Huge £700m ‘black hole’ in London housing budget as Sadiq Khan promises 40k new homes

By Staff

New analysis by London borough councils has claimed that social rent levels set by the Government will leave the city with a ‘black hole’ in their social housing finances of up to £700 million over the next four years. This is despite a ‘desperate’ need to improve housing conditions and build new homes in the city, officials say.

It comes as the Mayor of London, Sadiq Khan, announced during the launch of his campaign to be re-elected on May 2 that he promises to build 40,000 new council homes in London if he won a third term. In a speech this morning (Monday, March 18).

Labour’s City Hall incumbent said: “I’m under no illusion about the scale of the challenge. The housing crisis has been decades in the making. But – with political will – it can be overcome.”

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Mr Khan added: “Working together, with a new Labour government, I know we can go even further, quickening the pace, building on the progress we’ve made and unleashing the greatest council housebuilding drive in a generation. After years of a Tory Government trying to drag London backwards, a Labour government would be transformative, propelling us forwards and helping to accelerate delivery of the homes Londoners desperately need and deserve.”

But, London Councils – a cross-party organisation representing all of the capital’s borough councils – has today warned that a squeeze on social housing resources represents a ‘substantial real-terms reduction in funding available for improving housing conditions and building new homes’. Local politicians add that they anticipate the majority of the savings they are required to make will come out of their budgets for social housing development and for undertaking repairs.

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London councils let 390,000 social homes

London boroughs let around 390,000 social homes. There are over 800,000 social rented homes in London – accounting for 20 per cent of the city’s 3,671,000 homes.

London boroughs let around 390,000 of those social homes, with the rest owned by housing associations. The Government confirmed in January that it would allow social housing providers to increase rents based on inflation by a maximum of 7.7 per cent in 2024-25.

Officials say that inflation on core expenditure – such as building materials and repairs contractors – is expected to continue outpacing the consumer price index (CPI) in the coming years, meaning, boroughs warn, that increases in social housing costs will remain ‘significantly above increases in their income’. The cumulative impact of costs continuing to run higher than rental income will equate to nearly £900 million over twenty years, according to estate and letting agents Savills.

Boroughs ‘facing year after year of budget squeezes’

Councillor Darren Rodwell, London Councils’ Executive Member for Regeneration, Housing and Planning, said: “At a time when we desperately need more investment in social housing, boroughs are facing year after year of budget squeezes. Social housing is vital to London’s social and economic success, and we want the sector to thrive. Boroughs are driving the improvements on standards, on safety, and on net zero that our tenants – but also the government – are so keen to see.

“We know cost-of-living pressures remain a major concern for many tenants and we support measures designed to help low-income households struggling with their finances. However, the government’s rent policy leaves us with a black hole of nearly £700m in our social housing finances over the next four years. Considering the massive pressures the sector faces, it feels like we’ve been left with mission impossible.

“Ministers must ensure boroughs get the resources we need to secure a better future for London’s social housing.”

Housing Secretary, Michael Gove, took the ‘unusual’ step of intervening in the mayor’s plans to ‘boost housing delivery’ in London as Mr Khan’s strategy is ‘holding back housebuilding’ in the capital and ‘letting down Londoners’. The Government says that 736 hectares of industrial land being potentially be turned into housing developments, but are ‘stuck in the planning system’.

Mr Gove adds that too many ‘opportunity areas’ in London have made ‘almost no progress’ and others appear to have ‘plateaued’. The Government has therefore asked Mr Khan to ‘ensure the list of areas is sufficiently targeted, consider how other policies in the plan that constrain capacity or delivery might be adjusted, and asked if there is a role for a single planning framework to accelerate housing’.

The mayor has dismissed Mr Gove’s intervention as a ‘political stunt’.

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