In May, soon after his latest re-election, Sadiq Khan told the London Assembly that the capital has “a pipeline of residential permissions equivalent to seven years’ supply”. City Hall says there are planning consents across Greater London for over 300,000 new homes. What is stopping those homes getting built?
“The one-word answer is money,” says Peter John, former leader of Southwark Council and ex-London Councils chair, now chairman of the Terrapin Group. Go deeper and find an array of factors combining to dissuade developers from pressing ahead.
As John points out, they aren’t going to build unless they can be sure of making a profit. That is hard to guarantee at present: the price of construction materials remains very high and labour is in limited supply. At the same time, household incomes are under pressure from the cost of living and interest rates are high, making it hard for potential first-time buyers and others to be in a position to pay for a home. Result? Inaction all round.
To clear some of the blockage for builders, John sets out two options. One is to “ease the viability” for them by letting them off some of the obligations that were conditions of their planning consents. That could mean supplying less affordable housing than originally agreed, which would be controversial and probably disagreeable to Mayor Khan.
The other option, says John, is for more public money to be invested in dormant schemes. In February, such an intervention by Homes England, national government’s housing and regeneration agency, helped a Berkeley Homes project on Old Kent Road in the form of a loan.
James Pargeter of Global Apartment Advisers, who has long experience in the residential sector, says those 300,000 potential homes may include some old planning permissions that were never very likely to progress. They might have been speculative in the first place or for schemes that have since simply been dropped. In a few cases, the successful applicant might not have owned the land.
He adds that the policies and market conditions that applied when some permissions were granted might have been reasonable at the time, but have since become significantly more onerous.
This chimes with concerns aired by development sector representatives who recently appeared before the London Assembly’s planning and regeneration committee. A view was expressed that the Mayor’s supplementary planning guidance, dating from August 2017, early in his first term, which promised a “fast track” route to City Hall approval for applications to boroughs that promised a minimum of 35 per cent “affordable” homes without public funding, has set too high and rigid a threshold, leading to nothing at all being built in some instances.
Pargeter says the slowdown in activity has been especially problematic for what he calls the “mid range” income groups, which often includes key or critical workers, such as teachers and health professionals who won’t ever qualify for social rented properties.
Additional Build to Rent (BTR) and associated intermediate affordable homes would greatly help to address this need, he says, but this sector has also suffered from recent viability challenges. The latest data prepared by Savills for the British Property Federation shows that BTR homes currently under construction fell by 21 per cent in London over the last year and are 30 per cent down on the 2017-19 average.
Pargeter also highlights the predicament of housing associations. “Building is not a priority for them now,’ he says. “Post-Grenfell, their limited resources have rightly been going into improving the safety of the homes they already have.” And as Assembly members also heard, some are no longer in a position to buy the affordable homes commercial developers have committed to supplying them with as part of their deals with local authorities.
A further factor in play can be a lack of transport and other infrastructure serving a consented scheme, providing another disincentive for developers to take the financial risk of getting work underway. In such cases “it’s not a question of pumping money into the scheme itself,” says Peter John, “it’s making the infrastructure investment which unlocks that scheme”. Again, where does the money come from?
Council housing delivery is under pressure too. One week ago, 20 of England’s biggest council landlords, including Southwark, came up with five solutions, released in advance of a report due later this year by housing experts Rose Grayston and Toby Lloyd. They included changes to councils’ housing revenue model, removing red tape on existing funding and “urgent action” to restart stalled schemes. Speaking to BBC London, the current Southwark leader, Kieron Williams, spoke of a deadly combination of “falling incomes and rising costs”.
Will the measures revealed in the King’s Speech, outlining the Labour government’s legislative programme for its first year, help transform some of those 300,000 theoretical London homes into real ones, including plenty that Londoners on low and middle incomes can afford?
Housing Today has reported that construction industry bosses who met Chancellor Rachel Reeves at Downing Street last week emerged quite encouraged. James Pargeter hopes that a more stable and harmonious political and policy alignment between London and national government will help. And the closer political alignment between the government and such as the Mayor of London, together with a general sense of greater policy stability ought to help – developers like certainty. A possible near-future cut in interest rates would help too.
But the Resolution Foundation think tank came to the view last month that a lack of additional government funding for affordable housing will make it very hard for building targets to be met. And top housing journalist Peter Bill has observed in response to Keir Starmer pledging to “take the brakes off Britain” through planning system changes that “the foot on the accelerator pedal is that of those who build and sell the houses”. One way or another, the long answer as well as the short one does indeed seem to be money.
OnLondon.co.uk provides unique coverage of the capital’s politics, development and culture. Support it for just £5 a month or £50 a year and get things for your money too. Details HERE. Threads: DaveHillOnLondon. X/Twitter: On London and Dave Hill.