The falls in central London’s luxury property prices could make housing even less affordable

Oh good, more of this. Image: Getty.

All the signs point to a slow-down in the London property market. Central London house prices dropped by 6.8 per cent between 2015 and 2016, while the numbers of new homes under construction plummeted by 75 per cent. The problem is located almost entirely at the top of the market, with sales transactions collapsing by 86 per cent for properties worth more than £10m.

Central London property values are eye-watering, far beyond the reach of most working London households. A fall in house prices might be welcome as a way to make housing more affordable.

But unfortunately, the perverse incentives at play in the way housing is built mean that a slow-down in the market for luxury flats in Kensington & Chelsea can mean less affordable housing is built, not more – and the consequences may be felt right across the country. There are three main drivers of this:

  • There will be less money for affordable housing where private developers stop building;
  • The way land is traded reduces incentives to build anything other than luxury flats;
  • Developers will build more slowly, reducing supply.

Let’s consider them in turn.

There will be less money for affordable housing where private developers stop building

Grants from central government used to fund almost all the costs of building new affordable housing. This meant that when private development experienced a down-turn, social development could step in to fill some of the gap, keeping builders building and having a stabilising influence on the market as a whole. Such grants funded 75 per cent of affordable housing development costs in the early 1990s – but now fund just 14 per cent.

The majority of finance for new affordable developments now comes in the form of Section 106 agreements: payments or land given by private developers in return for planning permission from the council to build profitable market housing. So the more private development there is in a local area, the more money there should be to subsidise affordable housing for rent or sale.

As affordable housing has become increasingly dependent on Section 106 agreements rather than grant funding, any decline in new construction affects the whole of housing supply, including the bits we care most about – genuinely affordable homes for ordinary families. This means that, unless the slow-down in luxury property development in central London can be balanced out by other kinds of private developer activity, there will be less finance available for affordable housing in the capital.


The way land is traded reduces incentives to build anything other than luxury flats.

That shouldn’t be a problem: there is a huge need for more housing across the country, and especially in London. If luxury flats are getting harder to sell, developers should be able to build and sell something else and still make a profit. Right?

The problem is land. Landowners, advised by their agents, sell their sites for the highest possible price, based on extracting the greatest commercial value from the land. In the case of central London, this often means more luxury flats. Once developers have paid sky-high prices for land on this basis, the only profitable option open to them is to actually build those luxury flats and sell them for the highest possible price.

In this way, the price of land distorts construction away from meeting housing need. Estate agents Savills estimate that 58 per cent of housing need in London is for homes costing less than £450 per square foot – but such homes represent just 25 per cent of new builds planned between now and 2021. On the other hand, 2015-16 saw a significant oversupply of luxury flats as developers tried to recoup the high cost of land, with 1.6 starts for every 1 sale of a home priced above £1000 per square foot.

Developers will build more slowly, reducing supply

But if the bottom has fallen out of the land market surely developers and landlords will readjust? Sadly not. Most landowners are likely to hold on to their assets in anticipation of recovery in the most profitable luxury market, rather than accepting a lower price that would allow different kinds of homes to be built.

In the current market, developers have invested heavily in land for luxury housing. If they build and sell these homes at a lower price, or if they build something else for a lower sale price, they risk not making back the money they spent on that land. Many developers will now instead choose to hold on to the land, restricting supply in an attempt to bolster prices, waiting out the market and building out slowly when prices start to recover. This will put even more pressure on housing supply and on affordability.

So what do we need to do?

We need to create a situation in which developers are incentivised to build affordable homes, not just luxury flats, to meet housing need across the country.

Shelter’s New Civic Housebuilding report sets out a vision for how we can achieve the new homes we need, based on clearer and lower land values. We’re calling on central government to update the rules on land valuation and enable public bodies to use their land holdings to build more affordable homes.

In these ways, we can provide land at prices which enable development to respond to housing need, not just the highest bidder.

Rose Grayston is senior policy officer at Shelter, on whose blog this article originally appeared.

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Was the decline in Liverpool’s historic population really that unusual?

A view of Liverpool from Birkenhead. Image: Getty.

It is often reported that Liverpool’s population halved after the 1930s. But is this true? Or is it a myth?

Often, it’s simply assumed that it’s true. The end. Indeed, proud Londoner Lord Adonis – a leading proponent of the Liverpool-bypassing High Speed 2 railway, current chair of the National Infrastructure Commission, and generally a very influential person – stood on the stairs in Liverpool Town Hall in 2011 and said:

“The population of Liverpool has nearly halved in the last 50 years.”

This raises two questions. Firstly, did the population of the City of Liverpool really nearly halve in the 50 year period to 2011? That’s easy to check using this University of Portsmouth website – so I did just that (even though I knew he was wrong anyway). In 2011, the population of the City of Liverpool was 466,415. Fifty years earlier, in 1961, it was 737,637, which equates to a 37 per cent drop. Oops!

