Housing associations and councils can now apply for a share of a £7bn government fund to increase the supply of affordable homes – and it appears the building work can’t begin a moment too soon. A new report claims that a failure to provide homes that key workers can afford will lead to the financial and occupational “segregation” of the south-east and could cost the capital billions a year.
London’s population is expected to grow to 9.8 million by the middle of the next decade. But without action, employees such as teachers, nurses and emergency service workers will leave the city, according to the joint study by the University of Westminster and housing charity Dolphin Living.
Separate research from Which? this week claimed that shared ownership schemes, which have long been touted as a key part of the solution, also create their own affordability challenges.
Rental growth across Britain, but particularly in London, has raced ahead of wage inflation since the 2008 global financial crisis, especially for those in the public sector where, in some roles, wages have been frozen.
The new report, which looked at Dolphin Living’s existing developments – the London-based charity has delivered 320 homes for rent, with 350 more in construction – found that providing subsidised rental homes to key workers resulted in a benefit to the capital’s economy of £27,000 per household, not just through their spending power but their wider contribution, which far exceeds the salary they take home.
For example, a nurse will treat thousands of patients a year, getting them back to health and into the workplace. “The wage of a teacher, or nurse, or tourism worker is much lower than the productive contribution they make to the economy and society,” says Professor Peter Urwin from the University of Westminster, one of the authors of the report, Estimating the Value of Discounted Rental Accommodation. “A Michelin-starred restaurant will be helping to generate taxable revenues that are many times their often very low wages.”
Urwin’s definition of “key worker” ranges from nurses and teachers to emergency services employees, civil servants and those powering London’s vast tourism industry.
Subsidising each affordable home would cost around £14,000, so the overall net benefit of each home was £12,500 or so. With around a million key workers living and working across Greater London, if they were to all move out, the local economy would lose out on £9.6bn, claims the report.
But the social ramifications are far more alarming, warns Urwin. He says key workers are already moving away from the capital as a result of rising housing costs. Rents in the borough of Westminster, for example, close to St Thomas’ Hospital, have risen by more than 16% in the last 16 months, reaching £2,171 on average in November, as recorded by the HomeLet rental index. Meanwhile, the typical house price in Westminster has hit £961,000, according to government data.
Relocation from the inner to the outer boroughs is an entrenched pattern for both private and public sector workers who want to plant a foot on the property ladder, or to get more space for their rent while commuting into their jobs in the centre of the capital.
This creates a “ghetto effect”, similar to that in Paris, where an underpaid and discontented workforce is housed on the outer edges of the city, Urwin adds.
There are other reasons, too, why affordable homes should be built in inner boroughs. Transport costs and long journey times mean that, say, a nurse living in Barking and Dagenham but commuting to St Thomas’ Hospital in central London may well look for employment closer to home, which means healthy competition for key worker jobs, talent and diversity disappears from the inner boroughs.
As faster and more regular transport connections open up, Greater London, property price growth in even the more affordable locations has started to speed up. This will lead to the increasing geographic and occupational segregation of London, the report warns, and the capital’s community will become dominated by financial services executives and techies.
Even top-end City firms are struggling to recruit graduates now that the capital has become so expensive.
Accountancy firm Deloitte is offering graduate recruits the chance to rent properties in the former Olympic Village in Stratford – now known as East Village – with two weeks’ free rent and no letting fees. The firm was starting to see its young talent look at cities such as Manchester and Leeds where they could afford a better lifestyle, Dolphin Living chief executive Jonathan Gooding claims.
It’s an issue recognised by the Mayor of London, Sadiq Khan, who is floating a scheme called London Living Rent. This will be a new type of tenancy for newly built affordable homes, aimed at helping average earners in the capital save for a deposit by offering them a below-market rent. However, Gooding reckons this is “too blunt an instrument” and will mean the majority of people in the system will be either over – or under – subsidised. He has long argued for an alternative: personalised rents.
Dolphin Living, which is working in six inner London boroughs, bought the New Era housing estate in Hoxton, Hackney, a couple of years ago, and introduced a means-based rents system.
Typically, New Era tenants pay £180 to £200 a week – less than half the current market rate in the area. “Charities and companies have recognised the need for affordable accommodation, but we need action from policymakers. People aren’t ready to rip up the cobblestones yet, but the Brexit vote was a howl of pain and we can’t keep squeezing people. I believe because of the housing crisis we have more of a problem with financial segregation than racial or religious,” says Gooding.
Shared ownership out of reach
Shared ownership is seen as one of the main solutions to the affordability crisis. But consumer body Which? has found that most under-30s in London can’t even “afford the minimum share”.
The scheme typically involves buying between 25% and 75% of a property and paying rent on the rest. Researchers looked at 525 shared-ownership properties within a 20-mile radius of central London in November 2016. The average minimum share of even a studio or one-bed home would cost £145,000. The average total price was £368,000.
If you wanted to buy the minimum share using a 95% mortgage, the 5% deposit would be £7,258. You would then spend £1,189 on mortgage repayments, rent and service charges each month. As a result, you would need to earn at least £37,300 a year – considerably more than the average £27,900 earned by under-30 Londoners .
“Not one of the 28 properties located in Zone 1 was affordable for the average person under 30. Of 77 properties in Zone 2, 90% were unaffordable,” says a spokesman.
However, the percentage in Zone 4 that were unaffordable for this age group was 58%.
Anyone with a household income of less than £80,000 outside London, and £90,000 in the capital, can buy a shared-ownership home. Which? has a free online guide which explains how the schemes work.
Rupert Jones
• This article was amended on 9 January 2017 to correct a misspelling of Professor Peter Urwin’s name.
