What is going on in London, in terms of the affordable housing crisis, is a proxy for what is happening in all of our major megacities: New York, Berlin, Paris, and many other large cities around the globe. As the situation in London demonstrates, the affordable housing crisis is a complex problem made up of several issues – a problem that requires deep contemplation and a robust solution.
Unaffordable Rent
By the mid-1960s and early 1970s, London arrived at a place where a third of people could buy their own home. They could go to the bank, get a mortgage, and buy their own home for somewhere between 6,000 and 10,000 pounds.
Another third could go to the local government agency and rent a home at subsidized levels. Like other nations, at this time London was building big subsidized housing estates and building up to provide more housing units in a condensed space.
The final third of residents had their housing needs met by renting privately.
Since that time, two things have happened that have redistributed how people obtain housing:
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Governments no longer want to invest in subsidized housing, which cuts off access to more affordable rent.
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Housing values have skyrocketed. For example, my parents bought a house in 1969 for 6,000 pounds. In 2008, I sold it for 400,000 pounds.
As a result, people in London have limited access to subsidized housing and they also can’t afford to buy their own home. Today about 70 percent of people moving into housing rent privately. Housing conditions are very poor, overcrowded, and rent is unaffordable. The average rent for a year is 46,000 pounds, but average earning are only 36,000 pounds.
One solution that has got to return to the conversation is rent control. The vast majority of people are renting at rates higher than their incomes, and they’re going to be renting for a long time. Rent control could help make private renting more affordable for the vast majority of Londoners.
Lack of Government Interest in Subsidies
As mentioned in the above example, another issue that plagues London and other cities around the world is waning interest in public subsidies. Whereas subsidy programs were popular in the 1960s and 1970s, investments in subsidized housing have since vanished.
There is a policy tension in subsidized housing where we struggle with the decision of how to spend public subsidies and taxpayer money. The UK government wants more owner-occupiers, and subsidizing rent does not help to reach that goal. The question becomes, “How can we use subsidies to create more owner-occupiers?”
One possible solution is to come up with a product that is about starter homes instead of rental units. Instead of using subsidies to help people with lower rent, the public subsidies could be used to help younger people purchase first-time homes.
This solution is not without its own issues, though. For one, would such programs result in giving taxpayer dollars to those in the middle class to purchase a house while ignoring the needs of those in poverty? Also, once a person buys a subsidized house from the state, it’s gone. We need to constantly replace housing to meet growing demand, as nine more people move to London every day who also need access to affordable housing.
Dealing with Foreign Investors
A third issue in the affordable housing crisis is how to deal with foreign investors who are scooping up housing assets to use as financial investments.
For example, the city’s tallest building just went up in the center of London, containing over 100 housing units. It was recently disclosed that all of the units had been bought by foreign overseas investors, and no one lives in any of them. This has created anger among local people, who see cranes going up in London and the bustle of construction, but they know that the buildings are not really for them.
Is it okay for foreign investors to buy up all the housing assets? Different answers to that question lead to different solutions and, at the moment in Britain, we’re really not settled on the answer. If foreign investment to this level is not acceptable, restrictions could be placed on investing to reclaim housing for the local people. If foreign investment is embraced, we could find ways to balance taxes on foreign investors and use that money to build additional housing to meet the needs of locals.
Land Usage and Density
Finally, the price of land is also skyrocketing, adding to the costs of building affordable housing in mega-cities. However, we could do more with public land. London has a lot of public land, particularly around transport nodes, and this land could be used to keep building costs down.
That said, there will always be debates about the best way to use public land. London has strict rules about building around our green areas because people want to protect these green spaces and preserve heritage. If green fields are protected, the only other option is to build up.
Building up comes with its own risks too. You may end up building penthouses for the super-rich, or just another uninhabited investment vehicle for foreign investors. You also risk creating the potential ghettos of the future. In general, the old model of building up doesn’t work anymore because most people want a front door and a garden for their children to play in.
A Complex Problem
By looking at London as an example of what is happening in cities around the globe, we see that the affordable housing crisis is a complex problem. In addition to the points mentioned above, mega cities also deal with growing populations from immigration and refugees who also require affordable housing, and the question of how do we also help people build themselves without direct help from the government.
To help local residents, cities need to create sustained, affordable housing as well as an escalator that can provide access to that housing – where people can get on and then later get off the escalator so someone else can take their place.
Do we want rent control to take some heat out of the marketplace where most people are renting privately? What is our commitment to subsidy and where is the money going to come from? How do we wrestle with the globalized context of housing where the super-rich are investing and building for their own profit? It comes down to people who have assets and those who do not, so how do we help people get up the ladder so they can obtain their own housing assets? These are just a few of the many questions that city leaders have to ask if we want to find creative solutions to the global housing crisis.