PLANNED AFFORDABILITY: INCLUSIONARY HOUSING IN LONDON

June 3, 2019

“A BRAND NEW LUXURY DEVELOPMENT” - The Postmark construction site, Mount Pleasant, London. Google Street View (Image capture: Feb 2018)

 

Like most megacities, London faces a persistent housing crisis. In 2017, the median housing price to earnings ratio in London ranged from 9.7 in the high poverty, east London borough of Tower Hamlets, to 40.7 in the Royal Borough of Kensington and Chelsea. The Ipsos MORI Political Monitor Survey in recent years shows that around one third of respondents in London feel housing is one of the most important issues facing the country, as compared to 15%-20% in Britain as a whole.

 

Soaring housing prices and stark inequality have created a huge demand for affordable housing. Over 20% of London households live in low-cost social rented housing, though the waiting lists usually exceed manifold the social housing stock. Since the late 1990s, local governments in greater London and other parts of the United Kingdom have increasingly relied on the private sector for creating new affordable homes, using planning policies to require private developments to provide affordable housing. The neoliberal shift in housing policy from government-led affordable housing delivery to market-oriented planning approaches, along with the privatization and redevelopment of existing social housing, has substantially transformed the landscape of affordable

housing in London.

 

London’s approach to affordable housing

 

Social housing in Britain was traditionally provided by local authorities with the support of central government funds. Since the 1970s, nonprofit housing associations, or registered social landlords, have taken an increasingly important role in providing and managing new affordable homes. As dwindling government funding essentially ended the local authorities’ construction of affordable housing in the 1990s, a series of national and local policies were developed to enable the private creation of public housing via the planning system, and the private sector soon became a major provider of new affordable homes.

 

The planning tools used by London and other British cities to create affordable housing in private developments bear a close resemblance to mandatory inclusionary housing, which is gaining increasing popularity in American and worldwide cities. Under mandatory inclusionary housing, a private housing development is required to include a portion of affordable homes on-site. If on-site provision of affordable housing is financially or otherwise infeasible, off-site provision or an in-lieu fee is usually required.

 

The British system, nevertheless, has a key difference from the planning system in the United States. Since the 1947 Town and Country Planning Acts nationalized land development rights, the government has a legitimate claim to the appreciation in land values due to planning decisions. As the local planning authority approves a development plan, it can demand a payment for the “planning gain” – in the form of affordable housing or other contributions to the community – as defined in the Section 106 of the 1990 Town and Country Planning Act. The approach is sometimes referred to as the “Section 106” approach or the “planning gain” approach.

 

The legal foundation of the approach grants local governments considerable power in devising their own inclusionary housing policy. Since the establishment of the regional planning authority – the Greater London Authority (GLA) – in 2000, multiple mayors of London have envisioned half of the new housing supply in London to be affordable. Although the 50% target was never quite met, the ambition is well reflected in the local plans and housing strategies of the 33 local authorities under the GLA. Between 2004 and 2014, the majority of London boroughs require a minimum of 30%-50% affordable housing on new development sites.

 

Until 2011, affordable housing in London was defined in two categories: 1) social rented housing, or low-cost rental units comparable to traditional local authority housing, and 2) intermediate housing, which consists of intermediate rent, shared ownership and other for-sale units for moderate-income households. Notably, the shared ownership scheme allows homebuyers to buy a portion of the home equity (usually between 25% and 75%) and pay rent on the remaining share of the property, owned by a registered social landlord. The tenant can buy more of the property in small installments, which will allow them to reduce the rent and eventually achieve full home ownership. Intermediate housing and the shared ownership scheme offer more diverse housing options and help working families that are not eligible for social rented housing move up the housing ladder.

 

Many London boroughs ask most of the affordable homes generated via Section 106 agreements to be affordable to lower income households, with a 7:3 or 6:4 ratio between social rented and intermediate housing. In recent years, however, social rented housing is gradually giving place to other types of affordable housing with higher target income levels, in terms of both new housing supply and the conversion and privatization of existing social rented homes. A third category, affordable rent, was introduced in 2011 with significantly higher rent levels than social rented housing. In 2016/17, the average weekly rent for a new social rented tenant in London was £109, less than a third of the median rent in the private market, while an average affordable rent tenant paid £189 a week. A new scheme under the Homes for Londoners plan 2016-21 by Mayor Sadiq Khan, London living rent, is expected to have around two thirds of the median market rent.

 

The pro-growth concerns

 

Just as the debate around mandatory inclusionary housing in the United States, the affordable housing requirement in London has triggered concerns that it might deter development, especially during market downturns and in less popular areas. While local plans may require a minimum 30%-50% of the new homes created to be affordable, developers frequently argue that the requirement makes development financially inviable and try to negotiate for a lower number. During the case-by-case planning review process, the prolonged negotiation often centers around affordable housing – from how many affordable homes there will be, to how and where they will be provided (e.g., on-site versus off-site provision) and at what affordability levels (e.g., social rented or affordable rent). The time spent on negotiating planning applications alone can be seen as a substantial cost by private developers.

