Supply and Demand in Centre Point Residences

Last week I was commissioned by VICE to write about the news that the unsold apartments in Central Point Residences had been taken off the market by the developer until offers met their multi-million-pound sale price. VICE only wanted 800 words; but this is the longer article I got out of it, in which I look at some of the more glaring fallacies in UK housing policy. This is based on three principles that underpin the cross-party consensus on the marketisation of housing provision by local authorities: 1) attracting overseas investment as the primary source of revenue for house building; 2) increasing the supply of residential properties for market sale to reduce house prices; and 3) cross-subsidising affordable housing provision with the sale of residential properties at the highest possible market price. In this article I look at why all three of these principles are fundamentally flawed as a model for the provision of housing Londoners can afford to rent or buy, and are instead designed to produce vast profits for those who invest in and sell the commodities in this property market. In a way, this is my response to Patrik Schumacher’s article ‘Only Capitalism Can Solve the Housing Crisis’, which was published by the Adam Smith Institute in April; but unlike Schumacher, my counter arguments aren’t based on academic theories about how capitalism can and should work, but on the all-too-real evidence of what capitalism has produced – beginning with the causes and effects of London’s housing crisis.

Photograph from Centrepointresidences.co.uk

From one end of London to the other we hear the same demand, from council meeting and corporate board room, from housing association and think tank, from architect and property developer, from Labour cabinet and Tory ministry, from the Greater London Authority and the House of Commons: ‘We must build more homes!’ This cross-party consensus between political rivals, the public and the private spheres, should alert us to the fact that something else is at stake here than the mere housing of London’s citizens, which has always been far down the ladder of political priorities; something which the announcement this week that the multi-million-pound properties in Centre Point Residences have been taken off the market for lack of offers matching their asking price has drawn into focus.

The London Mayor, Sadiq Khan, was elected on a promise to build 50,000 new homes every year he was in office. Unsurprisingly, his electoral opponents promised the same. As do the Conservative Government, the Labour opposition and the Liberal Democrats. The argument for doing so goes something like this. London has a housing crisis. If we build more homes the demand will drop, and with it the prices. This supposed ‘law’ of supply and demand is used to justify everything from the estate regeneration programme that threatens hundreds of London council estates with demolition to the hundreds of empty towers with planning permission in Inner London.

But there is a second part to this argument. Despite being the sixth largest economy in the world, the UK, apparently, is broke. There is no money for council housing as there was, for instance, after the Second World War, when the national debt was 245 per cent of GDP. To build the housing we need, London has to attract investment – from the private sector, from offshore companies, from foreign investors, from overseas buyers. This means that a lot of the housing that gets built will be for market sale, and some of it will be the sort of multi-million-pound apartments in Centre Point Residences; but with this money councils and developers can build ‘genuinely’, ‘truly’ (the adjectives increase with their prices) affordable housing for Londoners both present and future. Let’s test the truth value of this argument, which continues to define London’s housing policies, against the example of Centre Point Residences.

Photograph from the Met Archives

Built as speculative office space in 1966, Centre Point has three components: the 33-storey Tower on the corner of Charing Cross Road and New Oxford Street, the 9-storey House on Earnshaw Street, and the Links that connects them on the first floor. Even then the developer found it hard to find the single tenant he insisted letting the development to, and the buildings remained empty for the next decade. In 1969 the homeless charity, Centrepoint, pointedly named itself after the buildings. In 1972 Camden council attempted to requisition the 36 empty apartments in Centre Point House. And in 1974 the Tower was occupied by housing activists in protest at its empty spaces. Ironically, one of the organisers of the occupation was Jack Dromey, now the Labour MP and Shadow Minister for Work and Pensions, whose son, Councillor Joe Dromey, is a member of the Lewisham Council that last week violently evicted the housing activists that had occupied Deptford’s Old Tidesmill Garden against the threat of its redevelopment. In 1995 the much-reviled Centre Point received Grade II listing, and since then the buildings have changed owners several times, being extensively renovated in 2005. From 2009 the tower held the office of Aramco, the state-owned national oil company of Saudi Arabia, and the Chinese oil company, Petrochina.

Then in 2011 the buildings were purchased by Almacantar, a property investment and development company part-owned by the Agnelli family of Italian billionaires. Founded in 2010, Almacantar has since acquired over 1.5 billion square feet of prime property in Central London, and is typical of the type of investor on which London’s housing policies rely. Its assets include the renamed Centre Point Residences, Marble Arch Place, CAA House, Lyons Place, 125 Shaftesbury Avenue and One and Two Southbank Place. The latter is the commercial part of the mixed-use development being built as a joint venture between the Canary Wharf Group and the Qatari Diar property investment company. This is wholly owned by the Qatar Investment Authority, the sovereign wealth fund of the State of Qatar that has around £30 billion worth of investments in the UK out of an estimated £275 billion in assets worldwide. In March 2017 Transparency International published a report on the investment of ‘dirty money’ in new high-end London developments, and found that of the 79 properties that had been sold in Southbank Place for between £1.05 million and £3.06 million, 70 had been purchased by overseas buyers, 37 of whom were from high corruption risk jurisdictions. Given the prices at which the properties have been sold, it’s more than likely that a similar percentage of overseas buyers and dirty money is invested in Centre Point Tower.

