In early August, Boris Johnson unveiled a “once in a generation” shake-up of England’s planning system. But the radical reforms have been criticised for failing to tackle the greatest housing challenge facing the younger generation: a lack of affordable homes.

“Thanks to our planning system, we have nowhere near enough homes in the right places,” said the prime minister. The proposed reforms would see more homes built, according to ministers, allowing supply to catch up with demand and making property more affordable to those most in need.

But a range of housing experts, developers and campaigners disagree.

“Broadly, building more homes is going to be good, but it won’t change overall affordability,” said Neal Hudson, an independent housing analyst. “The government won’t actually want to deliver so many houses that prices were to fall — that would be political suicide,” he added.

Low interest rates and easy access to mortgages have helped push up prices, while wages have grown at a slower rate. That — rather than undersupply — has made home ownership unaffordable for many, argues Ian Mulhern, chair of housing campaign group Generation Rent and an executive director at the Tony Blair Institute.

“The right has tended to take the view that getting supply up is the route to making housing cheaper. The problem is that is not true. A lack of supply is not the cause of high house prices; and increasing supply will not solve it,” he said.

While the number of new homes delivered each year has risen over the past decade, so too have prices in England. This trend was brought into sharp focus by Nationwide Building Society data this week that showed prices reached an all-time high in August against a backdrop of the deepest recession on record — in part due to the government introducing a stamp duty holiday.

Critics say that the government’s proposed planning shake-ups strip away the existing mechanism for supplying affordable housing without putting forward a clear alternative.

Roughly half of all “affordable housing” — defined as homes sold or rented at a discount to local market rates — is currently funded by developers, who agree a contribution with local authorities before they can start building.

But ministers have proposed scrapping those requirements, known as Section 106 agreements, which last year contributed £4.7bn towards affordable housing, and replacing them with a new “infrastructure levy”.

The levy will contribute as much if not more affordable housing, according to the government. But the proposals were “very light” on detail and were set out to please all parties — developers, councils, and homebuyers — said Judith Salomon, strategic planning director at Pocket Living, a small builder.

Sadiq Khan, the London mayor, has requested an urgent meeting with Robert Jenrick, the housing secretary, to discuss what the scrapping of Section 106 would mean for affordable housing, according to a senior official in the mayor’s office.

“These proposals could have a drastic impact on the number of affordable homes built in the future. What this looks like is a centralised power grab for planning control,” the official said.

 

The government’s paper is littered with references to affordability and describes planning as “a question of social justice”. To help answer that question — and to revive the country’s stuttering economy — Mr Johnson has pledged a building spree.

That involves doing away with the existing planning framework, which allows local people to air their opposition to new development at various points in the process and replacing it with a US-style “zoning” system.

Under the proposals, binding housing targets would be set nationally and handed down to local planning authorities, which would then be asked to carve their districts into distinct zones. Some zones would be protected from any construction, while in other developers would receive something close to an automatic green light.

The proposals showed “the right ambition”, said Rhys Moore, an executive director at the National Housing Federation, which represents housing associations.

But he warned that “simply building more homes would not help the 8.4m people currently hit by the housing crisis in this country. Instead, we desperately need more social housing that people on lower incomes can afford — and there are many unanswered questions about what effect the proposed reforms will have here”.

The planning paper makes no mention of social housing, which is rented out by local councils or housing associations to those on low incomes. Once a significant component of housing supply, the construction of new social housing has slowed over the last 50 years.

Between 1980 and 1984 local authorities built 220,000 new homes, a quarter of the total built. In the last five years they have contributed just 10,000 — roughly 1 per cent of total new supply. The number of homes built by housing associations has increased but not enough to fill the gap left by councils.

A government scheme offering to subsidise first-time buyers was welcome but risked prioritising one group of buyers at the expense of others, Ms Salomon warned. The “First Homes” scheme would give those buying their first property a 30 to 50 per cent discount on a new home. That would be locked in, with the property sold on to another first-time buyer at the same discount.

To make schemes viable, developers typically insist on selling most homes at market rate. By forcing developers to sell a portion of each scheme at a chunky discount to first-time buyers, it “will inevitably cannibalise the delivery of other affordable housing. All socially rented housing could be wiped out to give amazingly discounted homes for first-time buyers”, said Ms Salomon.

