Response to the Mayor's Housing Strategy
London's Housing Crisis - inequality is at its heart
In our response to Mayor Sadiq Khan's draft housing strategy we suggest that he needs to do more to deal with the links between inequality and London's housing crisis. London's high levels of economic inequality exacerbate our housing problems, and our failing housing market itself makes inequality worse. While his powers are limited, we think the Mayor should use all the resources he does have to make sure everything he does to tackle the housing crisis also works to narrow the gap between rich and poor in our city.
Ever increasing house prices have made many lucky property owners rich, and left everyone else further and further behind. London's house prices increased by 518% between 1996 and 2016. During the same period the average Londoner's wages increased by just 47%. Any policies that rely on the false promise of ever rising property prices only make the situation worse and continue to increase the gaps between haves and have nots. The gulf between rich and poor is too wide, it causes immense harm to the social fabric of our city and housing is a key part of our inequality problem.
Our response to the Mayor notes that there is good evidence that London's housing crisis is underpinned not so much by an absolute shortage of homes, as by the fact that a market dominated approach to housing fails fairly to share out the space we have. There are more bedrooms in London today than there ever have been, and more than ever before are empty. They are spare rooms in the homes of wealthier Londoners, or they are the empty second or third homes of the rich and overseas investors. The homes of the top third of Londoners have been getting bigger and bigger over the last 30 years. When some people take more, others get less, or none at all.
My Fair London has published a short pamphlet that analyses the causes of London's housing problems and the disastrous consequences of seeing housing purely as an investment or a commodity. Everyone recognises that London's housing market is broken. It completely fails both to distribute the housing we have and to target investment into the more affordable housing that we need.
Our pamphlet 'Housing and Inequality in London' is available here and the text of our full response to the draft housing strategy is below.
THE MAYOR OF LONDON’S DRAFT STRATEGY FOR HOUSING IN LONDON
A RESPONSE FROM MY FAIR LONDON
We set out below My Fair London’s comments on the draft strategy, presented as additions to the document as it stands. These concentrate mainly on the text in Section 2 of the document, devoted to an analysis of the current housing crisis. Fundamentally we suggest the strategy include a section on the relationship between London’s housing problems and economic inequality in London. Inequality is strangely absent from the Mayor’s text. Rising levels of inequality in London over the last 40 years are intimately connected with our housing crisis today.
SUGGESTED CHANGES TO SECTION 2
ADD TO END OF Para 2.4
However, contrary to the general belief, at present there could be enough housing space for all Londoners.
Over the period 2001-2015 the number of households in London grew from 3,000,000 to 3,500,000. The number of dwellings just about kept pace with this, growing from 3,100,000 to just under 3,405,000 (there has been a recent slow down in growth so the Mayor is right to want to kick start new building). At the same time the amount of floor space per dwelling has risen consistently.
So there could be enough space for all the extra households in London, if only our system actually worked to more fairly share out the space we have.
So why is there such a housing shortage?
One important reason is that the space in our houses is shared out less equally than it used to be. Much of new housing space we have built over the last 30 years has gone to the better off. Overall the number of rooms per person has risen since 1991, but the people in the top thirty percent income bracket have seen the biggest rise in space per person eg. from 1991-2011 the top 10 percent saw a rise from 3 to 5 rooms per person, and the next 10 percent from 2 ½ to 4 (analysis by LSE Professor John Hills). These are UK figures – the differences in London are likely to be greater because of the concentration of wealth in the capital. So we have a problem of under-occupation (we could call it greed among the very wealthy) at the top of the market and overcrowding at the bottom. An overly ‘marketised’ approach to housing simply does not meet the housing needs of Londoners. It is unfair and increases inequality.
A note on property taxes
Although it is currently outside the Mayor’s powers we believe there is an overwhelming case for updating and modernising property taxes, so that people with lots of extra space are taxed significantly more. Perhaps through the London Finance Commission the Mayor could actively campaign for progressive reform of Council Tax; and develop detailed options for some form of land value taxation, so that the charge to landowners of not developing land or buildings with planning permission (or set out for development use in local plans) would be on the unused value. This approach would bring two fold benefits: it would encourage owners to use land and buildings to their full potential, and it would bring into local / regional government additional finance, that could be invested in housing, infrastructure or other key services.
ADD TO BEGINNING OF PARA 2.5
London’s serious housing problems have contributed to growing levels of inequality in our society. It is clear that housing inequality is itself both a symptom of and a cause of increasing economic inequality in Britain. Housing problems are particularly extreme in London. For Londoners the main issues are high private sector rents and lack of security, spiralling house prices, long waits for social housing and rising homelessness. High housing costs make ordinary people poorer, while rising house prices make those who have property richer and richer. This amplifies the huge differences between the housing opportunities of the wealthy, people fortunate enough to already own property and everyone else.
Rising house prices have made it increasingly difficult for younger people to get a foot on the housing ladder, unless they have family who can help them or can look forward to inherited wealth. Ironically as properties increase in value, property owners can borrow to buy more, further pushing up prices, and earning themselves rental incomes. In our current housing market wealth actively ‘trickles’ upwards.