Centre Point Residences lies within the London Borough of Camden, and in 2014 the council granted planning permission for the renovation and change of use of the Tower from office, restaurant and bar to 82 residential units with 180 bedrooms, and of the House and Link from office to a mix of retail, restaurant and bar. Work began in 2015, and the first 8 apartments in the Tower were sold off-plan that April. Since they have been taken off the market it’s hard to establish what the sale prices were, but a 1-bedroom flat is on sale for £1.8 million, a 2-bedroom flat for £3.665 million, and a 3-bedroom flat for £7.225 million. Famously, the Chinese family of a student come to study at University College London paid nearly £5 million for her 2-bedroom apartment. The 2-storey, 4-bedroom penthouse, whose conversion ended five decades of public access to the 360-degree views it provided over London, and which has yet to be purchased, had an asking price of £55 million. Parking space is available for an additional £250,000.

Photograph from centrepointresidences.co.uk

More indicative of their use than their sale price, however, is that although more than half the 82 apartments have reportedly been sold, only 10 of the owners have moved into their properties. That the rest are buy-to-let landlords is reflected in the rental prices for the apartments, which are still available. 1-bedroom apartments are renting from £1,150 per week, 2-bedroom apartments for £1,850 per week, and 3-bedroom apartments for £4,000 per week – plus a £25,500 deposit. Others are being advertised as holiday lets.

Following changes to legislation introduced in 2013 and made permanent in 2015, converting office space to residential units is now permitted development, and therefore doesn’t require planning permission. But the changes to the listed buildings did, and as part of its Section 106 agreements with the council, Almacantar, which reportedly invested £350 million in the conversion, paid £5.5 million in contributions to community facilities, employment, education, highways and the public realm in Camden. As we’ve seen, that’s about the price of one 2-bedroom apartment.

In addition, Almacantar also paid for the construction of 13 affordable housing units with 25 bedrooms in a block named White Lion House. As has become normal practice in London, this was built apart from the rest of the apartments – not off-site, as is increasingly the case, but on the site of the demolished Intrepid Fox public house at the south end of Centre Point House. This means tenants of the affordable housing enter their homes through what have become known as ‘poor doors’. The argument for this social segregation that is being built into London’s architecture is that these separate entrances and locations reduce residents’ service charges. Not coincidentally, it also means that the people who can afford the prices being asked for the luxury apartments in Centre Point Tower don’t have to rub shoulders with the class of people they would usually only encounter at home when they’ve been employed to clean their apartments. Even more importantly, the value of their investment will not be reduced by its proximity to the affordable housing in which the cleaning and service classes live.

Photograph from MICA Architects

But is this, in fact, true? Despite their designation, only 5 of the affordable housing flats in White Lion House are for social rent, with the other 8 for affordable rent, which means up to – and invariably at – 80 per cent of market rate. While the former may be affordable to a cleaner and her family, the latter most certainly are not. Despite their proximity, affordable rent units won’t be built to the same standards of space or build quality as their multi-million-pound neighbours; but that isn’t likely to bring them any closer within the reach of the 5,500 people on Camden’s housing waiting list (down from 27,000 in 2014 since the 2011 Localism Act allowed councils to change the criteria for qualification) or the nearly 1,300 people that are homeless in the borough.

But the prohibitive expense of 8 of the development’s 13 so-called affordable housing units is not only the only thing to question whether the largely empty super-prime developments that litter London’s skyline are doing anything to address the capital’s shortage of housing that Londoners can afford to buy and rent. As is always the case, the viability assessment on Camden council’s website has been redacted as ‘commercially confidential’, so we don’t know how much the affordable housing component of the scheme cost; but it can’t have been much more than the price of that Chinese student’s 2-bedroom apartment. (Since publishing this article I’ve subsequently read in the Architects’ Journal that the construction cost of White Lion House was £8.75 million, so more like the price of a 3-bedroom apartment.) But by any measure, 13 units is a miserable return on the huge profits Almacantar can expect to make on the Centre Point buildings, not only from their residential component but also from the leased retail, restaurant and bar space in both Centre Point House and Centre Point Link.