And while a higher supply of homes might gradually flatten house price growth, tearing up the planning system would not immediately result in a construction spike, said Ms Salomon. A lengthy legislative process, resistance from the opposition Labour party as well as some Tory councils, and the complication of devising new local plans based on the zonal system meant the reforms might not be in place by the next parliament in 2025.  “The risk with all planning reform is you create chaos in the interim while it’s all being put together,” she said.

Private rents in some parts of London have tumbled by up to 20% as tenants quit the capital, the number of international students’ plummets, and companies put relocation plans on hold.

A glut of rental properties on the market means many landlords have had to slash rents to attract tenants. While leading estate agents say average rents in London are down by perhaps 4% on a year ago, or 6% to 7% in the so-called “prime” areas, these figures mask much bigger falls in certain locations as Covid-19 continues to wreak havoc on the lettings market.

Glen Cook, at the sales and lettings agent Hamilton Brooks, based in the City of London, said rents in and around the Barbican estate area had “probably dropped 20% since lockdown”, though he added that they were “now creeping up again”. Rents in Bloomsbury and Clerkenwell “have probably fallen by at least 10%” over the last few weeks, according to a local letting’s agency.

The sharp decline in overseas students is one of the main factors behind the current glut of rental properties in the capital

And the phenomenon is not restricted to London. Data released by estate agent Hamptons this month showed that demand from people looking to rent in city locations across Britain is down 23%. It said the average monthly rent for a newly let property in London was down nearly 4% on a year ago, but that monthly rental costs were also on the slide in cities in the Midlands and the north of England.

In London, it is not just prime locations that are seeing rents fall sharply: an analysis of Rightmove listings shows that Tooting in south London is one of the areas that has seen some big falls. A four-bedroom house in Upper Tooting that was listed at £2,850 a month in mid-July is now on at £2,500 a month – a reduction of more than 12%. Similarly, a one-bedroom property near Tooting Bec common that was listed at £1,450 a month in late July has been reduced to £1,285 – a cut of nearly 11.5%. Meanwhile, a two-bedroom flat in Tooting listed at £1,450 a month in early August has had £100 lopped off at £1,350.

The falls may come as no surprise after a multitude of surveys suggesting that many city dwellers have either moved out already or are planning to do so after concluding that home working is here to stay. Some have moved back in with parents or have relocated to places that are not only cheaper but offer more space or better access to the countryside.

Aneisha Beveridge, head of research at estate agent Hamptons International, said that with many people’s priorities changing, renters had joined homeowners in the “race to suburbia”. Other factors helping to push down rents are corporate relocations being put on hold in the wake of the pandemic, and Airbnb investors, starved of tourists, deciding to put their flats on to the longer-term rental market.

The sharp decline in the number of overseas students is one of the main factors behind the current glut of rental properties in the capital. The student market has become increasingly important to London landlords.

Chestertons, one of the capital’s biggest lettings agents, said that between June and September, 30% of its central London tenants were usually international students “with generous budgets”. This figure was even higher in areas most popular with international students or near major universities, such as Bloomsbury and Camden. But lockdowns and travel restrictions in the UK and around the world have had a dramatic impact, said the firm, which highlighted a report issued in June that warned of “a potential drop in international students of 50% to 75%” this autumn.

Cook, however, said Hamilton Brooks had seen a substantial number of overseas students arrive in recent weeks, many of whom were “very wealthy”. He said he had just let a studio flat at the Barbican that would have normally rented for £375 a week for £315 – amounting to a 16% cut. And earlier this month a student took a one-bedroom Barbican flat that would sell for about £1m for £550 a week unfurnished. “That would normally go to a businessman or woman. It was let previously at £625 a week,” said Cook.

The upmarket estate agent Savills said that in some London locations, particularly those with a lot of offices, such as Wapping and Canary Wharf, there were higher levels of stock, and average rents had fallen “by a few percentage points” this year.

However, Dan Parker, a director in the firm’s lettings team, added: “We’re seeing strong demand from people who want to walk to work. They see this limbo period before offices are fully back up and running as an opportunity to perhaps rent somewhere a little bigger or negotiate a small discount.”

Similar trends were being seen in other city markets, where properties with gardens or work-from-home space were most in demand.

“In Manchester, for example, we’ve so far seen fewer students checking in for the start of term, meaning softer rents as a result,” said Parker.

