Feargus O'Sullivan is a contributing writer to CityLab, covering Europe. His writing focuses on housing, gentrification and social change, infrastructure, urban policy, and national cultures. He has previously contributed to The Guardian, The Times, The Financial Times, and Next City, among other publications.
A “living rent” plan would tie housing costs to income, but who’s going to build the homes that qualify?
Londoners have been complaining that the rent is too damn high for years. Now the city may be poised to actually do something about it. On a visit to a housing project in Harlem, New York, this month, London’s Mayor Sadiq Khan unveiled details of a new London Living Rent Scheme. Under this plan, whose details have not yet been fully made public, newly built homes would be rented to people on low and middle incomes at below-market rates. London already builds some housing officially deemed to be affordable, but the new scheme would see rents fixed in a completely new way, by pegging them to people’s income.
This is a marked change in direction, and an improvement on current policy. To qualify as affordable (and thus to be able to qualify for tax breaks, incentives and eased planning approval) London homes currently have to be rented or sold at no more than 80 percent of market rate. This means such homes are often affordable in name only; apartments built in the wealthiest parts of the city can qualify for special treatment even when they are beyond the reaches of all but the very wealthy.
Khan’s new scheme would instead fix rents according to income, with homes taking part in the scheme costing no more than one third of an average household income for their area. According to City Hall’s own estimates, this would mean a new two-bedroom apartment in highly desirable Hampstead would cost £1,379 ($1,787) a month to rent, while in East London’s far less wealthy Manor Park, that monthly rate would drop to £644 ($835). The scheme would be restricted to households earning between £35,000 to £45,000 ($45,400 to $58,300). City Hall is targeting this group because they fall between two stools. They aren’t wealthy enough to comfortably afford market rates, but they are not poor enough to be accepted on the list for public housing.
The reality is that poor tenants can hardly be said to have it easy. Lists for public housing are now so long that poorer tenants can wait decades without being housed even if they are eligible. There is still no denying that the low-to-middle income group the scheme targets is in need of help too. For struggling middle-earners, this sounds like potentially excellent news. It could make renting decent housing far more affordable, and allow some people who were previously overstretched to save for a deposit to buy a home.
There’s a major hurdle nonetheless — the existence of new homes available for such a plan is entirely theoretical at the moment. Simply fixing an affordable rate for an apartment in Hampstead does not mean one would actually be built. So where are the homes going to come from?
One possibility would be to require a certain number of London Living Rent homes in each new development. These quotas already exist across London for the type of existing affordable housing mentioned above. They are set differently from borough to borough and range from 30 to 50 percent of each new development. Shifting this quota from being for affordable homes to London Living Rent homes would make them accessible to far more people while still giving developers enough of a slice of market rate homes to turn a healthy profit.
The problem with using the current quota system is that it is routinely ignored. As the Guardian outlines, developers find ways to lessen their quotas, then don’t even deliver on the targets they promised in order to secure planning permission — a breach made possible by toothless enforcement by boroughs. To say that such rules are routinely disregarded is not hyperbole. In 2014-15, just 25 percent of new London homes were affordable, down from 39 percent in 2010-11. Opponents of regulation might be tempted to see this drop as the negative consequence of the quota, except that it is not strictly the number of new homes that has fallen, but the proportion of affordable homes within this count.
The success of the London Living Rent scheme will thus depend on greatly increasing the availability of new housing. In the scheme’s infancy, we don’t yet have details on how this will be done. The London borough of Hackney has already pledged to build 500 Living Rent units, but that’s a drop in the ocean for a city of over 8 million residents. It’s likely City Hall has some ideas up its sleeve and is still thrashing out the details before unveiling them. In the meantime, when it comes to finding a formula to lessen London’s housing crisis, a vital piece of the puzzle is still missing.