Return to Bournville

In 1893, George Cadbury bought 120 acres of rural land four miles south of Birmingham. There he built 313 homes in just seven years to affordably house workers at his famous chocolate factory who were living in cramped, poor housing in the city. The legacy of this is Bournville Village, a town which today stands testament to an era in which Britain’s largest employers proactively helped house their employees.

Now, 122 years on, in London, it looks like history could repeat itself. The soaring cost of housing has outstripped wages, forcing squeezed low and middle earners to move further and further outside of the capital. This is impacting businesses’ ability to attract and retain talent. As a result, Inside Housing can reveal that London’s largest employers are having to make interventions to help even mid to high-earning staff with housing.

Global professional services firm Deloitte is one of the companies leading a return to a Cadbury-style approach. In September the company raised eyebrows by brokering a deal with Build to Rent developer Get Living London, whereby the 600 graduates it takes on each year could access preferential rental terms at the East Village-managed rental scheme in Stratford, east London. The offer was snapped up by around 80 graduates who now share apartments in the former Athletes’ Village accommodation. Now, just two months on, the company is considering a far more radical proposition: extending the offer to all its London-based employees.

“We are not just offering to support graduates; we are also now trying to help staff,” explains James Ferguson, partner at Deloitte. “We have a senior grade called a senior manager who earns around £80,000 a year - and even they are struggling to get together a deposit to buy a place. Anything that we can do in the private rented sector to help would be beneficial to them too.”

The firm has invited housing association Peabody to market a building with 30 rental units at a scheme in Plaistow to its staff on an exclusive basis. Anecdotal evidence suggests this was a success, and so, in January, Mr Ferguson intends to approach other institutionally financed Build to Rent developers to broker similar deals on behalf of staff. He says he has “identified quite a few schemes” and will create a property portal website that staff can use to access “preferred terms”.

To date, these terms have entailed two weeks rent-free and free broadband. But the rents have not been subsidised. For the graduates who earn between £29,000 and £32,000 a year, Mr Ferguson concedes that the market rents of £180 to 200 per week for shared apartments are “not particularly affordable”.

As a result, Deloitte is exploring some alternative approaches. For the 80 apprentices the company has taken on this year, it is planning to offer loans to help with costs. But it could go a step further and make Deloitte a signatory on the lease and use its scale - taking up to 100 apartments in one go - in order to negotiate reduced rent rates. According to Mr Ferguson, this discount could then be passed to employees who would have rent deducted from their monthly pay.

“I think we’ve been reluctant to raise our voice to date, because who really cares about professional workers who are well-paid in London - isn’t that the rich kids screaming? It’s not. London thrives on having successful professionals and if you make that more and more difficult for them, then London won’t thrive.”

A growing number of large employers are coming to the same conclusion. A campaign called Fifty Thousand Homes led by the CBI and business lobbying body London First, launched last month calling for a doubling of housebuilding in the capital by 2020 - and has since been backed by more than 100 businesses ranging from a host of property companies through to the likes of Asda, John Lewis Partnership, HSBC and Linklaters. It warns that the capital is losing £1bn a year and 11,000 jobs because of a chronic shortage of affordable housing. Echoing this, last week the London Chamber of Commerce published ComRes research which concluded the affordability crisis “threatens London’s reputation as a world-leading city”.

Working in harmony

More than just voicing discontent, companies are following Deloitte’s lead and starting to act. Ernst & Young, which also takes on hundreds of graduates each year, is understood to be speaking with Build to Rent developers to discuss similar deals to the one struck by Deloitte. Similarly, ‘magic circle’ international law firms Berwin Leighton Paisner and Linklaters are thought to be sounding out private rented sector (PRS) developers about what kind of terms they might be able to offer graduates - as is global property consultancy Jones Lang LaSalle. Other global giants including Glaxosmithkline and Sky are understood to be have been engaged by PRS developers. All companies declined to comment.

Developers refuse to identify the businesses expressing interest, but confirm that it is coming principally from higher-paying global banks, accountancy firms, law firms and large technology companies.

“A lot of people [companies] are talking about it,” says Harry Downes, managing director of build to let developer Fizzy Living. “It’s an obvious marriage.” He says employers increasingly want to take the worry of renting off their graduates’ hands. Given large companies are often used to sourcing accommodation for staff overseas and racking up huge hotel bills, brokering deals with developers isn’t a huge leap. However, he cautions that most developers won’t want to become large scale “dormitories” for individual firms.

Ian Fletcher, policy director at the British Property Federation, notes this approach is common in the US where companies like Microsoft offer staff accommodation via large branded rental providers, but says the UK market is in its infancy. “We have 21,000 [PRS] units in production, but not many are in completion, so there’s not much for employers to rent yet,” he says.

As a result, companies ranging from Co-operative Bank through to Starbucks are taking other creative measures to help staff with the rising cost of housing in London (see box: Steps to Bournville). The most radical is to actually develop property to let to staff. Deloitte is examining this option.

“Why don’t we own some property and do it ourselves?” asks Mr Ferguson. “In which case we might look at a slightly different model of property and look more at student-style accommodation where you have studio-style apartments that are sub-divided into a bedroom, bathroom and cooking area. That could be an ultimate destination.”

If the company did this, Mr Ferguson says it could potentially invest its pension scheme and manage the accommodation itself.

“Wouldn’t it make sense to build properties that we can put our own staff in so that the people we are paying that generate our revenues, and use it to create an income stream for our former employees?” he asks. “There is a kind of harmony in the whole thing.”

London Mayor Boris Johnson has also come round to this way of thinking. Given the government plans to shift affordable housing planning requirements away from discount rent and shared ownership products to Starter Homes (homes sold at a 20% discount), the mayor is now looking for new ways to fund intermediate housing. Inside Housing can reveal the mayor is considering getting employers to pay for affordable housing in the capital instead of the taxpayer.

Nurturing start-ups

The Greater London Authority (GLA) is understood to be in talks with companies about the concept of getting them to fund a shared ownership product or contribute through partnerships with housing associations. Sources say the shared ownership product would entail an employer paying for the cost of building the homes and then benefitting from the rental income and any staircasing of equity. An alternative approach being considered entails an employer paying for some of the cost of affordable homes - for instance intermediate rent - in return for being able to nominate employees to live in those homes.

Such a scheme is unlikely to help small businesses and employees working in lower-earning areas, such as London’s economically vital technology start-up sector. Juliette Morgan, head of property strategy at Tech City, told delegates at the launch of Fifty Thousand Homes that entrepreneurs working at Tech City are living 16 to one house. Similarly, Anthony Impey, chief executive of tech firm Optimity, warns there is a growing homelessness problem among apprentices and graduates - in part due to problems with the benefit system.

“Wherever there is an issue with housing, we have made an intervention, be it through a loan or an advance or something that enables them not to worry about a roof over their head,” says Mr Impey, who has been forced to source hostel spaces for staff. He warns that tech firms seeking rapid growth such as Optimity are now having to consider migrating to cities like Bristol and Manchester, where lower housing costs combined with growing start-up scenes and, in the case of Manchester and Liverpool, the potential of the Northern Powerhouse, are proving attractive.

It is clear that the cost of housing is now proving too high for even the capital’s economy to bear. Employers are going to increasingly be faced with a stark choice: return to the Cadbury approach of helping staff with housing, or leave London.