Using the REalyse platform, Gav investigates the areas where the London Living Rent affordable housing scheme might work and what it means for future BTR developments.
Read Time: 4 minutes
Designed by Mayor Sadiq Khan, London Living Rent is a type of affordable housing scheme to help middle-income Londoners get their first foot on the property ladder. However, it is probably an unworkable measure in many parts of the city, which may limit its effectiveness.
We recently came up with a definition of BTR, and in doing so opened up a conversation around London Living Rent that is being proposed as the appropriate level for discount to market rent in our capital city, with circa 30% of units earmarked for this level. Current definitions usually hover around ‘affordable’, which is 80% of market rent, as well as social rent, which may be 60% or lower. But what percentage level is ‘London Living Rent’ relative to the market?
One BTR developer recently confided that the government’s desire to have significant parts of their scheme priced at London Living Rent made the entire scheme unviable as it was more like offering the entire affordable housing component at 60% of market rent.
So I thought I’d take a look and use the REalyse platform to find out where London Living Rent could actually work.
Firstly, the only places within 20 miles of central London where the median rent on a two bedroom unit is less than £1,000pcm is Harrow, Gravesend and Grays. Of these three areas, Harrow is the only London Borough. This makes some sense because if there were actually any part of London where the London Living Rent was the average, then there would be no need for a London Living Rent!
But what about locations where the London Living Rent of £1,000pcm would be equivalent to Affordable Rent (80% of market rent)? In these places, BTR developers should be indifferent between the local authority telling them to market units as London Living Rent or at an Affordable Rent.
An Affordable Rent of £1,000pcm would imply a market rent of £1250pcm. As you can see in the image below, there are now many more locations around London where the median rent is less than £1,250. Although these locations are still all relatively far out from the center of London, with places like Heathrow, the edges of Croydon (not the center) and Waltham Cross being the points at which London Living Rent is only just equal to an Affordable Rent.
In some of these areas it might make sense for the developer to consider a BTR development. However, with there being a relatively high minimum number of units to achieve economies of scale, as well as the relative premium on BTR rents and transportation being a key component, finding those locations at the center of a venn diagram would be difficult.
On the other hand, what if the government (local, city or national) wanted London Living Rent to apply not just to the outskirts of the city, but to the center of the city as well?
Were this to happen, then the London Living Rents set in many of the Zone 3 and 4 areas would be more akin to a social rent level of 60%, which implies a market rent of £1,666pcm. In the image below you can see which parts of London have median rents on two bedroom units of less than £1,666pcm.
The majority of London (excluding zones 1 and 2, as well some parts of zone 3 and even 4) have rents on two bed units that are less than £1,666pcm. This means that if the London Living Rent were applied to those more central locations, it would be more like imposing a social rent level on developers.
As a rough guide, the following ranges probably help, which show approximately (and it does vary location by location) what a London Living Rent would be as a proportion of the prevailing Market Rent.
Zone 1 - London Living Rent = ~30% of Market Rent Zone 2 - London Living Rent = ~40% of Market Rent Zone 3 - London Living Rent = ~50% of Market Rent Zone 4 - London Living Rent = ~60% of Market Rent Zone 5 - London Living Rent = ~70% of Market Rent Zone 6 - London Living Rent = ~80% of Market Rent
In which case, it makes sense that development companies being forced to adopt London Living Rent in more central London locations are finding their schemes become unviable. These companies will either need to spend vast sums to convince the local council that this is the case or alternatively abandon those projects entirely, which helps no-one.
However, those development companies focusing on areas surrounding London, such as Heathrow, Waltham Cross and the outskirts of Croydon, may find that there are some locations that can still work at those lower rent levels.
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