2016 02 – Rail, Rents, and Housing (part 1)

Rail, Rents, and Housing (part 1)

by Eamon Dyas

In September 2015 the local Labour council gave permission for one of the biggest housing construction projects in London on the Greenwich Peninsula. The Labour council has sought to justify this to locals on the basis of the number of affordable homes that it will include. Of the 16,000 new homes 4,000 will be classified as “Affordable”. But affordable in this context is a meaningless concept without a measurement to set it against. An article in the Guardian in 2014 provides the current definition of “Affordable” as used by the authorities in a measurable context:

“In the good old days, councils and housing associations built social rented housing – often called council housing. It was a simple idea in which rents were based on a formula that combined local wages and local property values so that, for much of southern England, rents would be set at around 50% of local market rents – even lower in very expensive areas. Social housing rents allowed people to work without being dependent upon housing benefit.

“No more. Now, councils and housing associations have been told to replace social rented housing with a new product called, confusingly, affordable housing.

“In a move worthy of George Orwell’s Ministry of Truth, affordable rent will be higher than before, set at up to 80% of the local market rent. Across whole swathes of southern England affordable rented properties will simply not be affordable to people on low incomes.” (Affordable Housing Does Not Mean What You Think It Means, by Colin Wiles. Guardian 3 February 2014).

In Greenwich at the end of 2015 the average rent for a one-bedroom property was £307 per week (£1,228 per month), a two-bedroom £422 per week (£1,688 per month), and for a three-bedroom £621 per week (£2,484 per month). It doesn’t take a genius to conclude that 80% of such rental costs is well beyond anything that is affordable by those in need of social housing. Greenwich is not the wealthy borough that a visit around its historic centre would indicate. It is the largest borough in London and embraces such places as Plumstead and Woolwich where poverty and unemployment are among the highest in London. In fact the unemployment figures for the borough as a whole show that in 2014 (the latest figures I have been able to find) it had the fifth highest levels of unemployment (over 8%) in London only surpassed by Barking & Dagenham, Tower Hamlets, Newham, and Ealing.

This disparity between the rental costs of housing and the ability of the local population to pay is something that seems to fly in the face of free market thinking. According to such thinking the charges demanded in the rental housing sector adjusts to the prevailing “effective market demand”. This means that no matter how many rental units that are available the ceiling price will be set by the ability of prospective tenants to pay. This is obviously not what has been happening in south-east London or for other parts of London for that matter. What explains this is the fact that the rental sector in London is peculiar one when it comes to the application of “effective market demand”.

Domestic property is a unique commodity insofar as it is intrinsically linked to place. It is literally rooted to the place in which it was produced. In a physical sense, the consumer in this instance comes to the product (or commodity) rather than the product (or commodity) coming to the consumer. Generally speaking, in the past capitalists invested in the construction of new domestic properties or the purchase of existing domestic properties on the basis of their assessment of the market-expressed needs of the areas in the immediate vicinity of the properties concerned. Market-expressed needs in this sense operate as a kind of local micro-market where local characteristics that determine effective market demand can vary significantly from one area to another. This is apparent in the way in which London differs from its hinterland or more starkly the way in which Manchester might differ from a place like Oldham which, though only 5 miles away represents a world of difference.

Unlike other places in England where there are local populations that are wedded to their areas for family or community reasons London is mostly made up of an itinerant population. In places like Oldham young couples still prefer to live close to their parents and wider family and so will rent or buy homes in the same locality. As long as this constitutes the bulk of the property market the local prices will reflect the balance between what a landlord can charge and what the prospective tenant can afford. In many ways the property markets in such areas operate as a type of closed self-regulated system – as a kind of micro-market. Couples prefer to live locally and that impulse, provided it constitutes the determining factor in market-expressed demand, ensures that the price of housing continues to enable them to live locally. For that reason a two-bedroom house in Oldham can cost as little as £70,000 to buy and a month’s rent around £300. All of this could change however if the local characteristics change in a way that can influence the local property market – if the readily available stock of houses for some reason is suddenly diminished (the housing stock still reflects the days of its cotton industry when Oldham was one of the most affluent parts of the UK) or if affluent Mancunians, in sufficient numbers, found the difference in the price of property between Manchester and Oldham sufficient to overcome their antipathy to the place.

