broaden the GLA’s focus from helping only the lowest-income households, in recognition of the increasing number of people struggling to cope with the cost of housing. It is about “responding much more to people who are outside the traditional affordable housing system — helping more people a little bit, rather than a small number of people a lot”, he says.
This has been controversial: housing campaigners say the mayor has failed to support the low-income households London’s economy depends on. Robb of Shelter says “much more could have been achieved” during Johnson’s time in office.
Blakeway counters that the mayor’s role is still limited: “There is no question that the resources and powers available to the next mayor will be greater than those available [now].”
Robb concurs — devolving more powers to London’s government would help, he says. And that is what Johnson is attempting to achieve in his last months in office. Blakeway says the mayor is “agitating very strongly” for even more devolution. In particular, he wants the power to seize and sell land belonging to other public bodies, and control over more finance streams.
Such a move would take the mayoralty another step down the road towards recreating the sweeping powers the GLC held between 1965 and 1986. They proved controversial in the 1980s, when the Labour left used the GLC as a power base to oppose the prime minister, Margaret Thatcher, who abolished it.
The current Conservative government does not seem to share her distaste for devolution, and the mayor has a good chance of getting the greater housing powers he wants. If his lobbying succeeds, when he leaves office next year he will pass on to his successor at City Hall a job as the most powerful politician London has seen for a generation. All those powers are likely to be needed if the new mayor is to make a telling impression on the capital’s most intractable problem.
The capital’s conundrum: boom leads to squeeze
London’s booming house prices are frequently described as a bubble. But bubbles represent excessive exuberance in a market, while London’s soaring housing costs are a problem all of its own making.
The capital is growing by some 52,000 households a year and returned to its pre-second world war population record earlier this year, topping 8.6m — but its housebuilders construct about 20,000 homes annually.
This mismatch means there is a shortage of housing for people at all income levels. The biggest problem is for low earners, research by property advisers Savills underlined last year. More than three-quarters of the new homes London needs every year should be priced at below £700 per square foot to be affordable to the majority of Londoners, Savills estimated, with most homes priced at below £450 per sq ft. As the average two-bedroom London flat measures 646sq ft, that means it should be priced at less than £290,000.
London is becoming a victim of its own success, says Neal Hudson, an associate director of residential research at Savills. “London is attractive for younger people across the country and around the world. Meanwhile, older residents have been less likely to move out thanks to the previously suppressed mortgage market, better employment prospects and the quality of life,” he says.
This is putting additional pressure on existing housing stock and is combined with “a relative lack” of new-build supply at prices affordable for the majority.
Hudson is pessimistic about the ability of any mayor to cope with this burgeoning demand.
“Realistically we are still going to fall short of required numbers while London is an attractive place to live and work,” he says.
Beijing to Bermondsey: the foreign cash rolls in
The influx of overseas money into the London market has played a much-criticised role in the house-price boom but now accounts for the lion’s share of the city’s investment in bricks and mortar.
Foreign investors have planning permission for enough developments to satisfy London’s need for new homes for nearly two years, according to research by CBRE, the property consultancy. Developers from China, Singapore, Malaysia and Qatar have permission to build more than 33,000 homes in London, more than double the number being developed by social landlords, themselves one of the biggest sources of new housing in the capital.
Overseas developers have been particularly active in the land market, accounting for nearly three-quarters of the £1.8bn spent on land for development in central London in the second quarter of 2015, separate research published this summer by CBRE showed. One flagship foreign-led project is Battersea power station, which is being redeveloped by a Malaysian consortium to include 4,000 homes.
London is also attracting developers from emerging markets. Lodha of India aims to become one of the biggest builders in the London market, spending $5bn on sites and construction by the end of 2018. Dalian Wanda of China has also made London one of the biggest priorities in its ambitious global expansion plan.
James Pargeter, head of residential projects at Deloitte Real Estate, the consultancy, says the impact of foreign backers should not be understated. “Overseas investment is augmenting domestic funding to ensure that much of the capital’s mainstream housing continues to be developed across the city.”