UK mortgage approvals jumped to near pre-pandemic levels in July, while household borrowing rose for the first time in four months and bank deposits normalised, suggesting that consumers resumed spending after hoarding cash during the lockdown. The number of mortgages approved rose to 66,300 in July from 39,900 in June. The figure is well above the 54,800 forecasts by economists polled by Reuters and more than seven times higher than the trough of 9,300 in May. The July number was 10 per cent below the February level of 73,700 but broadly in line with the pre-pandemic annual average. The jump is partially the result of the government’s stamp duty holiday which began in July and runs to the end of March 2021. The housing market also benefited from the pent-up demand released with the end of the lockdown when viewings were banned.

The growth in application volumes, fuelled by the stamp duty holiday and pent up demand following lockdown, continues to have a tangible impact with more successful applications,” said David Ross, managing director of the mortgage insight company Home track. Data from the Bank of England also showed that consumer lending returned to growth in July, while household deposits rose at a slower rate than in previous months. Since the pandemic started households have hoarded cash in banks due to limited spending opportunities and fear of infection. Recommended Sarah O’Connor Goodbye to the ‘Preet economy’ and good luck to whatever replaces it Economists and policymakers closely watch spending and saving data as high household deposits threaten the pace of the economic recovery and prompt government measures to spend — such as the “eat out to help out” scheme — rather than policy aimed at sustaining incomes. In July, households’ deposits increased by £7.0bn, down from an increase of £11.7bn in June, and below an average £19.1bn between March and May. The figure is now only slightly stronger than the pre-pandemic period: in the six months to February 2020 household deposits rose by an average of £5.0bn a month. At the same time, households’ consumer credit borrowing rose by £1.2bn in July, the first increase after four months of net repayments. “July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning,” said Andrew Wishart, UK economist at Capital Economics, a consultancy. However, economists are concerned that the rebound in the property sector and the improved credit data could be short lived if the end of the job support scheme leads to a rise in unemployment and a resulting fall in income. FT Weekend Digital Festival Join the FT for 3 days of digital debate and entertainment, and your ultimate guide to our changed new world “We still think that the realisation of more job losses after the furlough scheme started to be wound up in August will cause the recovery to slow,” Mr Wishart added. Howard Archer, chief economic adviser at EY Item Club, warned that the housing market “is likely to come under pressure over the final months of 2020 and start of 2021 when there is likely to be a marked rise in unemployment”. Separate data from IHS Markit confirmed that UK manufacturing activity, as measured by its purchasing managers’ index, rose at the fastest pace in six years in August, although marginally lower than the initial estimates, as more factories reopened. However, the rise in factory activity was not enough to prevent job cuts, with the employment purchasing managers’ index recording one of the steepest declines in more than a decade.

A month ago, Alice from Haslemere, Surrey, was getting ready to drive to her holiday home in Cornwall, a five-bedroom property in Padstow, to prepare it for the busy summer season. It was just before March 23, the date the UK went into lockdown to slow the spread of coronavirus. But after a call to her Padstow neighbour, another second-home owner who was already there and self-isolating, she changed her mind, fearful of the welcome she might receive. Alice, not her real name, says her neighbour, a scientist, had suspected a lockdown was looming and was already taking precautions against a possible backlash from locals. “She keeps her car off the street in fear of [malicious] damage and goes for walks late in the day to keep her head down.” Since the outbreak of Covid-19, tensions have increased in communities across the UK where there is a high proportion of second homes, including the West Country, the Cotswolds, Scotland and Wales. Some blame those waiting out lockdown in their second homes for bringing the virus, infecting the local population and putting additional pressure on local medical services. An app developed at King’s College London, with the start-up Zoe Global and others, tracks self-reported Covid-19 symptoms across the UK. After the lockdown was imposed, it found that second-home hotspots had higher incidences of the virus than surrounding areas, fuelling concern that second-homers could be spreading it. In the past two weeks, the higher rates of infection in some holiday home hotspots have begun to die down. “This is speculation,” says Dr Tim Spector, lead researcher, “but the reduction might be explained by Londoners moving to second homes, reporting symptoms, then staying in lockdown. Only if they went wild and spread it around would you see these areas as staying higher.”

