Housing Market (London)

Meg Hillier Excerpts

Tuesday 18th November 2014 Westminster Hall

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

I am glad to have the opportunity to address this Chamber on London’s housing crisis. There is no doubt that if there is one issue that Londoners are agreed on, it is that the housing market in London is in a state of crisis. Before I close my remarks, I would like to touch on the New Era estate in Hackney, which illustrates some wider issues and whose tenants are faced with predator American developers and may be evicted by Christmas.

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

Will my hon. Friend give way?

[Ms Abbott]

I will happily give way to my hon. Friend before I sit down.

The current London housing market is broken. The average house price in London is £600,000, nearly twice that in the rest of the country. The average monthly rent of a flat in London is over £1,500 a month and to put that into perspective, across the rest of the UK, landlords ask an average of just over £650. To illustrate how far the crisis has spread, a garage in Hackney was recently put on the market for £375,000 and an eight-car parking space in Mayfair was on offer for £2.25 million.

The effect of the inflated housing prices is manifold. For many young Londoners, owning their own home is just a dream. Does the Minister agree that an entire generation of young Londoners have been failed by the Government and the Mayor? A generation of young Londoners are trapped in an eternal cycle of unstable tenancies and extortionate letting fees, and faced with the inexorable truth that a vast chunk of their monthly earnings is immediately sunk into a black hole from which they can expect no real return. They cannot afford to buy in London, so they are forced to rent well into their 30s or to move outside the M25.

The issue is difficult not just for young Londoners hoping to buy; it is a real issue for employers because the cost of housing in London has dire consequences for recruitment in London. The NHS in London has one of the lowest retention rates and highest vacancy rates in the country. The vastly superheated housing market is a crucial issue behind that. I point the Minister to a report that the London Chamber of Commerce and Industry published in May highlighting the fact that over 40% of London businesses said that their ability to recruit and retain skilled workers was negatively affected by housing costs. I question whether the Government truly understand the impact of such issues in London. Does the Minister understand the seriousness of the implications of the inflated property prices and the difficulties of recruitment for London’s sustainable future?

I have seen first hand in Hackney how high property prices indirectly affect rents, including those in the social housing sector, placing extremely high pressure on our most vulnerable communities. Combined with housing benefit cuts, there is a danger that in the immediate future, we will see a social cleansing of zones 1 and 2.

Another crucial element in London’s housing crisis is super-wealthy, non-domiciled international buyers who want to purchase property in central London. They are using London property as a status symbol and a safe deposit box, often keeping the properties empty for much of the year. Even in Hackney, large developments in Dalston had many units bought off-plan in the far east. The almost limitless supply of super-wealthy, non-domiciled buyers in the centre of London is causing a price ripple throughout zones 2 and 3, making it increasingly harder for ordinary families on average wages in previously affordable boroughs to meet their housing costs. Does the Minister agree that when it comes to international, non-domiciled buyers of central London property, we need to look seriously at financial measures designed to disincentivise that practice?

The other structural deficiency in the London housing market is the fact that local authorities are now allowing—or feeling that they have to allow—planning policies to be persistently flouted and affordable housing quotas to be ignored in the interests of huge overseas development consortia, such as the Malaysian consortium that is currently developing Battersea power station. The bottom line is that the London market is not a functioning market, and simply increasing the supply will not bring the cost of houses down for ordinary Londoners.

It seems to me that there are a number of things we can do. We need to tighten up on exploitative letting agencies that hit new tenants with exorbitant fees, and I am glad to say that Labour is moving in that direction. We need to allow councils to borrow to build; that is probably the single most important thing. The Labour Government had a wonderful record in renovating and doing up estates, but we simply did not build enough genuinely affordable housing. The only way that can be made good now is by allowing local authorities to borrow to build in order to produce housing that ordinary families can actually afford.

Some measure of rent stabilisation or rent control also needs to be considered. They have it in New York, San Francisco and Berlin—those are not Marxist municipalities, so if there is some measure of rent stabilisation in other big international cities, we can have it in London. Only if we can offer renters some prospect of stable rents will we be able to offer them the quality of life and the certainty in their communities that they now crave. Rent controls, in spite of what some Government Members have tried to imply, do not signify the first footfalls of a mass, state-led, nationwide socialist project. In a big international city, unless something is done to stabilise rents, the centre of that city will, over time, become out of reach to ordinary people.

We are leagues behind global leaders in addressing the problem of spiralling rents. Labour has raised the issue of a mansion tax, which I support in principle, but I am arguing that the proceeds from a mansion tax should be kept in the cities where it is raised. That would be in line with the recommendations of the London Finance Commission and other recent reports on finance in our big cities. If the money from the mansion tax in London was hypothecated to a London housing corporation, it could be used to build genuinely affordable housing—not the Boris Johnson version of affordable housing, which is 80% of market rates—and to offer mortgages to key workers in the public sector.

