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Housing Is Job Number 1 for London's Next Mayor

Therese Raphael writes editorials on European politics and economics for Bloomberg View. She was editorial page editor of the Wall Street Journal Europe.
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The bookies and polls called it correctly. Londoners chose the son of Pakistani immigrants as their next mayor over the Eton-educated heir to a family fortune. Now it will be up to Mayor Sadiq Khan to fulfill his promise to address the greatest source of London's growing inequality: the city's housing crisis.

London housing is both expensive and scarce. The average price of a London home is now 531,000 pounds ($768,400), about 10 times the average Londoner's income and 44 percent greater than before the financial crisis. Housing is 20 percent cheaper in Paris, 45 percent cheaper in Rome and 56 percent cheaper in Berlin. Even Stockholm, another city known for its high-priced housing, is 32 percent cheaper than London.

Rents have risen by 16 percent in the past five years compared to a 2 percent growth in average earnings. There is overcrowding in public housing and increased homelessness. Some 80,000 children in London are living in temporary accommodation.  

Many teachers and other middle-income workers must either accept inadequate housing or long commutes to stay in London. But young doctors, lawyers and other professionals whom you'd expect to easily afford a home are also relying on parental help to buy a property. In one survey, 73 percent of business decision makers said that London's housing supply poses a "significant" risk to the capital's growth.

Industry lobbies such as the Confederation of British Industries have expressed concern about how rising housing costs affect their ability to recruit and retain staff. Lower borrowing costs should help those who can afford hefty down-payments, but lending to first-time buyers fell 8 percent in the last year.

All of this is likely to get worse. London's population of 8.5 million is growing steadily, mostly because the birth rate exceeds the mortality rate. It is expected to reach 10 million by 2030.

London's housing crisis has many causes, from planning bottlenecks to property hoarding to scarcity of financing for small builders. Planning authorities, whose budgets have been cut by 40 percent in recent years, process only about a third of the permissions required. Many permissions don't result in completed property. As a result, London builds about 25,000 new residential properties a year but needs at least twice that.

There are solutions, but they will take more political courage and capital than either of London's two previous mayors, Ken Livingstone and Boris Johnson, could muster.

Professor Matthew Carmona of the University College of London argues that part of the housing crisis results from the failure to develop smaller areas and the unwillingness of banks to work with the once-vibrant community of small builders. He says that 75 percent of developable land in London is close to roads, near existing housing. "Although these sorts of sites are small and complex, they are also sustainable; well-connected to public transport and well-serviced by local facilities and amenities," he wrote in a recent article. Londoners may not like that idea of more building around them, but they may also have to get used to it. Paris, New York and Hong Kong all have greater population densities than greater London; with housing density in outer London about one-third of that in inner London.

Another possibility, abhorrent to many, would be to build on land that was restricted long ago in order to constrain city growth. This Green Belt comprises 20 percent of the land in London and, despite its name, includes some wasteland with derelict buildings.

London could also impose a tax on non-residents who buy second homes in the city. Great swaths of London's toniest streets have been bought up by foreign investors and sometimes left empty. The BBC has estimates that foreigners own 122 billion pounds of U.K. property, mostly in London. That raises prices and diminishes community cohesion. London is a great historic center, modern megacity, and also a place of searing poverty and inequity.  In his recent book, "This is London: Life and Death in the World City," the journalist Ben Judah delves into that side of the city and reminds us that 600,000 illegal immigrants live in a city where less than half of residents are white Britons. Inequality and poverty have many causes, but London's housing scarcity must be the single most surmountable obstacle to exclusion and poor levels of social mobility.

London's first and second mayors were towering personalities who sought to put their stamp on the city's landscape. Sadiq Khan cuts a very different figure as mayor. He instantly becomes Europe's most prominent Muslim political figure, and may influence the debate on Britain's June referendum on European Union membership. Ultimately, however, the success of London's third mayor will rest on whether he proves able to make London more livable.

(Updates first and 12th paragraphs to reflect election results, in story published May 5.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Therese Raphael at traphael4@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net