London’s housing market is an anomaly. House prices are high, the population is continuing to rise, and we are told that global investors see London property as one of the few ways to make money in today’s low-interest environment. But none of this seems to feed through to building more bloody houses; house prices and rents continue to push upwards every year.
The result is more and more Londoners being priced out of the city, and a rising housing benefit bill, as government pays more and more subsidy over to private landlords – more than £6bn in 2014-15, 15 times more than the annual sum allocated to support affordable house building.
You have to ask yourself whether this money could be better spent. In No Uncertain Terms, a report published last week by the Centre for London, suggests that it could. Our paper, written by Jamie Ratcliff, argues that developers could borrow money to build more affordable housing, repaying these loans through rent, supported by the housing benefit that would otherwise go to existing landlords.
There is plenty of money out there; the key is getting the right terms. Institutional investors – like pension funds and insurance companies – are keen to invest in London property; what they crave above all is a reliable rate of return that keeps pace with inflation. Our paper argues that a government guarantee that housing benefit levels would rise in line with inflation would give lenders certainty, and bring the cost of borrowing down.