Image from centrepointresidences.co.uk

Across London, both councils and the Greater London Authority are handing over council land and granting planning permission to high-end developments that are little more than investment opportunities for global capital, much of it from high corruption risk jurisdictions, and being tossed coppers in compensation. The fact that Almacantar can afford to take half the properties in Centre Point Tower off the market, and has reportedly recovered the costs of its construction and renovation, shows not only the kind of returns international developers are making on their investment in London property, but how inadequate councils are at coming away with the homes for social or even affordable rent they claim they can from these deals.

Centre Point Residences is a glaring example of the fallacy that handing over huge swathes of London land and assets to offshore companies and overseas investors will cross-subsidise the building of the homes Londoners can afford to rent or buy. It hasn’t and it won’t. On the contrary, the building of high-value property will continue to increase the sale and rental price of London housing. That’s what it is intended to do and has been doing for many years. Indeed, it is because of the mechanics of ‘value uplift’ consequent upon high-value developments that London’s residential property has become such a secure investment for global capital.

89 per cent of all new-builds in London are residential units, and between 2014 and 2016 around one in six of these was sold to overseas buyers. In 2017 30 per cent of all properties sold in London were bought by overseas investors, a figure that rose to 50 per cent at the high end of the market. And according to data from the UK Land Registry, more London properties were sold for £10 million or more in 2017 (435 in total) than in each of the preceding two years (397 and 401 respectively). So under existing housing policy the situation in London isn’t improving, it’s getting worse; and neither is it cross-subsidising the homes in which Londoners can afford to live.

Photograph from Almacantar

Last month the GLA reported that in the year 2016/17 a net housing supply of 45,505 residential units were completed in London, so 10 per cent short of Sadiq Khan’s promise. In response to a target completion rate of 17,000 net additional ‘affordable’ homes per year, a net total of only 7,347 affordable units were completed, less than 16 per cent of the total. Of these, 2,926, over 6 per cent, were for shared ownership, far beyond the reach of most Londoners; 2,103, less than 5 per cent, were for affordable rent; and a mere 2,318 units, 5 per cent of the total, were for social rent. Of residential units granted planning permission by Camden, 596 were completed in 2016/17, with an additional 412 units converted from office to residential, for a total net gain of 1,206 units. However, only 141 of these were affordable, an appalling 12 per cent of the total, 58 of which were for shared ownership, 36 for affordable rent, and 47 were for social rent, less than 4 per cent of the total. This is not a sustainable model for housing provision.

The argument that increasing the supply of high-value properties for capital investment will lower prices has no purchase on London’s financialised housing market. As these figures prove beyond doubt, still less will such properties cross-subsidise the housing needs of Londoners. 58 per cent of housing demand in London is for lower-mainstream properties (below £450 per square foot) and homes for sub-market rent; yet only a quarter of the roughly 38,500 properties set to be built in the five years between 2017 and 2021 will go on sale at this price. Last year builders started work on 1,900 prime properties (more than £1,500 per square foot) in London, only 900 of which had sold by 2018; and as of January this year there were an additional 14,000 unsold lower-prime properties (between £1,000-£1,500 per square foot) on the market. The total number of unsold luxury new-build properties, which are rarely advertised at less than £1 million, has now hit a record high of 3,000 units.

The evidence of London’s enormously inflated housing costs shows the inadequacy of the economic model of supply and demand to describe that market, and the abject failure of the housing policies based on that model. On the contrary, the building of the high-value property investments that litter London’s skyline is directly contributing to the crisis of housing affordability – demolishing hundreds of council estates to clear the land for privatised new developments, driving up both sale and rental prices, affecting our transition to a rentier society of buy-to-let landlords and non-domicile owners, and consuming the land that could otherwise be used to build the homes for social rent we so badly need, while leaving huge swathes of potential homes empty. Half of the residential units in London’s new developments currently stand empty, as do 19 per cent of all dwellings in Inner London. And the likelihood of a residential property being empty rises with its market value. 39 per cent of properties worth between £1 million and £5m are currently under-used, rising to 64 per cent of properties worth more than £5 million; while of the properties purchased by overseas investors, 42 per cent are empty.

The only barrier to this boom in London property and the housing crisis it has helped to produce is the one that has caused Almacantar to take the remaining half of the properties in Centre Point Tower off the market – the threat of Brexit. Until the UK market has stabilised sufficiently for investors to be sure of the returns on their capital, the 40 or so flats are likely to remain as empty as they are in the glossy publicity photographs. But then Almacantar can afford to leave them empty. They’ve recovered their investment, paid off the council, and can wait till the market recovers. There is as little incentive for them to sell their properties below the price overseas investors will pay as there is for property developers to build homes in which Londoners can afford to live. But the tens of thousands of homeless households in London can’t wait, and neither can the hundreds of thousands on the housing lists of London’s councils.