In fact, the City of Liverpool’s peak population was recorded in the 1931 Census as 846,302. Its lowest subsequent figure was recorded in the 2001 Census as 439,428 – which represents a 48 per cent decline from the peak population, over a 70 year period.

Compare this to the population figures for the similarly sized City of Manchester. Its peak population also recorded in the 1931 Census as 748,729, and its lowest subsequent figure was also recorded in the 2001 Census, as 392,830. This also represents a 48 per cent decline from the peak population, over the same 70 year period.

So, as can be seen here, Liverpool is not a special case at all. Which makes me wonder why it is often singled out or portrayed as exceptional in this regard, in the media and, indeed, by some badly briefed politicians. Even London has a similar story to tell, and it is told rather well in this recent article by a Londoner, for the Museum of London. (Editor’s note: It’s one of mine.)

This leads me onto the second question: where have all those people gone: London? The Moon? Mars?

Well, it turns out that the answer is bit boring and obvious actually: after World War 2, lots of people moved to the suburbs. You know: cars, commuter trains, slum clearance, the Blitz, all that stuff. In other words, Liverpool is just like many other places: after the war, this country experienced a depopulation bonanza.


So what form did this movement to the suburbs take, as far as Liverpool was concerned? Well, people moved and were moved to the suburbs of Greater Liverpool, in what are now the outer boroughs of the city region: Halton, Knowsley, St Helens, Sefton, Wirral. Others moved further, to Cheshire West & Chester, West Lancashire, Warrington, even nearby North Wales, as previously discussed here.

In common with many cities, indeed, Liverpool City Council actually built and owned large several ‘New Town’ council estates, to which they moved tens of thousands of people to from Liverpool’s inner districts: Winsford in Cheshire West (where comedian John Bishop grew up), Runcorn in Halton (where comedian John Bishop also grew up), Skelmersdale in West Lancashire, Kirkby in Knowsley. There is nothing unique or sinister here about Liverpool (apart from comedian John Bishop). This was common practice across the country – Indeed, it was central government policy – and resulted in about 160,000 people being ‘removed’ from the Liverpool local authority area.

Many other people also moved to the nearby suburbs of Greater Liverpool to private housing – another trend reflected across the country. It’s worth acknowledging, however, that cities across the world are subject to a level of ‘churn’ in population, whereby many people move out and many people move in, over time, too.

So how did those prominent images of derelict streets in the inner-city part of the City of Liverpool local authority area come about? For that, you have to blame the last Labour government’s over-zealous ‘Housing Market Renewal Initiative’ (HMRI) disaster – and the over enthusiastic participation of the then-Lib Dem controlled city council. On the promise of ‘free’ money from central government, the latter removed hundreds of people from their homes with a view to demolishing the Victorian terraces, and building new replacements. Many of these houses, in truth, were already fully modernised, owner-occupied houses within viable and longstanding communities, as can be seen here in Voelas Street, one of the famous Welsh Streets of Liverpool:

Voelas Street before HMRI implementation. Image: WelshStreets.co.uk.

The same picture after HMRI implementation Image: WelshStreets.co.uk. 

Nonetheless: the council bought the houses and ‘tinned them up’ ready for demolition. Then the coalition Conservative/Lib Dem government, elected in 2010, pulled the plug on the scheme. 

Fast forward to 2017 and many of the condemned houses have been renovated, in a process which is still ongoing. These are over-subscribed when they come to market, suggesting that the idea was never appropriate for Liverpool on that scale. 

At any rate, it turns out that the Liverpool metropolitan population is pretty much the same as it was at its peak in 1931 (depending where the local borough boundaries are arbitrarily drawn). It just begs the question: why are well educated and supposedly clever people misrepresenting the Liverpool metropolis, in particular, in this way so often? Surely they aren’t stupid are they?


And why are some people so determined to always isolate the City of Liverpool from its hinterland, while London is always described in terms of its whole urban area? It just confuses and undermines what would otherwise often be worthwhile comparisons and discussions. Or, to put it another way: “never, ever, compare apples with larger urban zones”.

In a recent Channel 4 documentary, for example, the well-known and respected journalist Michael Burke directly compared the forecast population growths, by 2039, of the City of Liverpool single local authority area against that of the combined 33 local authority areas of Greater London: 42,722 versus 2.187,708. I mean, what bizarre point is such an inappropriate comparison even trying to make? It is like comparing the projected growth of a normal sized-person’s head with the projected growth of the whole of an obese person, over a protracted period.

Having said all that, there is an important sensible conversation to be had as to why the populations of the Greater Liverpool metropolis and others haven’t grown as fast as maybe should have been the case, whilst, in recent times, the Greater London population has been burgeoning. But constantly pitching it as some sort of rare local apocalypse helps no one.

Dave Mail has declared himself CityMetric’s Liverpool City Region correspondent. He will be updating us on the brave new world of Liverpool City Region, mostly monthly, in ‘E-mail from Liverpool City Region’ and he is on twitter @davemail2017.