What are London ‘affordable’ homes and who can afford them?

The term “affordable homes” triggers confusion and cynicism, especially in the London context. This is unsurprising. For one thing, the range of housing types to which the word “affordable” is applied has become so wide as to seem close to meaningless. For another, some “affordable” types are not affordable to all. On top of that, in practice the affordability of any type of “affordable” home will vary as people’s financial circumstances vary over time.

The terminology gets trickier. Sometimes people, including politicians, speak of “social and affordable homes”, suggesting that social housing, the least expensive sort of home in the “affordable” range, belongs in a separate category. There is also talk of housing to be let at “social rent levels”, which can raise suspicions that rents set higher than social rent levels are being made to sound as if they aren’t.

What exactly do we mean by “affordable” housing in London, how “affordable” is it, and who can afford the different kinds?

In answering these questions it is helpful to concentrate on the three “affordable” types London Mayor Sadiq Khan is supporting under the banner of Homes For Londoners through strategies, partnerships and the £4.82 billion his administration has secured from the government – an initial £3.15 billion and a further £1.67 billion in spring 2018, which will together help to fund a minimum of 116,000 affordable homes to be started by March 2022. The Mayor describes the three “affordable” types as “genuinely affordable” – a way of distinguishing them from other ”affordable” types he thinks unworthy of the name.

London Affordable Rent & Social Rent

Yes, that sounds like two different types. And officially they are. But they are also practically identical. Both are homes for people on low incomes. Social Rent is, of course, a long-familiar term and was used by the Mayor in his election manifesto when listing the types of housing Home for Londoners would deliver. London Affordable Rent is new and needs a bit more explaining.

It is, as it sounds, a specifically London version of an “affordable” housing type introduced nationally by the Conservative-Liberal Democrat coalition government in 2011. The creation of Affordable Rent housing basically entailed cutting the grant funding given to housing associations to help them build homes for people who qualified for social housing and allowing them to charge higher rents as a way of making up for the cut.

Existing Social Rent levels in London average about 45 per cent of those of equivalent private sector dwellings – see Institute for Fiscal Studies table, page 19 – and have always been set according to complex national formulae. By contrast, Affordable Rent levels are allowed to rise as high as 80 per cent of local private sector levels.

In practice, certainly in London, most do not. Even so, they are generally higher than those of Social Rent homes and a question is clearly raised about how “affordable” such homes in London are for people on low incomes. Indeed, in his election manifesto, Candidate Khan mocked the tenure as the government’s daft idea of what “affordable” is.

However, London Affordable Rent homes are tailored by Mayor Khan to enable him to use Affordable Rent funding to build homes whose rents he describes as capped at “Social Rent levels”. That is not exactly the same thing as housing for Social Rent, but London Affordable Rent levels are almost as low as comparable Social Rent ones, and City Hall accordingly feels able to describe them in that way.

How come? In May 2016, straight after the mayoral election, Mayor Khan’s housing team began negotiating with national government for funding for “affordable” homes, which it, in turn, could allocate to housing associations. The only money available at the time was for Shared Ownership homes (of which more later) and for Starter Homes, a government scheme announced in 2014 which proposed 20 per cent discounts for qualifying first-time buyers (more on that later too).

The Mayor’s team argued that it needed to help deliver far more affordability, including homes for Social Rent (as Khan’s manifesto had pledged). The housing minister at that time was Gavin Barwell, also the then minster for London and a London MP. He was sympathetic. Although funding for Social Rent was ruled out, it was eventually agreed that some of the money could be diverted to Affordable Rent homes, the rents of which the Mayor then capped at levels practically identical to those for new Social Rent homes. The term London Affordable Rent was coined to describe them.

The operative words here are “new” and “practically”. It has been claimed that London Affordable Rent homes will, in fact, be significantly more expensive than Social Rent homes in the capital. But that depends on what you measure them against. Compared with Social Rent levels originally set some years ago – maybe decades ago – they will be higher. But London Affordable Rent levels are to be benchmarked against those of new Social Rent homes or new tenant contracts at the time the deal with Barwell’s department was made – in other words against Social Rent levels of recent years, not historic ones.

Except the benchmark levels will still be slightly higher in most cases. There is a reason for that and its name is George Osborne. In July 2015, when he was Chancellor, Osborne, in a wheeze to reduce the housing benefit bill, decided that Social Rent levels across the country should be reduced by one per cent a year for a four-year period. But this did not apply to Affordable Rent, London or otherwise.

London Affordable Rent levels are based on 2016 Social Rent levels. The latter have been falling by one per cent a year since, while the former have not. London Affordable Rent “benchmarks” are to be updated annually by CPI inflation plus one per cent. The weekly level for a three-bedroom flat in 2018/19 is £167.67. The full list is set out on the GLA website here.

The difference is small. It has been snappily characterised by Brendan Sarsfield, the chief executive of Peabody, as “social rent plus a tenner”, and housing associations can knock the tenner off if they want. As such, the view that London Affordable Rent is effectively a way of the Mayor getting new Social Rent homes built in London through a backdoor of the national Affordable Rent programme is quite persuasive.

Meanwhile, some wholly traditional Social Rent housing has also been funded through the Mayor’s most recent programme, called Building Council Homes for Londoners. Under this, 27 boroughs will now be able to build a mix of Social Rent and London Affordable Rent homes.

The number of London Affordable Rent homes completed so far is in the low hundreds, with several thousand started. A full set of statistics is available from the GLA website here.

London Living Rent

This was a signature Sadiq Khan housing policy during the 2016 mayoral election campaign. His manifesto described London Living Rent dwellings as “a new type of home for people struggling to rent privately, where rents are based on one third of average local wages”.