My first mortgage was given to me by Westminster council, which gave out mortgages in the ’80s in the belief that people who got a mortgage and owned their own home would be more likely to be Tories. They got it wrong with me, but none the less, I am grateful for my very first mortgage. The mansion tax is a good idea in principle, but to sell it to Londoners, I believe that they ought to be able to see a direct benefit through investment in affordable housing in London.

That brings me to the New Era estate, which contains over 90 families, many of whom have lived there all their lives. It has always been deemed to be affordable housing, but sadly for those residents, all around Hoxton and in the City fringes of Hackney, a housing bubble has erupted that has made almost irresistible the profits to be made from clearing out those tenants and letting out the accommodation at market rents.

Who has stepped into the breach? A US developer called Westbrook Partners. It could not have less interest in housing ordinary people and in affordable housing. On its website, it describes itself as,

“a privately-owned, fully integrated real estate investment management company with offices in New York, Boston, Washington DC, Palm Beach, San Francisco, Los Angeles, London, Munich, Paris and Tokyo.”

It goes on to boast that it has

“raised…$10 billion of equity in $40 billion of real estate transactions”.

This entity is not interested in providing housing in principle; it is entirely profit driven and does not care about the consequences of its activities for the tenants who fall into its hands.

The company owns properties all over the United States. In 2007, it took over a large development—a rent-controlled building—in the Bronx. From then, the tenants saw heat and hot water being turned off and becoming sporadic. They found that repairs went undone and they started to be harassed. Fortunately, in New York rent-controlled apartments they have some rights, and finally, in April this year, the New York Attorney-General, Eric T. Schneiderman, reached a settlement with Westbrook. It had to make years of repairs and resolve thousands of building violations, and it had to pay more than $1 million in rebates for illegal fees and overcharges. When it comes to Westbrook, we do not have to look in a crystal ball; we can read the book and see how it has exploited tenants in other parts of the world—and yet, these are the predator property developers who have come into Hackney and purchased New Era.

What are Westbrook’s plans? I understand that it intends to issue a notice seeking possession to all the tenants, to clear and refurbish the estate for full market value prices—way out of the reach of most of the existing tenants—and that it has no plans to provide any houses for below market price. I also understand that it intends to sell in four or five years, flipping the properties at a profit.

The mayor of Hackney has written to Westbrook in the past 24 hours, asking it to reconsider its plans and to honour a commitment to no further rent increases until 2016. He is also asking that the new managing agents for New Era, Knight Frank, meet the council and engage with the residents. Even the Mayor of London—the Minister’s colleague, Boris Johnson—is calling for Westbrook to engage with the council and with the tenants.

The tenants, many of whom have, as I said, lived all their lives on the estate, have asked me to say to the Minister that they simply do not understand why a foreign company is allowed to buy the estate and evict 92 residents, with no sense of whether the company is a fit and proper owner and no sense that the tenants have any protection. They have also asked me to ask what the Government will do to offer the tenants protection and support. I hope that the Minister will find it in his heart to say something supportive to those tenants, who are fearing eviction by Christmas.

[Meg Hillier]

As the constituency Member for the New Era estate, I, likewise, have had many conversations with tenants, who are very worried about their future. I also managed to speak to Knight Frank earlier today to urge if not only to honour the two-year rent and tenancy guarantee, as a minimum, but to look at having affordable rents to make sure that people who have lived there for 20 years or thereabouts—for a long time—do not find that their homes are removed from them. Does my hon. Friend agree that the real issue is people coming in who are looking at this as being about profit rather than about people and their homes, and that in London, we need a long-term private rented sector in which people can bring up families over a generation?

[Ms Abbott]

I entirely agree with my hon. Friend, although I would say that it is a question not just of long-term tenancies, but of rent stabilisation. It has become completely impossible for people to manage in a rental market in which there is no stabilisation and rents continue to spiral. I have spoken at some length about the New Era situation, because it reflects the way in which Londoners’ homes are becoming pieces on a chessboard for multi-billion-dollar international property developers.

[Ms Abbott]

I am grateful to my hon. Friend. There is no question but that we are seeing a process that is partly about how private developers are being facilitated and partly about what is happening with the Government’s so-called welfare reforms, which, as I said, is resulting in a form of social cleansing of zones 1 and 2 in London. That does not make for a sustainable community. How are hospitals, the fire service, local authorities and the public sector generally to recruit if ordinary people coming into the housing market for the first time increasingly can afford neither to buy nor to rent in zones 1, 2 and even 3? As my hon. Friend said, that is not by chance—by accident. When we have a Mayor who says that affordable means 80% of private sector rents, which is way out of the reach of anyone on an average salary in London, and who seems loth to intervene in what is happening, Londoners have to face the grim reality that a city that has always prided itself on its diversity and cohesiveness will see that diversity and cohesiveness torn asunder as we move towards social cleansing at the centre. If nothing is done about the current situation, London will become a place where people living in zones 1, 2 and 3 either are extremely wealthy or are serving the extremely wealthy. That is the only way people will be able to afford to live there.

