The draft London plan was published yesterday. It has been restructured and contains positive innovations on green belt, small sites, tall buildings and more. We will write more about the policy details in the coming weeks, but first, there is an elephant in the room:
London is planning to miss its national housing target by 300,000 homes.
This move will likely start a protracted argument between the Mayor and central government. This blog examines the Mayor’s argument and explains why the best route out of this situation involves fiscal devolution for London.
The Mayor has said he cannot credibly plan to meet the national target
According to the standard national formula, London needs to deliver 85,000 homes every year to meet housing need. The new draft London Plan, meanwhile, plans for significantly fewer – an average of 55,800 homes per year over the next 10 years.
The Mayor has justified this 300,000 home deficit saying he does not believe that the Planning Inspectorate would sign off the Plan as ‘sound’ (a requirement for any London Plan) if he went for a higher number.
He is taking this position for two reasons:
The first relates to conditions for housebuilding today. The Mayor is arguing that the recent collapse in housing starts means it would not be credible to suggest London could build 850,000 over 10 years. The beginning of the plan period (2028) will be impacted by issues now, so London would need to achieve perhaps 100,000 plus annually at the end of the period to make up the difference. Whether this is possible will certainly be debated in the coming months.
The Mayor’s second reason points instead to a much larger issue – the Mayor’s ability to shape development in London.
The Mayor says he cannot plan because of insufficient investment in transport infrastructure
The Mayor says that the Bakerloo Line Extension, West London Orbital, further metroisation, and improved connections to green belt locations could together unlock at least 115,000 homes.
However, he argues these homes cannot be included in the 10-year plan because it would not be credible to claim that they will be delivered without this infrastructure. As central government has not agreed to fund these improvements, the London Plan cannot expect that either they, or the homes they would support, will be built.
London depends on decisions made by central government
This points to an issue Centre for Cities has repeatedly highlighted: mayors in England do not have sufficient powers or fiscal autonomy. Despite their important responsibilities, many decisions and much of their resources are still outside mayors’ control.
What mayors achieve therefore depends in large part on the successful lobbying of central departments, rather than decisions over spending priorities they have taken directly.
In this case, the result is a perverse one. The London Mayor will use housing targets in the London Plan as a bargaining chip to try to secure more infrastructure investment, arguing he cannot meet central government targets without central government grant.
Time and resources will be spent arguing this point and London will plan to build fewer homes.
Cities like New York and Paris have much more fiscal autonomy than London
It doesn’t have to be this way. As Centre for Cities research pointed out this week, London is an international outlier in its dependence on central government grants for both revenue and capital funding. It also has the lowest share of revenue generated by local taxation of any G7 primary city, and the lowest absolute receipts per resident, as Figure 1 shows.
Figure 1: The GLA raises the least tax revenue per resident of any G7 primary city
London is also an outlier in that the tax revenue it does receive is wholly from property taxes (the rates for which are also out of the Mayor’s control). Other cities like New York, Paris and Munich receive income from a wider range of taxes, including shares of locally generated income, corporation and consumption taxes.
This means these other cities see returns to growth directly reflected in their financial position and can also borrow against future receipts to fund infrastructure. London is severely constrained by comparison, and the Mayor’s ability to make long-term plans suffers as a result.
Fiscal devolution would improve housebuilding in London
Now there are two ways out of the London Plan’s housing target quandary.
The first option is that the argument is settled in the usual way. The Mayor will win or lose his argument over funding with central government, and the plan (or future plans) may be amended accordingly.
The second option is pursuing a new way of doing things through fiscal devolution. If London received a share of taxes raised locally, alongside a permanent transfer of spending power from central departments (as Andy Burnham has said he wants), the city would be incentivised to grow its tax base and more in control of its own destiny.
The second option would ensure this is the last time this dispiriting argument needs to be had. The Mayor would write planning policy and take responsibility for delivering the infrastructure needed to deliver it.