Photograph from centralpointresidences.co.uk

So what’s the answer? Against the financialisation of housing that has allowed developments such as Centre Point Residences to be taken off the market in the middle of London’s housing crisis, it is possible to point to moments in our past when the system of council-house building responded to the housing needs of the UK population. It was never perfect, it could have been a lot better, and it was quickly manipulated to create ghettos of housing poverty; but it was a huge improvement on the housing conditions that preceded and continued to exist alongside it. In contrast, no market-based housing system has ever improved the housing conditions of anyone except those able to afford the greatly increased housing costs it produces. The severity of our current housing crisis is the direct effect of our transition from a time, nearly 40 years ago, when a peak 42 per cent of the UK population lived in council housing, to a time when only 7 per cent of us still do today.

Proposing market solutions to a crisis caused by the marketisation of human needs is a fundamental contradiction. There never has been (and never could be) a market solution that meets the housing needs of UK citizens, for the simple reason that markets thrive on the inadequacy of supply to demand, in the gap between which competition drives prices up, not down. Contrary to the flawed arguments of our policy makers, developers have no interest in reducing the price of the commodities in which they trade by flooding the market with low-price homes. Quite the opposite. The pre-tax profits of the four largest UK builders, Persimmon Homes, Taylor Wimpey, Barratt Homes and the Berkeley Group, have risen from just under £419 million in 2011 to over £2.6 billion in 2016, a more than six-fold increase in just five years. Yet, despite sitting on land with planning permission to build nearly 284,000 homes, they built less than 30,000 new homes between them in 2016. Like Almacantar, they too can afford to wait.

Photograph from centrepointresidences.co.uk

Waiting, of course, is not all that Almacantar will be doing. Taking the unsold Centre Point Residences off the market is also their response to the Chancellor’s threat, in this week’s budget, to raise stamp duty a further 1 per cent on purchases of residential property by non-UK residents. Just as property developers, housing associations and real estate firms have influenced London’s housing policy to accommodate the housing boom that has produced the housing crisis – replacing council rent first with social rent and then with the new category of affordable housing, lobbying for higher densities and reduced space standards, circumventing Section 106 agreements with viability assessments and threatening not to build in London if even affordable housing quotas are enforced – so the same private interests can exert pressure on the Government when it proposes legislation that threatens the profits being made from that market. The estimated total value of the UK housing stock in January 2018 was £7.14 trillion, having risen by a third over the last decade. Nobody will be surprised to hear that £1.7 trillion of that housing stock is in London. Equivalent to 3.3 times the gross domestic product of the UK, and nearly 60 per cent of the UK’s entire net wealth, the UK housing market now constitutes an economy in itself, and it is this that UK housing policy is being written to keep afloat – at the cost of the housing of its citizens.

The failure of what’s left of our system of council housing to house our citizens is not only due to the withdrawal of government funding to maintain and build council homes and the consequent reliance of local authorities on the largesse of developers; it is also because councils themselves and the housing and land they manage have been progressively subjected to market forces which, at least in London, they have willingly embraced. Only a cross-party consensus on the marketisation of housing could produce a national housing policy based on begging for spare change from overseas investors in luxury developments like Central Point Residences. The consequences of doing so are there for all to see in our current crisis of housing affordability, which has spread far beyond the lack of council housing for the working classes and created a malfunctioning property market for the middle classes. Just as the only people benefiting from this market are those getting rich on producing, selling and investing in its commodities, so the only long-term solution to the UK housing crisis is to return the responsibility for housing our citizens to the state.

That, however, will require reclaiming those responsibilities from 40-years of outsourcing and privatisation by successive Conservative and Labour governments; and despite the vaguely socialist rhetoric of Oh Jeremy Corbyn, which has no echo in his party’s market-based housing policies, that isn’t likely to happen anytime soon. In the meantime, as the 40 unsold properties in Centre Point Residences join the other 20,000 long-term empty homes in London, the more immediate question is what will the citizens of London do to house its 1,000 rough sleepers on our streets, the 165,000 Londoners that are homeless and living in hostels or temporary accommodation, the 225,000 hidden homeless that are sleeping on London couches, and the 244,000 Londoners on council housing waiting lists? The housing crisis is, first and foremost, a political crisis in which our current democratic institutions of Council, Greater London Authority, Parliament and Government are all failing us. Centre Point Residences is the proof of that.

Simon Elmer
Architects for Social Housing

Architects for Social Housing is a Community Interest Company (no. 10383452). Although we do occasionally receive minimal fees for our design work, the majority of what we do is unpaid and we have no source of public funding. If you would like to support our work financially, please make a donation through PayPal:

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