As I said, there are a number of remedies that we need to look at. First and foremost, councils need to be able to borrow to build. We need some form of rent stabilisation. We also need to do something about rental agencies and the charges that private sector renters find themselves paying.

However, there are also a few things that we should not do. It has been suggested that one solution to London’s housing crisis lies in building on the green belt. As someone who spent most of her childhood on the edge of the green belt in Harrow and who now lives in the inner city, I do not believe that building on the green belt is the remedy. It is what developers always want, because building on the green belt is easier for them. They build executive houses that they can sell easily. But houses on the green belt are of no use to young professionals in the centre of the city, who want to be within reasonable commuting distance of their work. They are of no use to families in the centre of the city, who want family-sized housing that, again, is within commuting distance of their work. I therefore say very firmly that anyone proposing to build on the green belt is simply falling into a trap set for them by developers. We should look at the more than 50,000 brownfield sites in London and incentivise development on those sites. The truth is that London’s housing issues must be addressed primarily within the M25, because it would defeat the primary objectives of the green belt—to check urban sprawl and to support biodiversity—if we fell for what the developers are telling us and started to build on it in any great numbers.

London is the greatest city in the world. It has never been more energetic, more exciting or more prosperous, but I put it to the Minister that without urgent action to address the housing crisis, London’s future is at risk. The housing crisis is not just a question for young renters, people who cannot afford to buy and people in social housing and council housing, who are being forced out of London in some cases because of the cuts in housing benefit. It is also a question for older people who are themselves well housed but who look at their children, who may have professional jobs, and realise that they will never be able to afford to buy inside the M25. It is also a question for employers. As I said, it has become increasingly difficult for London employers to recruit because of excessive housing costs.

How does the Minister propose that a city such as London can function if teachers cannot live within commuting distance of the schools that they teach in, if nurses cannot live within commuting distance of the hospitals that they work in and if even policemen find themselves living way outside the communities that they police? The state of the housing market in London is our most pressing issue. What is happening on the New Era estate in the constituency of my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) illustrates predatory property developers at their worst.

I am grateful to the House for the time allotted this afternoon to raise these important issues and I look forward to hearing the Minister’s response and his comments on what he and the Government are doing to address this state of affairs.

[Meg Hillier]

rose—

[John Robertson (in the Chair)]

If the hon. Lady can make her speech in a minute and a half, she can have it.

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

Thank you for calling me, Mr Robertson. I want to return to the issue of the New Era estate, because those 92 households reflect one of the real challenges that my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) just touched on. This involves people in low to moderate-income jobs.

I refer people to a report that I partly authored in 2000-01 for the London assembly. These people are in good jobs. They work long hours and work hard. However, they are unable to afford anything in the private rented sector, possibly even in zone 6 in London. Particularly affected are those who would never qualify for social housing. The social housing restrictions are now so tight that single men who perhaps have children but are not living with them have so little choice about where to live that they are forced out of London in many cases. There is a real shortage of long-term, good-quality, affordable rented housing in both the social sector and, crucially, the intermediate private sector.

I urge the Minister to look at this issue. I have had answers before on the Floor of the House: Ministers, with a sweep of the hand, have said, “Oh, we’re doing work to improve the situation and ensure that private landlords can do a better job and invest longer term,” but nothing is mentioned about the rents, and there is real concern about that hugely important area. There was provision on the New Era estate for more than 80 years under the last private landlord—the only owner before it was sold. That has now gone. We saw this with the Crown Estate housing being sold, although happily it was bought by Peabody. That is at least a housing association, which we can have access to and talk to. However, there are real issues. We are seeing estate after estate—the Warner estate in Waltham Forest and other estates in London—

[John Robertson (in the Chair)]

Order. I am sorry to interrupt the hon. Lady, but we must give the Minister time to respond.

--- Later in debate ---

[Ms Abbott]

May I remind the Minister that the Mayor has much broader housing powers than the former Mayor had? That is a consequence of the former Mayor’s campaigning. I also remind the Minister that affordable housing, as the current Mayor defines it, means 80% of private sector rents. That is way out of the reach of ordinary people in Hackney.

[Meg Hillier]

rose

[Brandon Lewis]

I give way to the hon. Lady.