Linking rent levels to local wages was seen as a way of bringing an element of rent regulation into a part of the London housing market otherwise served by the private renting sector in which tenants can find their rents suddenly going through the roof. In the process, it would make it easier for people to save a deposit for a future purchase – an attraction of London Living Rent that Khan spoke about often during the mayoral campaign.

However, after the election, London Living Rent underwent a subtle metamorphosis. In the Mayor’s Affordable Homes Programme funding guidance document, published in November 2016, it was described as “a Rent to Buy product with sub-market rents on time limited tenancies”.

So rather than being a purely sub-market rental tenure, London Living Rent, when funded by the Mayor’s programme, was a type of low cost home ownership product, with prospective tenants required to demonstrate an inclination and ability to buy a share of the property within a ten year period and the providers of the homes expected by the mayor to “actively support tenants” in achieving this. It has become, in effect, a stepping stone to Shared Ownership. Inside Housing described this change as “a concession to the government’s home ownership drive”.

Councils and others would still be free to build new homes for London Living Rent in perpetuity, but when funded by the Mayor’s programme there would be an expectation of such homes becoming Shared Ownership properties within ten years. To understand why, it helps again to look at the funding deal struck in 2016. With money from the government on offer at that time being only for home ownership, London Living Rent funding had to be drawn from the Shared Ownership pot – and so Gavin Barwell and City Hall negotiated a compromise that made it into the Mayor’s funding programme.

The Affordable Homes Programme says that eligibility for London Living Rent homes is “restricted to existing private and social renters with a maximum income of £60,000 without sufficient savings to purchase a home in the local area” and that most of the homes in question will be one or two bedroom dwellings. You also have be currently renting in London and be unable to buy a home in your local area, including a Shared Ownership home (see below).

According to the GLA website, the average monthly rent for a two-bedroom London Living Rent home is “around £1,000 a month”. The number of London Living rent homes completed so far is 322, but there are several thousand in the pipeline.

London Shared Ownership

Shared Ownership housing has been around for three decades and is variously seen as an innovative way of giving middle-income earners a foothold on our old friend the “housing ladder” they wouldn’t otherwise be able to afford and as a bit of a con.

The deal is that you “buy” a percentage of your home from a housing association and pay a proportionate, regulated rent for the rest of it, with the option of increasing your “owned” percentage at a later date. Those happy in shared ownership enjoy housing costs that are lower than paying a full mortgage or renting privately, and they also have a leasehold property investment that is rising in value. Unhappy ones find their options for selling and moving limited and are shocked to discover they are expected to pay service and maintenance charges they weren’t anticipating.

So what is London Shared Ownership, as supported by the London Mayor? How “affordable” is it and for whom?

The Mayor’s funding guide says “purchasers should have household incomes that can support an initial purchase of between 25 per cent and 75 per cent of the value of a property, and usually a mortgage deposit of around 10 per cent of the share to be purchased”. To be eligible, that household’s income should be no more than £90,000 a year.

That £90,000 figure will strike some as remarkably high. Should, say, a couple each earning £45,000 a year – a figure comfortably above the London average of around £35,000 – really be entitled to this type of “affordable” dwelling when there are 55,000 homeless households in London and large waiting lists for homes for Social Rent? Should the Mayor be helping out people who make that much money?

As with Affordable Rent, the reality is not as simple as such figures might suggest. Most Shared Ownership properties in London are tailored for households with incomes far lower than £90,000. Also, the top end of the eligible income scale is set not by the Mayor but by the government (outside of London it is £80,000 a year, by the way). Khan’s manifesto promised these “part-buy, part-rent” homes as one of his “genuinely affordable” housing types, to be supplied for first time buyers particularly on GLA-owned and other public land with the aim of cutting their cost.

Mindful of complaints about high and hidden service charges, the Mayor invited Shared Ownership providers to come up with a charter governing these, which they could all sign up to. The Affordable Homes Programme funding guidance said this charter would be “the key distinguishing feature for London Shared Ownership homes”. The charter was subsequently produced, and there is a mayoral expectation that providers of Shared Ownership homes in London will sign up to it, especially if the Mayor is giving them money towards it.

What else?

Starter Homes is still a government policy and the statutory framework is in place. But although they were mentioned in the February 2017 white paper Fixing Our Broken Housing Market, they were less prominent than before and a decision has been made not to impose a Starter Home requirement on residential developments. Money has been spent (literally) preparing the ground for them but a House of Commons library briefing published in May said that the necessary regulations were not yet in force and if any Starter Homes have yet been built anywhere, including in London, no one has noticed.

There are also other kinds of housing described as “affordable” or as “sub-market” priced in other ways, such as discounted market homes with restricted eligibility and limited, bespoke local schemes. Equity loans for first time buyers can be secured through the London Help To Buy programme. All of these are helpfully set out in a report published last September by the Institute for Public Policy Research, which also measured the affordability of different types of “affordable” home for London households of different incomes and sizes, defining “affordable” as taking no more than 35 per cent of that household’s net income.

A final point about the language of affordability. All “affordable” types, especially social housing, are often described as “subsidised”. The word itself is fair enough but, of course, its connotations, again especially for social housing, are often negative, suggesting individual failure, dependency, a drain on the taxpayer and so on. Yet a study published last month by the Chartered Institute of Housing found that thanks largely to tax relief, home-owners receive far more financial help from the state than Social Rent tenants and, for that matter, private renters too. Who ever would have thought it?

Many thanks to those who read drafts of this article pre-publication and have helped me to improve it. DH. Photograph by Kilian O’Sullivan is of Peabody properties in Mint Street, Bethnal Green. Architects were Pitman Tozer.