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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To see how a city embraces remote work, just look to Helsinki

A deeply rooted culture of trust is crucial to the success of remote work. (Sean Gallup/Getty Images)

When I speak to Anssi Salminen, an account manager who lives an hour outside Helsinki, he’s working from a wooden platform on the edge of a Finnish lake. With a blanket laid out and his laptop set up, the sun low in the sky, Anssi’s remote work arrangement seems blissful. 

“I spend around half of my time working somewhere else other than the office,” he says. “I can work from home, or on the go, and I also travel to the Netherlands once a month and work from there.

“The emphasis in my work has always been that it doesn’t matter when or where I work, as long as I get things done.”

For many people around the world, the shift to remote work was sudden, sparked by the coronavirus pandemic. Finland, however, is finding the transition much less significant. Before Covid-19, the Nordic nation already displayed impressive levels of remote working, with 14.1% of its workforce reporting usually working from home. Only the Netherlands has a comparable percentage of remote workers, while the UK lagged behind at 4.7%, and the US’s remote workforce lingered at around 3.6%

Anssi works for one of many Helsinki-based companies that offers its employees flexible policies around when and where they work. That arrangement is in part due to the Finnish capital’s thriving start-up scene. In spite of being a relatively small city by global standards it is home to over 500 technology start-ups. These companies are leading the way when it comes to keeping employees connected wherever they choose to work.

“Our company has a completely location-free working policy,” says Kasper Pöyry, the CEO of Helsinki-headquartered software company Gapps. “All meetings are made available for online participants and facilitated accordingly. Some employees have worked extensively from abroad on a working holiday, whilst others prefer the comfort and social aspects of the well-stocked office. Whatever works for our employees is what works for the company.”

Like Gapps, many Helsinki-based firms are deeply preoccupied with providing the necessary technology to attract talent in a vast and sparsely populated country. Finland has only 15 inhabitants per square kilometre, and companies understand that in order to compose teams of specialised expertise, they may have to seek talent outside of the city. Local governments take a similarly proactive stance toward technological access, and Helsinki offers free, unrestricted, high-speed Wi-Fi from city-wide hotspots, while the country as a whole boasts some of the best coverage in Europe. 

But encouraging remote work isn’t just about optimising the potential of Finland’s workforce – companies in Helsinki also recognise that flexibility has clear benefits for both staff and employees. 

“The idea of a good work-life balance is ingrained in Finnish culture,” says Johannes Anttila, a consultant at organisational think tank Demos Helsinki. “It goes back to our rich history of social dialogue between labour unions and employers, but also to an interest in delineating the rules of working life and pushing towards people being able to enjoy their private life. Helsinki has been named the best city in the world for work-life balance, and I think that this underlies a lot of the mentality around remote work.” 

For Peter Seenan, the extent to which Helsinki residents value their free time and prioritise a work-life balance prompted his move to the city ten years ago. He now works for Finnair, and points to Finland’s summer cottages as an example of how important taking time to switch off is for people in the country. These rural residences, where city residents regularly uproot to enjoy the Nordic countryside, are so embedded in Finnish life that the country boasts around 1.8 million of them for its 5.5 million residents

“Flexible and remote work are very important to me because it means that I don’t feel like I’m getting stuck in a routine that I can’t control easily,” he says. “When I’m working outside of the office I’ll go down to my local sauna and go ice swimming during the working day, typically at lunchtime or mid-morning, and I’ll feel rejuvenated afterwards… In winter time especially, flexibility is important because it makes it easier to go outside during daylight hours. It’s certainly beneficial for my physical and mental health, and as a result my productivity improves.”

The relaxed attitude to working location seems to pay off – Finland is regularly named the happiest country in the world, scoring highly on measures such as how often its residents exercise and how much leisure time they enjoy. With large swathes of unspoiled countryside and a national obsession with the outdoors, sustainability is at the forefront of its inhabitants’ minds, leading to high levels of support for measures to limit commuting. In January, Finland passed a new Working Hours Act, the goal of which was to help better coordinate employee’s work and leisure time. Central to this is cementing in law that employees can independently decide how, when, and where they work.

Yet enacting the new ruling is not as simple as just sending employees home with their laptops. For Kirsimarja Blomqvist, a professor of knowledge management at LUT University, perhaps the most fundamental feature that remote work relies upon is a deeply rooted culture of trust, which Helsinki’s residents speak of with pride. The anecdotal evidence is backed up by data which suggests that Finland boasts one of the highest levels of trust and social cohesion in Europe, and equality and transparency have always been key cornerstones of political thought in the country.

“Trust is part of a national culture in Finland – it’s important and people value it highly,” she explains. “There’s good job independence, and people are valued in terms of what they do, not how many hours they work for. Organisations tend to be non-hierarchical, and there is a rich history of cooperation between trade unions, employers, and employees to set up innovative working practices and make workers feel trusted and valued. 

“It’s now important that we ensure that this trust can continue to be built over technology, when workers might have been more used to building it face-to-face.”

As companies begin to look hopefully toward a post-Covid future, the complexities of remote work are apparent. Yet amid issues of privacy, presenteeism, and social isolation, the Helsinki model demonstrates the potential benefits of a distanced working world. The adjustment to remote work, if continued after the crisis, offers a chance to improve companies’ geographical diversity and for employers to demonstrate trust in their workforce. On these issues, Blomqvist believes other cities and employers can learn a lot from Helsinki.

“People are now beginning to return to their workplaces, but even as they do they are starting to consider the crisis as a jumping point to an even more remote future,” she says. “The coronavirus pandemic has been an eye-opener, and people are now interested in learning from Finland’s good practices… We are able to see the opportunity, and the rapid transition to remote work will allow other countries to do the same.”