London’s Political Tradeoff: Transportation Versus Affordable Housing
This fall I traveled to London as an Urban and Regional Policy Fellow of the United States German Marshall Fund to study the Community Infrastructure Levy (CIL), a new infrastructure financing mechanism first introduced into legislation in the United Kingdom (UK) in 2010. As I set out to conduct my research meeting with members of government at the Mayoral and London Borough levels, representatives of the real estate community, and transportation planners, I expected our conversations to largely center around transportation infrastructure and the like. To my surprise, time and again the conversation steered toward the subject of affordable housing.
It is widely known that London is currently facing an affordable housing crisis, much like my home city of New York. In London, housing supply has not kept up with population demand resulting in major house price inflation, as London’s population has grown by approximately 1 million people over the past 10 years, yet only 200,000 new homes have been built during that same period.[i] In New York, over 50% of all rental households are considered “rent burdened” (renters pay more than 30% of their gross annual income on rent and utilities, and this figure has seen a more than 11% increase from 2000).[ii] To counteract these problems, the Mayor of London and the Mayor of New York have established ambitious policy goals to build and preserve thousands of units of affordable housing in each city, largely to keep up with housing demand as population grows and construction costs increase. Further, in a time when government resources in the form of direct spending and public subsidies are disappearing, cities are being asked to do more with less in the delivery of such goods as public transportation and the provision of affordable housing.
The introduction of the Community Infrastructure Levy (CIL) aimed to fill this gap in infrastructure funding at the local government level across the UK. CIL enabled the creation of a local tariff on certain new real estate developments across a geographic area charged on a pound per square meter rate set by the governing authority. The London Mayoral CIL was adopted for all of London on April 1, 2012, creating 3 different charging zones to be applied to each London Borough. At the local London Borough level, 16 of the 32 London Boroughs have already adopted their own local CIL with many more expected by the end of the year.[iii] The revenue generated by this tariff is intended to pay for district-wide infrastructure improvements, including community facilities and schools, open space and recreational facilities, and transportation. Revenue from the London Mayoral CIL is dedicated to the funding of Crossrail – a new east-west tube line currently in construction in London – and is already ahead of schedule to raise its targeted £300M by the 2018-2019 fiscal year.[iv]
CIL is proving to be a vital source of funding during lean times of government spending. However, despite the apparent successes of CIL and its funding of infrastructure at the local Borough and citywide level, many have raised the question whether CIL has diminished the creation of affordable housing in London by the private sector. The enabling legislation of CIL specifically rules out the application of this funding source for the provision of affordable housing.[v] Instead, London Boroughs negotiate directly with developers on the provision of affordable housing under the Section 106 Planning Obligations system, which is the process by which a development proposal is made acceptable by the local planning authority based on the promise of site specific mitigations of the impact of the development. Since developers are already asked to pay large amounts of money toward CIL for transportation and/or infrastructure, this raises the question of whether it has become more difficult to extract value from private developments for the provision of affordable housing. Has the UK government created a political tradeoff in favor of public transportation at the expense of affordable housing?
This question was raised by many of the people whom I met with in London, on all sides of the debate, including members of the real estate industry, governmental officials, and transportation planners. With scarce dollars and tighter profit margins to go around, has CIL allowed developers to rationalize funding infrastructure instead of affordable housing? Should such a choice even exist? Will the UK government amend CIL’s regulations to require the use of CIL funding toward the development of affordable housing? Until action is taken, I expect affordable housing to continue to be raised as an issue alongside the ongoing CIL and infrastructure funding debate in England.
Julieanne Herskowitz is Vice President for the New York City Economic Development Corporation in New York, New York. In October 2014 she traveled to London to study that city’s infrastructure levy and assesses its transferability to New York City as an 2014-2015 Urban and Regional Policy Fellow. This is the first of two blog posts by Julieanne on her research. The ideas expressed below are Julieanne’s alone and not those of the NYCEDC.
[i] London First. Home Truths: 12 Steps to Solving London’s Housing Crisis. March 2014. <http://londonfirst.co.uk/wp-content/uploads/2014/03/LF_HOUSING_REPORT.pdf>
[ii] City of New York. Housing New York: A Five-Borough, Ten-Year Plan. 5 May 2014.
[iii] London First. London CIL Charges. November 2014. <http://londonfirst.co.uk/wp-content/uploads/2014/10/London-CIL-Charging-....
[iv] London Communications Agency. London in Short. March 2014. <http://www.londoncommunications.co.uk/>.
[v] United Kingdom. Department for Communities and Local Government. Community Infrastructure Levy: An Overview. London: Crown copyright, May 2011. <https://www.gov.uk/government/publications/communityinfrastructure-levy-....
The views expressed in GMF publications and commentary are the views of the author alone.