If he is right, many second-home owners are respecting social-distancing measures in their host communities. But the crisis is straining an already fractious relationship. Many blames second homers for driving up house prices in their areas and increasing their local economies’ reliance on tourism. At the same time, many businesses have become dependent on high-spending tourists and second-home owners. In 2019, the average property price in the town of Salcombe in Devon was nearly £706,840, according to Hamptons International, up 33 per cent in the past 10 years. Over the same time, average prices in the Cotswolds market town of Chipping Norton have risen 52 per cent to £427,740. In Padstow, a fishing village on the Cornish coast, prices have jumped 29 per cent in the past five years to an average of £466,540. In nearby Rock, the average is £477,940 — about £6,000 more expensive than London’s.

In some areas, bitter feelings have worsened with the accusation that some second-home owners have been exploiting a loophole to claim grants from the government. Councillor Judy Pearce, leader of South Hams District Council, in Devon, says locals are fed up with owners who say their second homes are available for rent for 140 nights a year just to avoid paying council tax, and who may now be entitled to up to £10,000 each under the emergency small business grants fund, which was intended to help small businesses through the coronavirus crisis. Meanwhile, struggling local small traders who do not have premises and pay business rates cannot apply for a grant. “A certain coterie of owners who have a sense of entitlement will always get up the noses of local people, but this grant is a huge issue,” Pearce says.

Could the pandemic spell the end of the social acceptability of owning a second home in the UK? Many thinks not. Estate agents are keen to point out what they see as the upsides to living in areas with high numbers of second homes. “Locals also benefit from the arrival of businesses — such as Daylesford Organic [a farm shop in Hingham] — that are the result of the Cotswolds becoming more aspirational for second-home owners,” says Harry Gladwin of The Buying Solution, a property consultancy. “For locals, it’s a case of ‘can’t live with them, can’t live without them,’” says Chris Clifford of Savills in Cornwall. Some locals do not want them at all. Between 1979 and 1994, the Welsh nationalist group Meibion Glyndwr set fire to 228 English-owned second homes in Powys, Wales. Despite that, the area remains popular with second-home owners. But tensions have resurfaced, says Angela Steatham from Llanrhaeadr Ym Mochnant, in north Powys.

 

London’s decade-long tower building boom is slowing, with the coronavirus pandemic expected to act as a further drag on new projects already checked by the fallout from Brexit and the Grenfell fire. In 2019, a record 60 towers were completed, more than the combined total of the previous two years and well ahead of the earlier high of 26 set in 2016, according to a study published on Tuesday by think-tank New London Architecture and estate agency Knight Frank. The overall trend shows a gradual acceleration in the building of new high rises from 2009, until the sharp rise last year. Annual completions were up 20-fold in 2019 over the number a decade ago. But last year’s total is unlikely to be surpassed soon, according to the authors of the report, with work on new projects slowing and many building sites being forced to shut down because of the pandemic. Work started on just 30 high rises last year, the lowest number of constructions starts since 2015.

This year may mark the first drop in the growth of the development of tall buildings in London for a decade,” said Peter Murray, chairman of NLA and one of the authors of the report, who warned that the impact of the coronavirus outbreak would further hamper construction. London’s skyline has been dramatically reshaped since 2009, with 214 blocks of 20 storeys or more appearing. The handful of skyscrapers which once pockmarked London have proliferated into distinct clusters across the capital. The building boom has transformed neighbourhoods from Canary Wharf, the city’s second financial centre, in the east, to the suburb of Croydon in the south. New planning applications peaked in 2015, before falling sharply in 2016. The record number of applications are “a legacy of Boris Johnson and some of his key advisers at the time,” said Stuart Baillie, head of town planning at Knight Frank, referring to the UK prime minister’s time as mayor of London.  City Hall’s incumbent, Sadiq Khan, has been more focused on increasing the number of affordable homes, he added. The glut of applications towards the end of Mr Johnson’s term led to a boost in new starts a year later, and the uptick in completions up to 2019. But since 2015, the number of annual applications has fallen by more than a third. As well as mayoral policy, the Brexit vote in 2016 and the three years of political wrangling that followed has dented confidence in the London market. The Grenfell tower fire in June 2017, which killed 72 people, led to intense scrutiny of the safety of high-rise buildings and calls to strengthen fire regulations.

As developers of tower blocks face greater hurdles, Mr Khan’s ambition to build 65,000 new homes a year, from a base of about half that, risks slipping further out of reach.  Many local authorities — particularly those in outer boroughs, which now account for more than a third of all planned towers — regard tall buildings as critical in meeting ambitious housing targets. Nearly 90 per cent of 2019’s completed towers were residential. “The housing supply issues in London, in the context of high land values, mean that height is going to remain part of the equation,” said Mr Baillie. Overall, 16,470 new homes were built in towers last year, almost a quarter of them defined as affordable. Without more towers, said Mr Baillie, “I can’t see London getting close to its housing target.”

