Government needs to Investing in Affordable Housing in London

The demand for affordable housing in London has reached a critical juncture. With skyrocketing housing costs and a growing population, the need for government intervention has never been more pressing. This article delves into the compelling reasons why investing in affordable housing in London is not just a social necessity but also an economic imperative. By examining the housing needs, economic impacts, and the broader benefits to society, we can understand why this investment is crucial for the future of London.

London faces a housing crisis that is unparalleled in the rest of the country. In 2008, the balance between households and dwellings was nearly even, a situation not seen for over forty years. This delicate balance masks a deeper issue: Londoners have far less living space compared to other regions, and 40% of overcrowded households are concentrated in the capital. The high cost of housing means that even new social tenants pay rents above 35% of their income, significantly higher than the national average. Homelessness is another alarming issue, with London accounting for 25% of all homeless households in the country and 75% of those in temporary accommodation. These statistics underscore the urgent need for additional affordable housing.

Poor housing conditions have far-reaching consequences that extend beyond the immediate residents. They lead to increased health and education costs, reduced employability and productivity, family breakdown, and higher crime rates. Addressing these issues is particularly costly in London due to higher service provision costs and the negative impact on densely populated urban areas. Investing in affordable housing is the most effective way to mitigate these costs, especially in a city with such a severe housing shortage. New homes in London are used more intensively, with a higher proportion of households allocated to homes that just meet their occupancy standards. This means that the cost per person assisted is lower than what might be inferred from averages. Moreover, social investment in affordable housing attracts additional private investment in market housing, thereby increasing the overall housing supply. This has been particularly evident since the financial crisis. Supporting low and middle-income households in finding affordable homes is essential for the competitiveness of London’s economy.

London’s capacity to deliver affordable housing is disproportionate to its size. Currently, it provides around 30% of all social housing completions and an even higher proportion of starts. Without London’s contribution, the national pledge to provide 150,000 affordable homes within the current parliamentary term would be unattainable. London also has the greatest opportunity to increase revenues and borrowing power under the new affordable rents regime. However, there are limitations, including affordability issues among lower-income employed households, the need to avoid increasing the housing benefit bill, risks and costs of private finance, slow turnover in the social sector, and the heavy impact of the welfare cap on social sector households in London.

The provision of affordable homes at below-market prices inherently requires some form of subsidy. While other sources of support, such as cheap land, s106 agreements with developers, and general rent increases, can reduce the amount needed from the government, central government support remains essential. The case for investing in London is compelling on three main criteria: housing need, the wider benefits to the economy and public purse, and the immediate issue of housing numbers. On all these criteria, London stands out as a priority area for investment.

The case for investing in affordable housing in London is overwhelming. The relative housing need is higher than anywhere else in the country, and the economic and social benefits of such investment are significant. Without London’s contribution, national housing goals cannot be met. Investing in affordable housing in London not only alleviates social costs but also supports the broader economy by delivering more market housing, creating jobs, and strengthening the labor market. The government must recognize the necessity of continued subsidy to ensure the success of the overall investment program. Affordable housing needs subsidy, and London needs that subsidized housing the most.