For so long London’s property market enjoyed a reputation as a rock-solid investment opportunity where bricks and mortar delivered huge returns.
But it wasn’t just property speculators who betted on the capital’s housing. As central government grants diminished under austerity, councils and housing associations morphed into developers, leveraging consistently high prices to pay for much-needed affordable homes.
The so-called “cross subsidy” model, which is usually combined with government grants, relies on building mixed housing developments with a portion of private homes. These are then sold off on the open market with the cash raised funding the affordable element.
At the very least, the approach allows some affordable housing to get built. But critics point out that you can only sell public land for development once and it relies on a strong market. It worked in the good times but do the numbers still stack up?
The problem of unsold homes
Take Enfield, where the council is struggling to sell homes on an award-winning housing project in Edmonton. Work finished on the 50-home scheme at Bury Street West last year. But amid the mortgage chaos prompted by Liz Truss’s disastrous mini-Budget, none of the scheme’s 23 private homes, which range from £485,000 to £825,000, have been sold. Just four are reserved.
Meanwhile, no homes in the Balfron Tower in Poplar have sold, following its controversial refurbishment that displaced dozens of existing council tenants with the promise to fund new social housing.
Enfield has warned reduced demand for new-build homes could also lead to a “collapse” in affordable housebuilding. In current market conditions, the cross-subsidy model is becoming “increasingly unviable”, the council says. Redbridge and Southwark councils have also warned the approach is now riskier.
These fears are not new. The cross-subsidy model was declared “bust” by housing association chiefs and other experts in 2019. It has survived, but if the economic situation worsens more councils and housing associations are likely to decide the risk is too great.
Squeezing developers for contributions
Another way affordable housing is built is through “contributions” made by developers, accounting for almost half of all new affordable homes each year.
But squeezing homes from these schemes will get tougher in a downturn, as developers will find it easier to argue schemes with affordable homes are not viable.
The Government is trying to reform this system, but there are fears tinkering with it could end up delivering even fewer affordable homes.
Homelessness is rising and more than 100,000 people are in temporary accommodation nationwide. This cost councils £1.6 billion in the last financial year.
As concerns over these models move from balance sheet projections to the real world, it’s time for a more fundamental rethink.
Social housing investment needed
An obvious solution, according to many charities and councils, is for the Government to spend more on social housing and stop the loss of homes through Right to Buy.
Analysis by Savills last year found London’s social housing sector needed £4.9 billion of capital investment annually — more than six times the amount it currently receives from the Government.
Homelessness charity Crisis has called for the Government to refocus its affordable programme onto social housing and build 90,000 of these homes a year.
It would be a major step change. Only 7,500 new social homes were built between 2021 and last year, and there was a net loss of 14,500 when taking into account demolitions and resales.
But it’s one that must happen if we are to fix Britain’s broken housing system.
Rather than wringing “contributions” from developers, or gambling on the private market, affordable housing should be conceived of as a long-term social investment. The Government can no longer afford to play the wrong hand.
