Is London's Attempt To Make Housing Affordable Meaningful?

Housing in London is not very affordable, and this has been so for long. The reason is partly that demand has been rising. London is a cosmopolitan city, hence, it is not at all surprising that people from across the world want to here. But, the rising demand has made housing beyond the reach of people.

Sadiq Khan, the mayor of London sees affordable housing at the top of his priority list. The voters in London see housing affordability as a very important issue. So, since he was elected to power, Sadiq Khan has been working toward making housing affordable. The administration, for example, wants to allow projects with 35 per cent or more affordable homes to skip the viability process. It is not clear whether this will be much of a relief for developers, and there is much more that cities need to do to make housing affordable. But, this will certainly make the process easier.

The administration also wants to have a less lenient definition of affordable rents. Will this make housing affordable? Almost certainly not. As commercial developments are expected to devote space to include affordable housing, the most this will do is to make real estate development costly. When developers are forced to sell houses much below the market prices to be allowed to survive, they are likely to build less. A few may benefit from such schemes, but most people will lose in the process because when real estate developers build less, supply will be constrained. When there is supply, housing is likely to become even more expensive. Such policies are based on the assumption that housing affordability does not have much to do with supply and demand. The fact is that housing affordability is determined by supply and demand. When government adopts policies that curtail supply, prices are bound to rise. This is truer in a global city like London where the demand is always on the rise.

In 1934, for example, 80,600 houses were constructed in London, while only 24,620 houses were constructed in 2015. Mayor Sadiq Khan estimates that London needs at least 50,000 houses to be built every year. But, if government policies constrain supply so much so that the number of houses built every year are about half that is necessary, it is not surprising that prices are rising. When construction activity was at its peak in 1934, restrictions on real estate development were weaker.

London is not very affordable, largely because the government and local authorities do not allow real estate developers to build. For example, many argue that building high rises in central London will destroy the beauty of the city. But without the freedom to build tall, housing is never going to be affordable in central areas of London.

Actually, London made housing more affordable long ago by building railway lines and other forms of transport. Cars, too, played an equally important role in allowing people to spread out, and live a better life. southeast London, for example, is not densely populated because of lack of accessibility by the tube. So, the only way to make housing more affordable is to allow real estate developers to build as much as possible and by building better infrastructure.