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Mayor of London Ken Livingstone today called for more homes with three or more bedrooms to be built in the capital and for improvements to the way that private new rented housing is managed on some new developments.

He was commenting on an independent report published today called Who buys new market homes in London? which was commissioned by the Greater London Authority, with support from the London Development Agency, to gain a better understanding of the market for new build private homes.

It found that private investment whether for selling on or for letting on the open market was not detrimental to housing delivery in London. In fact it helps deliver more housing by reducing the risk for developers as well as increasing the supply of affordable homes on larger schemes, a requirement under planning law.

Investors account for 67 per cent of all new-build private housing, with 45 per cent being “buy to let”. However the report identified some concerns around the long-term effect on new housing developments of this high level of ‘buy to let’ investment.

The report also identified that 91 per cent of all new private homes built in the last year were one or two bedroom homes at a time when more family sized homes with three or more bedrooms are desperately needed. However, the report argues that the high proportion of smaller new homes being built is driven as much by the demand from first time buyers as it is by the investment market.

The Mayor said:

‘We want to encourage investment to provide more homes to rent in all new housing developments, both private rented and social rented homes. This will meet the needs of the many Londoners who simply cannot afford, or do not wish, to own their homes but want to live in well managed housing.’

‘ However, while we value the contribution made by private investors in driving up the supply of new and affordable homes in the capital, if large housing developments are to be sustainable we must increase the supply of larger homes to meet the needs of families and ensure that new rented housing is properly managed.


Some of the most common concerns about investment activity; that it is crowding out first time buyers; that it results in an unsustainably large proportion of private renting in local areas; and that it results in many new homes being left empty were not supported by the findings of the report. The report argues that the new-build market is too small a part of overall sales of homes in any year to affect the overall market or the balance of tenures. It also found no real evidence of homes on new developments in London being left empty, suggesting that new private homes are being let and that they are meeting demand.

Concerns remain, however, over reported poor management of investor owned homes on some developments; the effects on the sustainability of very large housing developments should a high proportion of homes be privately rented; and over the possible effect on the investor market of falling house prices in the future.


Following analysis of the report the Greater London Authority is considering further investigation into the following areas to inform the Mayor’s housing strategy:

- assessing the net impact of private investors on house prices for first time buyers
- effective housing management on new developments
- encouraging greater investment by Build to Let, company and investment funds
- bedroom size mix on new developments

ENDS


Notes for editors:

1. The report was commissioned by the GLA, with support from the London Development Agency. The research was undertaken by London Development Research (www.ldr.cc) and is available at: www.london.gov.uk/gla/publications/housing.jsp

2 List of possible areas that have been identified by the Mayor for further investigation

• impact of current tenure mix and bedroom size on the sustainability of large new housing developments
• how to promote effective and unified housing management on mixed tenure developments
• encouraging greater investment by Build to Let, company and investment funds
• a rigorous investigation into the extent of empty homes on new developments
• an economic assessment of the net impact on house prices for first time buyers

3 Summary of the findings of the report

• two thirds (67 per cent) of the buyers of new-build market homes in London are investors, with the remaining one third being sold directly to owner-occupiers
• that buyers could be categorised as set out in the table below:


Category Sub-category Percentage of new homes bought
Buy to Let Private individuals - 1 or 2 homes 28%
Private individuals - larger portfolios 12.5%
Investment funds 4.5%
Buy to Let total 45%
Buy to Sell Buy to Sell total 16%
Build to let Developers 6%
RSLs 3%
Build to let total 9%
Owner occupiers First home 27%
Second home 3%
Owner occupiers total 30%
London total 100%



• of the Buy to Let (BTL) investors, 28 per cent are private individuals owning just one or two homes

• because of the Buy to Sell category (which sells homes on to other groups, including owner-occupiers upon completion) the owner-occupied proportion is estimated to rise slightly from 30 per cent to 33 per cent

• the proportion of new homes bought by investors does not alter significantly across London. LDR found that the proportion of homes bought by investors in the London Thames Gateway area (68 per cent) is a very similar proportion to other Inner London areas and indeed only slightly higher than for London as a whole

• the report estimates that some two thirds of all new market homes developed in London are initially let within the private rented sector - providing homes for those wanting to rent, meeting London’s need for a flexible workforce and enabling it to fulfil its role as an international business and financial centre, and providing homes for those who are presently unable to afford to buy.

• The report concludes that although there is a general perception within the media and among housing and regeneration professionals that Buy to Let investment on new developments has a negative impact, this is outweighed by the benefits in promoting new development.

• Investors perform a valuable market function by allowing perceived development risk to move from the developer to the purchaser, therefore increasing confidence among house-builders. Forward buying is often a condition of bank lending and it also helps reduce development interest costs for developers, as investors are willing and able to buy homes ahead of construction completion.

Owner-occupiers, on the other hand, generally purchase homes following or just before construction completion. The report concludes that many housing schemes, particularly larger ones in emerging areas, would simply not go ahead without sales to investors.

• Market participants generally concurred that investor demand leads to more new homes being developed, especially in emerging areas where there is not an established residential market. This is especially important to enable larger schemes to go ahead which, in turn, results in higher levels of S.106 affordable housing provision. The report found no evidence of significant levels of these homes being left empty following completion.

• The report concludes that if the investment market were to shrink there is a real danger that the number of new homes being built would fall to the detriment of all. It believes that investors should be viewed as providing a valuable function in the market for new homes.

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