London has the most unequal pay distribution of any part of the UK wholly due to pay at the top end. The top 10% of employees in London receive an average of £1400 per week, while the bottom 10% receive £350. This difference is greater than for the rest of the UK. More significantly for housing, the richest 10% of Londoners account for £260 billion of financial wealth. The poorest 10% have more debt than financial wealth.
The rich, the super-rich and international investors’ desire to own a property in London as an investment considered ‘safe as houses’ has contributed to London’s extreme house price inflation. Some investment properties are bought and just kept empty. And as prices have been driven up by people with nearly unlimited funds at the top of the market the ripples are felt all the way down.
One final link between housing and inequality. It turns out that one of the biggest single factors driving house price inflation over the last 40 years has been the changed behaviour of banks and financial services. In the decades after the second world war the vast majority of bank lending went into industry, investing in the creation of wealth. Since the 1980s banks have actively converted housing investment into a commodity and ‘financialised’ housing. These actions in America caused the 2008 crash, but little has changed since. Making more and more loans available for the purchase of existing properties simply stokes prices, making banks more profits while making increasing the supply of new housing ever harder. The Mayor will call for root and branch reform of our financial services sector in respect of the residential property market. Perhaps commercial lending should only be allowed against new build properties, and only ‘mutual’ building societies should be allowed to lend into the ‘second hand’ housing market?
In fact since the crash of 2008/9 many of these problems have got even worse. The version of quantitative easing adopted by the Bank of England has further stoked asset prices (and as property is now seen by investment managers simply as another asset class this also means property prices). The ‘financialisation’ of our housing system has had a wide range of negative consequences.
House prices in London probably need to fall by at least 30 or 40% to get anywhere near historically normal affordable levels and make the private sector one again a realistic housing choice for average income Londoners.
ADD TO END OF Para 2.11
The private sector contains much of the worst and most insecure housing and there is much evidence of exploitative landlords. We think there is therefore a strong case in support of more direct controls over the rental market to make it more affordable and secure. This should include controls over the sale of publicly owned buildings to private contractors and tighter controls over the proportion of truly affordable houses that developers are required to deliver. Although the Mayor has few powers in this area, he should put pressure on the Government to take steps to this end.
We also urge the Mayor to press for more meaningful penalties for owners of empty properties. Although there is provision in the recent budget for councils to increase council tax on empty properties, these are not nearly large enough to incentivise owners to release them on to the market. We need London Government to be given the power to levy proportionate and progressive property taxes.
ADD TO BEGINNING OF PARA 2.13 after “31-22%”
There are now extremely long waiting lists for social housing in the capital with 380,000 people on London Council housing waiting lists in 2012 which works out at an average of 13,000 per borough. Since 2012 this number had fallen but most commentators agree this is only because of changes in the way the Government makes councils compile the figures.
ADD TO END OF PARA 2.19
We urge the Mayor to put pressure on the Government to take steps to preserve housing for key workers, in particular not to pursue the recommendations of the Naylor Report to sell off NHS estates to developers unless there has been a properly consultatively agreed quota of homes constructed for nurses and other hospital staff, available for them to rent at an appropriately reduced rate.
A note on affordability
The affordability crisis in London, (where the average pay to house price multiple is now over 11x), is due to a range of factors:
a) foreign capital finding it attractive to invest in London property,
b) absence of capital gains tax on the sale of the principal home,
c) private rented sector tax advantages,
d) very limited disincentives against leaving property empty,
e) no taxation of unused development value,
f) £100,000 tax-payer financed discounts on Right to Buy,
g) taxation of higher value residential property lower than in almost any other Western country (for example annual property taxes in New York for a £1m property are something like 5x what you would pay in Council tax in London),
h) Government borrowing restrictions that prevent Local Authorities from maximising the amount of Council housing by through prudential borrowing.
The Mayor should use his housing strategy to frame a comprehensive alternative approach to begin to undo the current cocktail of linked of tax and fiscal policies that drive house prices to extreme levels in London. Such a package could include: powers to limit the right of non-residents and companies from owning residential property (common in many European cities); a comprehensive revision to taxation of residential property; there was a large tax charge on empty property; the ending of Right to Buy (or at the very least all discounts would be removed); land value taxation introduced so that there is a serious financial disincentive to leave land that could be developed, in an undeveloped or under-developed way; removal of tax advantages for private rented sector owners; and a package of benefits for renters including security of tenia and requirements that all rented property meets modern standards (including energy efficiency, minimum size requirements etc).
The Mayor should challenge and completely change definitions of “affordabiilty’. As a marker we suggest that social housing rents should be set related to ability to pay: perhaps no rent that is more than 1/3 of the average net income of residents in an area should be permitted for any non-market housing intended to meet housing needs.
Brief comments on later parts of the strategy
Section 3.4 should give more detail on the damaging effects of recent loosening of planning rules to permit new build without the inclusion of social housing
Section 3.59 The Mayor should campaign against Right to Buy and the negative impact of Help to Buy ie. He should be against measures that stimulate additional house price inflation.
Section 4.2 B should say how much will be social housing
Section 4 should also be more specific about what the Mayor regards as “affordable housing” in the private and social sectors. We suggest that a base standard should be that an affordable rent consumes no more than one third of a household’s income.
My Fair London