 

The housing shortage contributes to the upward pressure on prices, local authorities are sometimes compelled to relax the affordable housing requirement in exchange for more completions, although the resultant new homes may not be accessible to the households in need. A controversial case is Mount Pleasant, a redevelopment site that used to be part of the Royal Mail sorting office. The 12-acre site spans the border between the London Boroughs of Islington and Camden. The initial redevelopment plan, proposing 680 homes with shops, offices, restaurants and open space, was declined by both Islington and Camden councils in 2013 on the grounds of density and affordable housing. The planned project included 130 affordable homes, about 19% of the proposed housing units, while both boroughs have an affordable housing target of 50% for new developments.

 

As a major development in central London, the protracted debate around Mount Pleasant has caught much public attention. In 2014, former Mayor Boris Johnson intervened, overriding local objections and arguing that fast-tracking the delivery of new homes should be the priority for the city. The GLA then approved the development scheme with a slightly higher affordable housing component - 24% of the total housing units. Out of the 163 proposed affordable units, 65 will be shared ownership units, and 98 will be affordable rent units that may theoretically cost up to 80% of market rents. There will be no social rented units.  Although the mayor’s office assured the residents that the cost of affordable rent will be no more than 60% of the market level, given the high costs of housing in the area, the public remains unconvinced by the affordability of the affordable housing planned. The site was sold to Taylor Wimpey for £193.5 million and, as the photo shows, the new luxury development “Postmark” was under construction in early 2018.

 

Mixed and balanced communities?

 

Apart from delivering affordable homes, mandatory inclusionary housing is often commended as a policy instrument that tackles residential segregation. Compared to social housing developed by the public or nonprofit sector, where the entire site is usually used exclusively for affordable housing, both the planning gain approach and mandatory inclusionary housing are designed to create mixed-tenure, mixed-income developments. In the current London Plan, creating “mixed and balanced communities” is as important an objective as maximizing the number of affordable units. The affordable housing policy stresses the on-site provision of affordable homes and only allows off-site provision in exceptional cases. Many local authorities also require the affordable units to be visibly indistinguishable from the market-rate units and blended into the project in a “pepper-potting” manner.

 

Under the affordable housing requirement in London, a substantial amount of affordable units have been embedded in private, sometimes luxury, developments. The impacts on residential segregation or exclusion, however, are probably limited. As registered social landlords remain the largest owners and managers of new affordable housing, private developers need to transfer the affordable units in their projects to a social landlord upon completion. For the ease of maintenance and management, the affordable units are often built in their own blocks or stacks in the project, accessible through separate entrances and elevators. When the affordable housing tenants cannot afford the fees for community amenities, such as swimming pools, lounges or luxury lobbies, they are also excluded from these common areas. In such circumstances, the rich and the poor may live in close proximity but have minimal social interactions.

 

Even at a larger scale, the planning gain approach seems to have at best modest success in balancing the distribution of new affordable housing. As in the case of the Mount Pleasant site, private developers can use viability arguments to negotiate for a lower share of affordable housing provision, off-site provision or an exemption from the affordable housing requirement, especially in high-cost redevelopment sites. The flexibility in implementation by local authorities, often with the consideration of maximizing affordable housing or overall housing supply, may lead to the resultant affordable homes to concentrate in poor neighborhoods. Moreover, the affordable homes delivered through the planning gain approach are no less concentrated than those built by housing associations in London.  The distribution of affordable homes shows a clear association with poverty, racial and ethnic minorities, and the clustering of existing social housing.

 

From 2000/01 to 2017/18, London produced an average of 11,187 affordable homes per year, about a quarter of the annual affordable housing supply in England. The planning tools for affordable housing in London, if considered as mandatory inclusionary housing, is no doubt among the largest inclusionary housing programs across the world. With its unique background and limitations, London’s experience offers an interesting case for other cities that have adopted or are considering mandatory inclusionary housing. While generally considered as a progressive planning policy, mandatory inclusionary housing also represents the adoption of a neoliberal paradigm in urban and housing policies. Creating affordable housing via the planning system greatly relieves the financial responsibilities on central and local governments and, under some circumstances, mitigates the loss of affordability from redevelopment and gentrification. Its effectiveness on tackling inequality and segregation, nonetheless, should be evaluated critically. The balance of economic efficiency and fairness, as well as the trade-off between maximizing affordable housing production and creating mixed communities, should be further scrutinized in the design and implementation of inclusionary housing policies.  

 

Fei Li is an assistant professor at the Urban Studies Institute of Georgia State University. She is interested in housing, transportation, technology, public health and related equity issues. Fei has a PhD in Public Administration from New York University.

 

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