[Meg Hillier]

I point out that on the Colville estate, which is, coincidentally, opposite the New Era estate, the council is building homes for tenants. It is good quality social housing, just as the Minister described. That is a model for what can be achieved with good local leadership and the right funding, and it delivers long-term affordable homes. Surely the Minister can see that as a model, too. Hackney has the answers.

[Brandon Lewis]

Yes, and I am proud that more council houses are being built under this Government than under the previous Government. Councils are building council houses again. The hon. Member for Hackney North and Stoke Newington spoke about councils being able to deliver more and to borrow more.

At the start of self-financing, councils had borrowing headroom of £2.8 billion, which has not been entirely used up. I encourage councils to go ahead and progress with developing new housing. We have also recognised that some councils needed extra borrowing powers, so we have already announced £122 million of additional borrowing headroom for 22 authorities, to support the delivery of more homes in their areas. We have consulted on proposals to increase local transparency about the value of local authorities’ social housing assets. That is an important step forward.

We have had to rebuild the housing market in this country. There are now more than 4 million households in the private rented sector, and that number is increasing. Private rented sector rents in England—I appreciate that I am talking only about England—have fallen in real terms every year under this Government. Last year, the average increase in England was 1%, which is below inflation, for the 12 months ending in September. In London, rents increased by only 1.5% over the same period, with inflation at 1.2%. Local authorities are responsible for ensuring that standards are met, but the Government are taking steps to improve quality and choice in the private rented sector.

I want to see more people investing in the private rented sector. Landlords who own 10 properties or fewer make up by far the majority of the sector, and it would be good to see more institutional investment and professional experience in the sector. That is why we have established the £1 billion build to rent fund, which will have delivered contracts by March of next year for up to 10,000 new homes.

Some of those contracts are already in place for homes across London, and I expect more to follow. We have established the private rented sector taskforce to encourage more entrants into the sector, and we are determined not to jeopardise that investment by increasing red tape and unnecessary regulations, such as rent controls. Rent controls demolished the market last time they were introduced and reduced it to about 8%, although we are rebuilding that.

We recognise that standards must continue to improve. We want professionalism in the sector to increase, to make it more attractive to investors and tenants. We have taken action to tackle bad landlords so that they either improve or leave the sector. That is why I entirely support what the Mayor is doing with the London rental standard. We are also giving tenants the know-how, through our “How to rent” guide, to get rental deals that meet their needs.

Hon. Members have raised a couple of questions and suggestions. The hon. Member for Hackney North and Stoke Newington said that she supports the mansion tax in principle. I am sure that she will not be surprised to hear that I do not support it, not least because the effective delivery of a mansion tax would involve the revaluation of many homes. When that has been done elsewhere, it has caused problems for people right across the scale and tended to hit the most vulnerable. A mansion tax would also risk penalising people—in the main, pensioners—on low incomes whose properties have appreciated in value. The Opposition’s policy seems to change every day, however, so I have no doubt that it will develop and change further.

Hon. Members have said that they believe that foreign investment in the housing market is having a negative impact, and I think that we need to put that in context. Foreign investment in new housing has been helping to provide the finance required to build the housing that we need, particularly in a global city such as London. Without such up-front investment, financiers would not have released the cash needed for development to go ahead, and building would have completely stalled. The developments that we now have would not be in place.

Not only do those developments provide homes in which people can live and work, but they unlock associated affordable housing development. Even where property is foreign-owned, much of it is rented out, which generates an ongoing return for the investor. A good example is Battersea power station, which has been derelict and undeveloped for about 30 years. Development is now going forward thanks to a combination of private investment from Malaysia and public infrastructure support from the Government. To put the situation in perspective, the Bank of England recently estimated that foreign buyers represent only 3% of all residential property transactions in London.

[Meg Hillier]

I understand that something as intractable as Battersea power station may have needed a kick start from someone wealthy, wherever they were in the world. In Hackney, however, new developments are being bought off plan by landlords who will never set foot in the country. They were originally built to provide homes for local people, but they never reach the hands of local people. I do not think that that is what the Minister is talking about, and I hope that he does not support that approach.

[Brandon Lewis]

We sometimes also see British institutional investors—British companies—investing in the private rented sector overseas. In places where that has happened, they tend to be grateful to have good management. I want to see good management, good landlords and good institutional investment coming into the private rented sector. The Mayor of London has recently launched a mayoral concordat on new homes in the capital. Key developers have been contacted and asked to commit to selling new homes on every development to Londoners before, or at the same time as, they go to overseas buyers.

A couple of hon. Members spoke about properties being built and left empty. The number of empty homes across England is at its lowest rate since records began. The vacancy rate in London has dropped to below 2% for the first time ever. Hon. Members have touched on the question of how we improve the private rented sector by looking at letting agents. Although landlords and letting agents are free to set their own charges, they are prohibited from setting unfair terms or fees under existing consumer protection legislation.