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The London Housing Crisis: Boris Johnson's Proposals And Others' Suggestions
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London Mayor Boris Johnson isn’t getting a lot of love on his solutions to the housing shortage. And the numbers as of mid-2014 weren’t helping much.
Not that it’s an easy problem, or one where there is universal agreement on the solutions – or even the depth of the problem itself. But suffice it to say there are many investors who look at the high demand for housing and ask, “Why can’t we build more to take advantage of this undersupplied market?”
Indeed, for property fund managers the scenario is tantalizing. London Councils, which represents 33 local authorities, notes that with the anticipated nine million residents by 2021, the city needs to increase its housing stock by 526,000 units (based on statistics compiled by the Department for Communities and Local Government). In addition to that, another 283,000 new homes are needed in London to answer a backlog of demand – pushing the total needed to more than 800,000 flats and homes.
The net effect of the current shortage is rapidly increasing prices for both purchase and rental rates. Most economists and social scientists agree the high cost of housing makes for a difficult economy as well as a negative influence on the quality of life. Further, it could discourage companies from establishing themselves in the city, and make sourcing important workers harder for the companies that are already there.
Several proposed strategies for increasing London’s housing supply are being discussed or already in some level of implementation:
London.gov.uk, from the Greater London Authority, extols the need and details Boris Johnson’s plans. The department is investing £3 billion in housing, including £1.8 billion for affordable homes. Some of this involves the release of publicly owned lands for home construction. Overall, the Mayor’s plan seeks to deliver 42,000 homes per year, a task shared between the city, boroughs, and both private and public sector developers.
The First Steps programme is Johnson’s effort to help lower-income Londoners to buy or rent at affordable prices, purportedly lower than renting or buying privately on the open market. The programme claims 21,000 homes have been delivered through the program up to 2014. While this is more about finding built homes than increasing the supply, it is about removing inefficiencies in the marketing process.
Housing Zones, focusing on 20 areas in London where the construction of 50,000 homes will be accelerated through expedited planning and financing measures. Construction bids for the first projects were received as of September 2014.
London First, which represents the city’s largest private employers (and who need affordable housing for their employees), pushes for a plan of greater ambition than that Johnson has offered thus far. Equating affordable and available housing with general economic competitiveness, the organisation published “Home Truths,” a list of recommendations that includes establishing new suburbs served by Crossrail 2, the proposed rail route in South East England that would stretch between Surrey and Hertfordshire. With a shorter time frame for development, the publication also urges development on publicly owned land and to enable councils to have greater borrowing power to build homes themselves.
What is clear is that there is likely no single programme that can address such a large and pressing need. The public sector can provide funding and establish policy, but the private sector is often the engine behind the home building machine.
Alternative investment funds are channelling private investor pounds to homebuilding investments. Some such projects are large scale and others are smaller. But because these investor groups help with land assembly – identifying appropriate properties, getting planning approvals and establishing infrastructure as needed – they smooth the development process for builders.
Some investors prefer the fund approach to filling the pipeline of much needed housing. Others elect to be buy-to-rent investors. Some do both. But what’s key is that by working with an independent financial advisor, people with the financial wherewithal can help increase the housing supply while pursuing their own best financial outcomes. Mayor Johnson seems to understand these private market motivations, as reflected in his housing policies.
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