While the kind of micro-markets that are exemplified by Oldham at one time existed in parts of London (and south-east London was once one such area) this is no longer the case.

South-east London and rail policies.

I have already touched on the current property and rental prices being charged in this part of London but this is something that has only happened within the last generation. It was not always like this. Compared to the present the riverside along south-east London had traditionally been a relatively low-density area with docks and wharves dominating the topography. In their hey-day such places provided much employment not only directly in terms of dock-work but in the many ancillary activities catering for the many needs of the docks. Alongside the docks were the timber-yards, glass and bottle makers, coopers, granaries, ironsmiths, carpenter shops, engineering and machinery repair yards, scrap yards, coal-yards and small boat-building yards. As well as the activities that were directly related to the function of the docks there were also many businesses catering for the needs of the dockworkers and their families most of whom lived locally. Businesses such as bakers, outfitters, shoe-repairers, furniture-makers, grocers, butchers, newsagents and cafes were all reliant upon the business taken to them by the dockworkers and their families.

With the first regular container ship service between the U.S. and Antwerp in 1966 the writing was on the wall for the London docks and by the late 1970s all commercial dock operations in the London metropolitan area had virtually ceased to exist. Containerisation meant that most of what had been London’s port activity was now moved to the Tilbury container port 35km downstream from central London and with it went the employment opportunities of the docks as well as most of the now superfluous ancillary businesses.

Because most of those employed by the cargo handling and ancillary services lived locally the abandonment of this activity created a situation where many moved away and others, if they could find employment at all, were compelled to travel outside the area to their new places of employment. But the physical area could not easily escape the imprint of its infrastructure heritage. Although its activities had a global relevance it had been a local employment economy for generations and this was reflected in terms of the area’s lack of cross-London public transport connections (a look at a public transport map of the time shows this graphically and while things have changed since then the general picture remains similar).

As a result of the decline of the docks by the early 1980s the area became one that was mostly composed of derelict docks and warehouses. At first there was an attempt on the part of the authorities to plan for this decline and the governments of the 1970s as well as the GLC attempted to initiate a “soft landing” for the decline. Central to this was a targeted public transport policy.

Studies were commissioned under the Heath government as early as 1972 and in 1974 the boroughs of Greenwich, Lewisham, Newham, Southwark and Tower Hamlets formed a Docklands Joint Committee under the GLC. The plans that emerged from this body were constructed around the recognised need to develop new public transport links between central and north London and the area in order to meet the new transport requirements of the local populations as well as to encourage alternative business and employment opportunities into the area. Among these plans was a 1976 proposal to build a Tube line linking Charing Cross railway station to Woolwich by way of Surrey Quays and North Greenwich. Although London Transport in fact obtained Parliamentary powers to build such a line the new government under Margaret Thatcher in May 1979 called a halt to such plans with the government now insisting on a lower-cost option with a more restricted application.

The cancellation by the first Thatcher government of the original plans for a new transport link to south-east London in favour of a cheaper and less ambitious project eventually resulted in the emergence of the Docklands Light Railway. However, because its primary purpose was to facilitate the growth of the proposed new financial district around Canary Wharf, the restrictions placed in the way of this project meant that what emerged represented the abandonment of any plans to embrace the areas of most need in south-east London. The first part of the DLR was opened in 1987 and went from the Isle of Dogs to Tower Gateway on the north side of the river. It was not until 1998 that the Jubilee Line Extension embraced some of the areas of the old south-east London docks at Rotherhithe and Surrey Quays. As far as the DLR extension to Lewisham, Greenwich and Deptford was concerned as late as 1995 the government was insisting that the £100 million funding for such a project would have to come from private sources.

This insistence was based on a new government policy which had been introduced by John Major’s conservative government in 1992 and involved the part funding by private finance of major capital projects that would previously have been paid for from central government funds. As a result of this it was not until December 1999 that the Lewisham, Greenwich and Deptford extension of the DLR was finally opened to the public with Woolwich only joining the network in January 2009.

