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London First Chief Executive addresses the National Housing Federation’s London Development Conference

This morning, Tuesday 3 December, London First Chief Executive, Jo Valentine, has addressed the National Housing Federation’s London Development Conference. A transcript of her speech is below.

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Good morning, and thank you for inviting me to speak today.

The role of housing in keeping London open for business is a very interesting one, and I come at it from a rather unique perspective- as both Chief Executive of London First, but also as a Board Member of a housing association, Peabody.

For those of you that don’t know us, London First is a membership organisation with the aim of making London the best place in the world in which to do business.

For the period to 2020, we have identified a set of “drivers” of London’s competitiveness, which we think will enable us to remain reactive to today’s problems as well as preparing for tomorrow’s challenges.

These drivers are:

  • More powers and resources for London Government
  • Increased airport capacity
  • A world-class transport infrastructure
  • An improved built environment
  • An economic development strategy for London
  • The ability to recruit skilled workforce
  • A stable & competitive tax regime

and

  • A step-change in the delivery of housing provision

This last one may not seem an obvious issue for a business organisation, but it is clear to us at London First that it is of growing concern to London in general.

So we decided to conduct a survey amongst our members to gather views.

  •  Just over 2/3 said they were concerned about the impact of high London   housing costs and lack of housing supply on their staff recruitment and   retention now
  • 75% of businesses said they expected to be concerned about the impact of housing on their staff in the future,
  • 68% thought housing provision was a medium or high risk to the long-term success of their business

In the same vein, Deloitte research released last month found London has the most highly skilled workforce in the world, but in order to maintain its position, it must tackle 3 main challenges –

Infrastructure, education and housing.

So while this isn’t something that is seen as directly hitting the bottom line, it is already a concern for businesses

And likely to become a bigger issue in the future as house prices begin to rise and the gap between London and the rest of the UK widens.

In 1997, ratio of average house price to average earnings in the UK was about 3.5. In London, it was a little higher – almost 4

In 2013, it is now a little under 7 in the UK but a staggering 8.5 in London

London is undeniably important to the economy, but cities like Cambridge, Birmingham and Manchester are already upping their game and becoming increasingly attractive prospects. Eventually we could risk losing our businesses to cities that have proximity to London’s networks and infrastructure, but that can also offer a good quality of living for staff.

Even if London doesn’t lose its position entirely, we are artificially restricting its growth by not providing the homes that people need to come here.

There is some relief at the margins

Lowest income workers are supported into housing in the capital, and the very wealthy are well provided for in 1 Hyde Park and other luxury developments in Mayfair and Belgravia.

But mid-income earners already cannot afford to live in zone 1, and with the gentrification areas in zones 2 and 3 such as Hackney, Brixton and Tooting towards much wealthier purchasers, soon most of inner London will be out of the reach of middle class Londoners.

When they cannot afford to live in zones 4, 5 and 6 and are pushed out into the home counties, can we be sure that we have the transport infrastructure that will enable them to continue commuting in at a reasonable price? A zone 1-6 travel card is already more than £2k a year.

And of course longer commutes bring personal challenges that may affect productivity.

This is part of a wider quality of life issue- London performs well as a city for business but was ranked 38th city in the world for quality of life by Mercer, behind other global cities including Singapore, Sydney and Paris.

If workers can no longer afford to live here, and their quality of life is better elsewhere, will they still want to work here?

Eventually, these mid-income workers may start to look for work in other nearby cities, rather than face long commutes and a fall in quality of life.

Of course, London attracts people to live and work for a reason, and I anticipate that domestic emigration from the capital will be adequately replaced for a time.

And even if domestic demand crashed, there would still be a level of demand for homes and work in London internationally – primarily central London.

So, for the moment at least, I find it difficult to imagine that businesses in London will be forced out in order to find the staff they want to employ, but it is a possibility.

But will businesses still be able to employ the best of the best and retain their highly skilled workforces?

So how might businesses respond if housing costs keep increasing?

Businesses in London may have to look at alternative options to ensure they can attract and retain the best staff by providing housing for them:

  •  Housing subsidies
  • Corporate ‘halls of residence’
  • Business making a greater call on housing associations nominations

Whether they choose any of these options, or are forced to increase salaries to keep encouraging the best to work in London – there is likely to be a cost for businesses that choose to locate here.

So, what else can be done, especially by housing associations?

London First has put together a working group comprised of leading experts from across the housing sector, including representatives from housing associations, to deliver recommendations on how to increase housing supply in London.

We will be publishing our report in the New Year but, in the meantime, let me make a few observations.

Housing associations have done well to work around challenges of reduced grants – leveraged their assets better, being innovative in sourcing other forms of funding, such as bonds, and subsidising themselves through market sales – this is how they can best continue to help.

We, like I’m sure the majority of people in this room, see the biggest issue in housing as being a lack of supply – to keep pace with household   formation, we need to be building at least 50,000 new homes a year in London, but we’re not even meeting the Mayor’s existing target of 32,000. Housing associations have a pivotal role to play in increasing supply.

Then we have to look at who gets to live here, bearing in mind that we cannot hope to house every single person who wants to live in London for the foreseeable future.

Housing in London currently feels ‘rationed’ to the very rich and very poor. There is a huge demand from the squeezed middle – those earning £30k – £70k.

So I’d like to put this challenge to housing associations assembled today: can they go further to provide homes outside of their traditional markets, without losing their core function?

In my opinion, the squeezed middle have just as much right to live in London as the very wealthy and those on very low, or no, incomes.

So while we can’t house everyone, there should be a compromise on who we can.

Housing associations should move away from just providing homes from the socially needy and have a new focus: creating sustainable communities that would comprise, for example:

  •  2/3 people economically productive
  • 1/3 otherwise

To get there, housing associations will need to use a range of tools- mixed sales, mixed rent, minimally subsidised and heavily subsidised properties.

If housing associations can stay true to this vision of positive, vibrant and, most importantly, sustainable communities, it will ease some of the housing problems that could eventually affect our economy.

Could the LeFrak city initiative be the way forward for London?

 Underpinning all this is the relationship between Government, the Mayor & London Boroughs. I’ve already mentioned that London First are campaigning for more powers and resources to be returned to the capital, including calling for all surplus public sector land disposed of via one route – the Mayor – rather than through individual departments in Whitehall.

And, secondly, why can’t we finally have a bit of fiscal devolution to London – perhaps the Mayor could get a  share of the Stamp Duty raised in London to reinvest in the capital – with grant being cut accordingly to make this revenue neutral for Government – at least on day one.

The numbers are compelling: 40%, or £2 billion, of the £5 billion in residential stamp duty revenue taken by the Treasury in 2012-13 comes from London.  That compares with 28% in 2007-08.  We’d like a bit more of that back, please.

It may help give us a glimmer of hope of reaching the new housing targets announced by the Mayor last week – 42,000 homes a year over the next ten years.

This is quite a step-change from the 20,000 we are actually building, already missing existing targets by 1/3.

The Mayor already has some powers that can help him close the gap between supply and demand – Homes and Communities Agency funding and planning controls to name but two – so we must now look to him for strong leadership in order to make the leap.

And we must make that leap, to keep London open for business in the long-term.

So: planners, developers, housing associations, and Boris – if you’re listening – … over to you.

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