Homeowners who have often spent tens of thousands of pounds on loft conversions, basement dig-outs or kitchen extensions are being locked out of remortgage deals that reflect the higher value of their property, following the ban on physical surveys.

Major improvements can increase the value of a property, boosting the level of equity for mortgaged homeowners who may then refinance on more attractive terms, or take out a larger mortgage based on the higher value of the property.  However, the government last month asked buyers and sellers to delay transactions while coronavirus restrictions were in place, and barred surveyors, as well as estate agents and prospective buyers, from visiting occupied homes — a measure that has hit the mortgaging options available to home improvers. “If you have significantly improved a property and created value, the only way a bank would be prepared to lend on that new value would be if they could go and have a look,” said Simon Gammon, managing partner of mortgage broker Knight Frank Finance. “In lower value properties they might accept a ‘drive-by’ valuation to verify that someone has gone into the roof, but it’s more likely a physical internal inspection would be required to establish the new square footage on which they are lending.”  As a result, he said, those who have improved their home and now want to get a better rate are “potentially stuck”.

For mortgages which are a smaller proportion of the overall property value, lenders and surveyors have in the past been willing to use “desktop” valuations or automated valuation models (AVMs). Rather than sending round a surveyor to inspect a property, these take previous values and price changes in comparable properties in the same location to assess a home’s current value.  Coronavirus and your money ‘Chancellor must iron out problems for limited company directors’ Coronavirus: Your questions answered as furlough scheme opens Where to look for the market rebound Since the Covid-19 restrictions came into force, lenders have relaxed the loan-to-value limits under which they are willing to use these automated options, to allow more loans to go ahead.

Nationwide, for instance, said on Tuesday it would be able to use these alternatives for mortgage valuations up to 85 per cent loan-to-value.  Yet brokers said surveyors and lenders were still unwilling to use such data-driven models to sign off big changes in value driven by building work without “eyes on”.  Aaron Strutt, product director at mortgage broker Trinity Financial, said one client had spent £100,000 refurbishing a property and was due to remortgage in May after coming to the end of their fixed-rate deal. A combination of the surveyor problem and changes to the way banks have reduced their income-related criteria meant they could not refinance to account for the value they had added.  “For the moment, they will need to swap to an exit penalty-free tracker rate to avoid an expensive standard variable rate with their existing lender and wait for the market to improve,” Mr Strutt said. Substantial home improvements can raise the value of a property in excess of the cost of the work, which may easily run into six-figure sums for ambitious structural work such as a basement dig down.

A loft conversion on average costs a more modest £23,000 across the UK, according to a 2019 survey by Hargreaves Lansdown, though the bill is more likely to start at around £40,000 in London.  Nigel Bedford, senior partner at broker Largemortgageloans.com, cited a client who had spent about £260,000 on a basement dugout, loft conversion and large rear extension, having bought the property in north London for £890,000 eight years ago. The client, who aimed to take out a larger mortgage, estimated the property’s new value at £1.75m but had to settle for a “straight swap” remortgage — albeit at a better rate — on a lower value of £1.48m in the absence of a physical survey.  “They have added lots of value, but clearly none of that is going to show up on an automated valuation model,” Mr Bedford said.  While lenders have been relaxing their constraints on the use of non-physical valuations to assess properties, higher value properties may not qualify for these, since surveying firms often place a cap on the property value beyond which they will consider an automated valuation.

Adrian Anderson, director of mortgage broker Anderson Harris, said that as a rule of thumb the cut-off point was about £2m, though some lenders are capping at £500,000 and others such as NatWest will now entertain automated valuations for homes worth up to £3m. This means that someone borrowing £500,000 to buy a £2m home (a 25 per cent LTV mortgage) might be able to borrow since an automated valuation. But someone borrowing the same sum on a £4m home — at 12.5 per cent LTV — would require an in-person survey. “There’s an element of frustration because from the lender’s perspective the risk is less,” he said. Another issue raised by Mr Anderson was that lenders often refused to consider an automated or desktop valuation on flats rather than houses, affecting high-density areas in cities such as London, where flats account for a higher proportion of housing stock. “Banks are much more conservative about apartments than houses. There’s a perceived added risk,” he said.