London mayor Sadiq Khan could “kill off” the build-to-rent (BTR) sector in the capital if he goes ahead with plans to make developers offer flats for rent at a heavier-than-expected discount, industry experts have warned.

Sadiq Khan

Under the plans, affordable rents would be set in line with Khan’s London Living Rent scheme, which would make them significantly lower than current affordable rents, said a well-placed source.

Experts warned the new definition of affordable rent would have a major impact on the viability of developments.

Julian Goddard, partner at consultancy Daniel Watney, said: “No one can argue against the need for affordable housing, but punitive demands could kill off the BTR sector before it’s even begun.”

Fizzy Living managing director Harry Downes added that the plans would “shackle” the business model of developers and discourage institutional investors.

Harry Downes

Fizzy Living’s Harry Downes fears Khan’s plans will shackle developers

“We are all trying to achieve more affordable rents, but it all doesn’t need to be the lowest end of the scale. The mayor needs to be careful that he doesn’t cut off his nose [to spite his face] by making affordable products - which many BTR projects are - unviable.”

Affordable rent is currently set at a maximum of 80% of market value, but under the London Living Rent scheme, it would be set at a third of the median income in a borough, driving the level of affordable rents down in many parts of London.

In the borough of Newham, for example, Khan’s new plan would see affordable rents set as low as 55% of market levels, according to Property Week analysis. A two-bedroom flat offered at London Living Rent would cost £683 a month compared to an average market rent of £1,244.

In Hounslow, affordable rent would be set at 61% of market value: £822 for a two-bedroom flat compared to a borough average of £1,348.

‘Convoluted, costly’ checks

Developers that failed to meet the overall affordable housing target of between 35% and 40% would come under greater scrutiny, with schemes subjected to “convoluted, costly” checks by City Hall viability experts, said the source.

However, those that met the target would be able to skip the viability process that often slowed down planning.

Khan would not be able to force boroughs to adhere to the affordable levels, but he would be able to ramp up the number of call-ins to ensure developments that fell below the threshold did not have a smooth ride.

Fizzy City, Stepney Green

Fizzy City in Stepney Green, east London

The mayor will encourage boroughs to refer schemes that do not meet the requirements to a viability unit based in City Hall, which will probe developers’ plans and push for as much affordable housing as possible.

“It could be a month or two’s difference in terms of determining your application, or even longer,” the source said.

City Hall closed applications for positions on the team this week, including a ‘development viability adviser’ - a role that will pay £82,000 a year.

Khan’s aim is to allow schemes that meet the minimum threshold to “zoom through the system”, therefore increasing the number of new starts.

City Hall is consulting on the plans ahead of the publication of planning guidance later this year.