London’s workers need homes they can afford to rent

Dolphin Living’s chief executive Jon Gooding explains why renting for London’s keyworkers is not going to get easier any time soon.

London is desperately in need of more accommodation for its workers. And, as we are now leaving the EU, available affordable housing will become even more central to London's competitiveness.

Housing is perhaps the biggest existential threat to our capital’s current success. For more than 30 years not enough new extra homes have been built to ensure that the city’s ‘key workers’ can afford to live where they work and they are being pushed further and further out – to the extent that some larger businesses are now contemplating entering the housing market themselves to ensure their key staff are provided with homes so business does not suffer. It’s a new strategy in the war for talent. 

More than 20 years ago what is now Dolphin Living was established when Westminster City Council and the Dolphin Square Trust sold their interests in the Dolphin Square mansion block and agreed that the proceeds be used to fund a new housing charity, with part of its remit being to provide affordable homes to rent in the borough for those working in Westminster.

At that time the importance of ‘key workers’ such as firemen, policemen, teachers, nurses, etc was understood, but less attention was paid to a much wider range of workers who make the city tick – particularly those in the cultural, tourism and night-time economies which play such a vital role. Restaurateurs, chefs, actors, theatre managers, gallery attendants, journalists, designers, charity workers are all roles which might be contested as being ‘key workers’, but tourism alone generates £10bn a year for the UK economy while cultural tourism – theatre, opera, galleries, etc – generates £3bn a year. Much of this is delivered by people on below-average wages for whom a home in central London, near their work is a hopeless dream.

Dolphin Living is committed to delivering 1000 sub-market rental homes by 2020 and we have £300m in equity and debt to do that. Back in 2005 when we were founded the average London house price was £250,000, but since then, exacerbated by the consequences of the 2008 banking crisis, there has been unprecedented house price inflation in London and the average London home is now £520,000 and rents have increased by 36% while household incomes have increased by just 20%. This disconnect between housing costs and wages has made our job harder, and made life so much more difficult for London’s workers.

We’ve striven to make our homes truly affordable. Where median household incomes are £30-40,000 a year our rents are on average 50% of market rates. We recently bought the New Era Estate in Shoreditch, Hackney where tenants had mounted a high-profile campaign, assisted by Russell Brand, against what they saw as ‘gentrification’ pricing out the existing community. At New Era, half of the estate had household incomes below £25,000 a year. Not unusual in many boroughs. We introduced a radical new approach to rent-setting where the rent was directly linked to net household income so the level of subsidy provided reflects a tenant’s true need. But, like Canute, are we simply trying to hold back the inevitable tide? Why should be house people on lower incomes in high value locations?

One straightforward answer is that, as a society, we should not be shipping London’s poorer residents further out and in the process breaking up traditional communities. Planning policy in relation to housing at a regional and local level has for many years reflected this social ambition. But also, as a result of research undertaken for us by the University of Westminster, we have demonstrated there is an economic value per household of £15,000 a year added to London’s economy produced by the tenants we housed in our first scheme, One Church Square in Pimlico, Westminster.

The obvious question is could these tenants have been housed at lower cost further out. We are about to publish further research that we think will show, in making that comparison, after allowing for travelling costs and lost productivity, that the difference is marginal. And that at current rates of house price inflation in outer London is eroding this at such a rate there will shortly be no differential. Therefore, we believe the answer is not to ship tenants out but to make proper provision across the whole of London so the city can continue to prosper. 

We have delivered more than 600 homes and we are on target to deliver 1000 by 2020, despite the ravages of inflation. We should then be able to invest a further £30m a year in new projects so we can continue to expand our portfolio. But, we have only been able to hit this target by cross-subsidising our own development programme with a number of large acquisitions of the affordable housing elements that have been required by planning policy (known as Section 106 contributions) within larger, mainly private-for-sale developments.

New Government policy in the recent Housing and Planning Bill will, however, squeeze this element out of new development in favour of starter homes and shared-ownership homes, not for rent, but for purchase by first time buyers, at a maximum value of £450,000 in London. This compares to the current acquisition price of homes for affordable renting at around £250,000. You can see which route developers will prefer. Also, as there is only a five-year time limit on starter homes being used as such by initial purchasers, you can also see this stock is unlikely after that time expires to provide much relief for those who need to rent and will be sold at a profit. We believe this policy will exacerbate the current problems faced by London’s workers.

So rather than complaining about current circumstances, where do the answers lie? This is a key question for new London Mayor Sadiq Khan and his administration. The chief problem in providing homes to rent is current land use value. Planning policy makes no distinction between rented and owned accommodation. Value is significantly higher for residential land that can be used for private for sale homes, even with a requirement to provide affordable social housing as a percentage of the total, than it is for private rented (where there will also be a requirement for affordable rented, and/or other forms of discounted tenures).

One obvious answer is that public land could be provided at a discounted value for market rented and sub-market rented homes, including a significant percentage that is affordable at what we call London Living Rents, and that this could then be delivered on a much larger scale. The land provided could be locked into that use legally for an appropriate time period by either a covenant or a planning agreement, or both. We are going to be talking to the GLA about this idea.

Given the political consensus around the need for affordable homes, we are still hoping – despite the Brexit challenge - for a brighter future for London’s most vital resource, its workers.

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