‘Subsidy crisis’ in London as viability gap opens up, L&Q’s finance director says

Mr Farnsworth said he welcomes the “fantastic” new Social and Affordable Homes Programme, but he added that it does not recognise the need for more funding for family homes.

“The differential between the rent charged on a family home and a one-bedroom home is not a big differential at all. Large homes need large grant.”

Tom Copley, London’s deputy mayor for housing, told the conference that pressure to “bear down” on grant comes from the government. “The boroughs want us to be able to increase it; [the Ministry of Housing, Communities and Local Government] have made it very clear that we need to bear down on grant.”

Mr Copley said the financial viability of housing developments should be helped by the emergency package to kick-start stalled affordable housing in London.

Announced in October, this has created a “fast-track” route for developments that includes a lowering of affordable housing requirements from 35 to 20 per cent.

No new homes were started in three-quarters of London boroughs in the first quarter of this year, as the viability of developments became more challenging in the city, Mr Copley told the conference.

“These figures speak for themselves,” he said. “We have seen building cost inflation go up 53 per cent between 2016 and 2023, while property values have risen eight per cent. It is a massive issue.”

Mr Copley said the Greater London Authority has, however, persuaded MHCLG to allow grant under the new programme to be used for regeneration projects as well as new build homes. “We have been very successful in persuading MHCLG, because in terms of the built environment in London this has to be able to support estate regeneration,” he added.

Grace Williams, deputy chair and executive member for housing and regeneration at London Councils, said estate regeneration in the city could make “the biggest difference” to new supply, as councils’ ability to build has become blocked by their housing budgets and financial positions.

“It is the state of the [Housing Revenue Accounts] which acts as a blocker in terms of viability,” Ms Williams said. “One of the biggest things we’ve been working on together in London is lobbying the government for rent convergence so that we can get rent to the levels it needs to be to allow us to build social housing.”

The sector had been hoping for an announcement on the permitted level for rent convergence at yesterday’s Autumn Budget, however documents published by Treasury yesterday said that a decision will not be made until January.