London's cost of housing is well known - but there is one product, if there was more of it, that remains remarkably affordable.
Intermediate housing accounts for just 1.3% of London's housing stock at the moment. It includes a whole range of different financial products but all do the same thing: they allow households to build up equity in their home at below market rates. It means, therefore, that housing costs are on average substantially lower than private renting, with the average age of buyers 32 and average household incomes of around £33,000 - which is about half of the average deposit required in the open market.
This week the Mayor, Boris Johnson, met with a couple living in Bexley who had been helped through First Steps - the programme that seeks to promote London's intermediate market. The scheme showed how intermediate housing does not just support households in fulfilling their aspirations without taking unwise financial risks, it also gets homes built - almost half the homes on the first phase were built through First Steps.
So intermediate housing products should play a critical role in the capital's economic success and, as the Mayor's 2020 Vision sets out, it ensures a better balance in supply. Look at housebuilding numbers and you will see both a significant amount of traditional affordable housing, often for low income working Londoners, as well as a lot of market sale product, which is brought either by owner occupiers, private landlords or by overseas investors. But there is a deficit in the middle - what the industry calls the 'lower mainstream' with values around £450 sq ft which can be afforded by households on incomes up to £60,000. According to Savills, this is the area of both greatest demand (around half of London households fall within this group) - and the greatest deficit in supply. The impact? According to Professor Michael Ball, of Reading University, as much as £35billion in lost economic output unless more intermediate housing is provided.
The intermediate market has existed since the mid-1980s but there are two problems. It is still too small, despite the colossal demand, but also highly restricted. There are restrictions around eligibility, product choice, and mobility. Of course some of these restrictions are justified, but not all. So the challenge is how do we expand the intermediate sector? There are two responses.
The first is to invest in it. In Bexley the Mayor announced another £138 million for affordable housing with homes to be built beyond this investment round, creating the pipeline of housing schemes the capital really needs to meet the demand for new homes. This included homes to rent and buy and is on top of the £100million announced for intermediate housing last autumn. This means overall 100,000 affordable homes should be built since the Mayor was elected. This investment is not just building more homes - it is about encouraging innovation by housing providers and getting more of them to enter into this intermediate market.
The second is to strengthen policy on intermediate housing, largely by removing the sometimes unnecessary red tape that restricts it. There are three specific polices the Mayor is pursuing in London. The first is to make sure that a wide range of Londoners are available to access the market, and there are not restrictive planning conditions or other encumbrances that unreasonably prevent potential customers from doing so. The most obvious restriction is that some schemes require you to be a 'key worker', often in the public sector, thereby excluding a whole range of people who are key to London's economy, in small business, hospitality, and the city.
Next we're looking to improve the secondary intermediate market to allow households to move around within the sector and reduce the number of homes that leak out of it. In the open market there is significant mobility with, for example, people buying larger houses as their family grows and re-mortgaging. That sort of flexibility should be encouraged in the intermediate market too, allowing a household who has built up equity in one home to transfer it to another rather than, as is often the case today, leaving the sector altogether.
And finally, where possible, providers should seek to separate the financial product from the property. In the open market you wouldn't buy a home only to be told your mortgage had to be fixed or variable on that property. You'd choose. This often doesn't happen in the current intermediate market and instead the financial product is mostly dictated at the outset by the planning system. So, as with the open market, households purchasing through low cost home ownership should be able to first choose the home they want and then find a suitable financial package for it, whether it be shared ownership or equity or rent-to-buy. Underpinning all of this should be straightforward marketing, making it as easy as possible for the consumer to understand if they're eligible, what's available and what their options are. The Mayor's First Steps programme, with its dedicated website, seeks to do that.
London needs to deliver more homes of all types to support its economy and population boom - about twice as many as during the past twenty years but, intriguingly, only about half as many as were built each year during London's house building boom in the 1930s, despite the wider economic challenges of that decade. The capital will encourage purpose built market rented housing, to speed up construction and offer tenants a better quality rented product; as well as homes for more vulnerable households. But in addition to the volume, it also needs a balance of supply to support working Londoners, including through the promotion of a structured and accessible intermediate market. Victorian-era philanthropists, such as George Peabody and William Sutton, realised, as did the governments of the day, that housing was not a standalone feature of people's lives - that it was only one determinant of their personal and social well-being. The language may have changed, the nature of poverty and deprivation may have changed, the very look feel, and sound of the city may have changed - but our aims remain very much the same: how can the provision of housing support people into work, promote enterprise and help families.