In the meantime, in marked contrast the areas north of the river along Wapping, Limehouse and Canary Wharf, the dock area south of the river continued to decline with property and rental prices reflecting its relatively unfashionable nature (I remember personal experiences in the 1990s when taxi drivers would not travel from north London to south London because of the relative improbability of them collecting a return fare on the way back). The price of property in places like Bermondsey, Rotherhithe and New Cross which were closest to Tower Bridge and the City remained infinitely more affordable than the price of property situated a similar distance from the City on the north side of the river. The only area south of the river which could be said to command similar property and rental prices to those north of the river in the 1990s was the river-side restoration of Shad Thames and Butler’s Wharf – areas immediately adjacent to the south-side of Tower Bridge.

True to form the Bill proposing the much-vaunted Crossrail project had been presented to Parliament in 2005 but in a form which did not include any station in south-east London. It was only because the Select Committee examining the project in 2006 insisted on the inclusion of Woolwich in the scheme that south-east London was made part of the Crossrail network. But even then the government of the day continued to hold out against adding Woolwich to the network using the argument of additional cost. However, by the time the Bill was approved by Parliament in July 2008 the government had agreed to include Woolwich. (Since then the public transport facilities in the area of south-east London close to the city has been improved by the inclusion in 2010 of the old East London line into the London Overground system).

Thus, the “unnaturally” low cost of property in south-east London created in part by the absence of an effective public rail system linking the area with the rest of London meant that when it did arrive the improved rail system fused this part of London to the type of property and rental market that had already dominated the rest of the capital. From now, as far as rents were concerned, the only way was up as the property market in the area was brought into equilibrium with the wider market.

It has long been known that the construction of a railway increases the value of the land in the area of the stations constructed on its route. As early as 1879 one commentator observed that the construction of railways had the effect of doubling the value of some estates. (See: Our Railways: Should they be Private or National Property, by Edward J. Watherston. Published by Edward Stanford, London, 1879, p.50). And what was true of the 19th century is even more true of the present time. This is a modern property investor commenting on the investing potential of Woolwich in south-east London on 26 September 2014:

“Taking into account the capital growth and investment in the area, again particularly Crossrail, I can only see property demand going up, and like in any other business if demand is higher then the returns will be as well. Crossrail will make Woolwich even more desirable for commuters and the added investment to facilities in the area will attract people looking to rent.” (“Is Woolwich a Good Place for Buy-To-Let?” by Paul Wright. http://se18propertyblog.co.uk/woolwich-good-place-buy-let-part-three-yield/ ).

In London it is the need to live in places that provide relatively easy and affordable access to their place of work that attracts people to reside in areas that offer such access. Every estate agent knows this and uses the prospect of a new rail or Tube station being constructed in an area as a major selling point. And besides the prospect of significantly increasing the value of property such things also have the effect of increasing the rental value of such property. The impact of such things on rent was also apparent to the commentator of 1879:

“At present, a house with garden in Hampshire will bring but a fraction of the rent a similar one will at Kensington. The difference in rent usually can be measured by the amount of railway fare.” (Our Railways: Should they be Private or National Property, by Edward J. Watherston. Published by Edward Stanford, London, 1879, p.50).

In other words the additional costs of traveling from outside London to their place of work acts as an incentive for people to reside in London at prices that reflect the relative additional traveling costs of residing further afield. People generally calculate the relative difference between the higher rent of living closer to their place of work and the lower rent plus the travel cost of living further away. If they feel that the difference is manageable they generally prefer to live closer to their place of work. It is that natural impulse which manifests itself in the capacity of the London market to achieve a higher rental than equivalent properties located further away. A central ingredient in all of this is of course the cost of travel.

However, when the railways were privatised under John Major, in the Railway Act of 1993, the government sold its capacity to determine the cost of rail travel and with it an indirect lever by which it could influence the cost of property and rental prices in London. Instead of railway transport forming a part of a coherent plan for the management of the property market in the service of society generally it is now subject to the ongoing and endless needs of the increased dividends of individual shareholders.

Click here for Rail, Rents and Housing (Part 2)