Mayor demands Government action as new research exposes £4.4bn annual housing funding gap

• New independent research reveals London needs an additional £22.2bn* over the next five years to build affordable homes at the scale London needs
• Mayor warns that lack of Government investment, soaring construction costs and shrinking construction workforce is squeezing his ability to deliver homes Londoners need
• Sadiq joins calls for Government to support housing providers with additional funds for new affordable housing, as well as retrofitting and safety improvements

The Mayor of London Sadiq Khan has called on ministers to significantly increase the level of housing funding they give the capital if they truly want to tackle the housing crisis.

Affordable homebuilding has hit record-breaking levels under Sadiq, with council homebuilding at the highest level since the 1970s, but the Mayor has warned this progress is at risk if ministers fail to give London the funding it desperately needs.

In November 2020, the Mayor secured £4bn over a five year period from the Government to deliver affordable homes in London under the new Affordable Homes Programme 2021-2026. But new research from Savills Affordable Housing has revealed that London would require an additional £4.4bn annually to deliver the number of affordable homes that London needs. That’s equivalent to more than six times the funding settlement London received.

The Mayor has recently called for the Government to provide additional grant funding for affordable housing in London to reflect the growing financial pressures on councils and housing associations. Savills’ analysis found that the size of the funding gap is fluid and can be increased by outside factors such as rising construction costs and wider inflationary pressures. Specifically, the analysis found that a 10 per cent increase on construction could increase the annual funding gap by at least £0.5billion a year. The cost of construction materials has increased by 17 per cent in the last year, meaning this funding gap is expected to be even greater.

The construction industry is feeling the impact of high vacancy rates caused by the perfect storm of Brexit and the Covid 19 pandemic, along with an ageing workforce rapidly reaching retirement. Savills’ research found that a further 20,000 construction workers will be required to hit the London Plan target of 26,000 new affordable homes a year. The Mayor is investing in developing green skills opportunities for Londoners, including in retrofit, through his Green Skills Academy. The Adult Education Budget already funds construction training, including the Mayor’s Construction Academies, but more is needed. The Mayor has joined calls for a 'Covid Recovery Visa’ to help fill vacancies in sectors with serious skills shortages such as construction.

Housing providers are also facing the costs of building safety works required to reduce fire risk and the need to bring existing stock up to higher environmental standards. The Savills research estimated that this is expected to cost roughly £5,000 per existing home. Without targeted Government support, providers are likely to draw upon their investment capacity, limiting their ability to deliver the affordable homes that London needs.

This new analysis has been produced against a backdrop of record-breaking housing delivery under Sadiq Khan’s mayoralty. Last year work began on 18,722 social and affordable homes despite ongoing the impact of the pandemic, soaring construction costs and Brexit. This the highest number of starts since City Hall records began in 2003, and both affordable housing starts and completions have more than doubled since Sadiq became Mayor.

The Mayor of London, Sadiq Khan said: “I have worked tirelessly with councils and housing associations against increasing economic headwinds to deliver the affordable homes at a scale that matches the needs of Londoners. However, this report sets out in stark detail the yawning funding gap that exists between what we have and what we so desperately need.

“These issues are exacerbated by the increasing cost of construction, soaring vacancies in the building industry and providers footing the bills for essential work to ensure existing affordable homes are safe, healthy and energy efficient.

“We’re doing all we can to give Londoners the skills they need to pursue a career in construction and have proven that we can build record-breaking numbers of homes every year. If the Government is truly serious about tackling the housing crisis then they must begin by providing us with the additional funds we need to deliver all the homes Londoners deserve. It is only through delivering high quality housing that we can build a better London for everyone – a safer, fairer, greener and more prosperous city for all.”

G15 Chair and Chief Executive of MTVH, Geeta Nanda OBE said: “This is a crucial piece of research which highlights the urgent need for action on London’s housing crisis. With a total subsidy gap of £24.5bn over the next five years, the capital will fall well short of the almost 43,000 affordable homes that London needs each year as identified in the Strategic Housing Market Assessment.

Such a failure will only exacerbate the acute shortage of affordable housing Londoners are already experiencing, causing further insecurity and hardship for the city’s lowest earners and heightening competition in the private rental sector. Further shortages of affordable housing will also prove detrimental to London’s economy, making it harder for businesses and essential services to recruit the workers they need.

The GLA's and Savills' findings are clear: the government must act. Investment in housing is an investment in the entire economy. This funding gap must be plugged so we can deliver the genuinely affordable homes that London and Londoners need."

Chair of the G320 Group, Karen Cooper said: “This new report shows the unenviable choices facing small housing associations as we face spiralling construction, maintenance and retrofit costs without sufficient financial support from the government. Difficult choices are inevitable.

“We want to work with the Mayor to build the homes Londoners desperately need but this will simply not be possible at the required scale if we do not have the funds available.”

The Leader of Enfield Council, Cllr Nesil Caliskan, said: “At Enfield we are taking all possible action to tackle the housing crisis. 

“We have a large council house building and regeneration programme, we are taking a master development role on Meridian Water, have a range of partnerships delivering new homes and with future partnership opportunities in the pipeline.   

“The excellent progress made is at risk without the additional Government support that this report highlights is needed.  An urgent response must come forward if we are to keep housebuilding going through the recession, protecting jobs and sustaining supply chains that come from across the country.“

 NOTES TO EDITORS

*The Savills research shows that the total funding gap from 2023/24 to 2027/28 is £24.5bn. This figure decreases to £22.2bn when taking into account the annualised Affordable Homes Programme 2021-2026 budget (in the same time period).

The full Savills report can be found here: www.london.gov.uk/affordable-housing-funding-requirement 

Savills collected the data in the first half of 2022, meaning that the funding gap has likely increased given current inflationary pressures.

Further detail about the programme can be found at this link: Homes for Londoners: Affordable Homes Programme 2021-2026 | London City Hall

Further detail about the Mayor’s recent call for more investment in affordable housing in light of increasing costs can be found at this link: House building slowing in London as cost of construction rises | London City Hall

Further detail about the Mayor’s call for ‘Covid Recovery Visa’ to address construction sector shortages can be found at this link: Mayor of London calls for ‘Covid Recovery Visa’ | London City Hall and this link: House building slowing in London as cost of construction rises | London City Hall