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Can Sadiq Khan Solve London's Housing Crisis?

It's nice that we now have a mayor who thinks housing is a big deal, but will he actually be able to do anything about it?

by Mark Wilding
18 May 2016, 10:59am

Sadiq hanging with Jeremy Corbyn by an old Labour poster about housing (Photo by Stefan Rousseau / PA Wire)

Starting a new job is never easy. You don't know what you're doing, can't remember anyone's name and you can guarantee the IT department won't have sorted out your log-in details. Still, spare a thought for Sadiq Khan, who recently started his new job as the mayor of London and began his attempt to tackle the capital's calamitous housing crisis. Almost impossibly, he's just discovered that the situation is even worse than he'd imagined.

At least Labour left a note after the economic crash. Boris waltzed away from City Hall like a 16-year-old who'd just finished a work experience placement. Just as the Tories have spent the last six years bemoaning "the mess Labour left us", expect to hear plenty more about this inherited crisis. Khan has claimed Boris "left the cupboard bare", a statement which is certainly true, but also suggests a note of panic – the words of a man who's beginning to realise the scale of the challenge ahead.

Housing is by far the biggest issue facing Londoners. We need to build at least 50,000 homes a year – and that's just to stop the problem getting worse. A housing audit commissioned by Khan has found construction of affordable housing in London at a virtual standstill. Only 13 percent of all homes now working their way through the system overseen by Boris are deemed affordable. Much was made of Khan's predecessor's efforts to find publicly owned land that could be used for housing. As it turns out, the development sites identified by Boris include 10 Downing Street, City Hall and the British Museum.

Khan's commitment to tackling the housing crisis should be welcomed after eight years of a mayor who gave no indication that he even thought of it as a serious issue. His promise to crack down on "greedy developers wishing to get maximum bang for their buck" should go some way to address concerns about the fact that he, like many other mayoral candidates, accepted donations from the development industry.

Commitment is one thing. But what are the chances Khan can actually solve the problem?

In most places, the mayor's only real perk is a free pass to wear a dressing gown and a massive chain in public. In London, the mayor has some actual power to get things done. But there are limits. Some of Khan's headline housing policies, such as rent caps and giving councils the power to borrow money to build more homes, need government backing. Khan has promised to lobby for these measures. Put bluntly, there's no chance. George Osborne is more likely to drop this year's most fire mixtape than to announce a brake on market rents and a voluntary increase in public borrowing.

Khan has also grabbed headlines for his proposed clampdown on foreign investors, saying he wants to "give first dibs to Londoners". This is a populist policy, but what impact will it have? No one likes the idea of Russian oligarchs snapping up homes and leaving them to sit empty until they double in value and they can cash in the profits. While that surely happens, the evidence suggests it's limited. Most overseas buyers occupy their properties or rent them out. You can argue that buy-to-let is its own problem, but it's far from limited to foreign investors.

On that front, Khan has pledged to improve life for London's renters. He wants to establish a city-wide non-profit lettings agency, tackle unfair fees and set up a register of dodgy landlords. These are all positive measures, but could also be seen as tinkering around the edges of a market with systemic failings. The key issue is that house prices and rents are far too high and the supply of homes is far too low. That creates a seller's market, where buyers and tenants are vulnerable to exploitation.

He's promised to demand that 50 percent of homes built on new developments are genuinely affordable. That means he won't be accepting the Tories' updated definition – which now includes "affordable rents" set at up to 80 percent of the market rate, and so-called Starter Homes priced at up to £450,000.

To help achieve this, he'll be forcing developers to publish their "viability assessments". These documents are used by developers to negotiate with councils as they try to secure planning permission. Essentially, the developer submits its financial calculations, which explain why only a certain percentage of the homes being built can be affordable. The calculations are based on the principle that projects need to generate a profit to make them worthwhile, so the price of the homes for sale needs to cover the costs of land and construction.

Seems reasonable, right? Except that, currently, almost all viability assessments are kept secret. We have no idea whether the calculations they contain are reasonable or not. Khan's promise to make these documents public means we can judge for ourselves.

Read: The Slow Death of Council Housing in the UK

Making these documents public also promises to reveal a key fact about development in London that has remained hidden for too long – that developers have been overpaying for land. They argue that land prices mean they are unable to build homes that are affordable. In fact, the equation works the other way: the reason land prices have risen so dramatically is that developers are willing to pay them, safe in the knowledge they can still make a profit by negotiating with councils and the mayor to reduce the number of affordable homes in the project. It's a fact that was acknowledged by Tony Pidgley, chairman of Berkeley Group – one of Britain's largest house builders – earlier this year.

Other developers argue that demanding 50 percent of homes be made affordable, and making them show their workings, would have a negative impact on housing development. In the short term, that could be true. In cases where developers have paid too much for land, a 50 percent target may genuinely make projects unviable. Some developers may choose to take the hit on their finances. Others may choose to wait things out, hoping for a change in administration and a return to business as usual. This could see a lot of development sites staying empty while developers wait for the tide to turn in their favour again.

Ultimately, this could be Khan's biggest problem. Fixing London's housing crisis is a 20-year project. Khan potentially only has four. Earlier this week, he admitted: "There is no doubt we have our work cut out." This could be an understatement. However, as the saying goes: "The first step to recovery is admitting you have a problem."

@mark_wilding

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