City Hall launches new 'Vienna-style' social housing model

City Hall has launched a massive £1.5bn intervention to rescue London’s stalled housing market, deploying ultra-low interest loans to replicate Vienna’s gold-standard social housing model, City Hall has announced.

London will benefit from the government-backed loans to boost lagging housebuilding in the capital. The funding – which represents 60% of the £2.5bn national scheme – means loans will be offered to housing associations at an interest rate of 0.1% over 25 years to encourage mass development. It is a scheme which ministers and the Mayor of London are hoping will kickstart the delivery of both market and affordable housing, as well as unlocking sites currently stalled by developers.

Deputy Mayor of London Tom Copley said the low-interest loans “have echoes of Vienna’s renowned social housing funding model.”

How does Vienna do it?

The Austrian capital’s strategy is globally renowned for its financial stability and affordability. There are 182 Limited-Profit Housing Associations – social housing providers allowed to turn a small profit – which own around 40% of homes for rent in the city.

These are then mandated to provide rental accommodation at rates typically 25% below market value, ensuring properties aren’t out of reach for lower and middle-income residents.

In 2023, the average rent per square metre in Vienna was €10.50, according to analysis from consultants Deloitte, while Londoners were paying well over €30 per square metre, the highest in Europe.

Developers receive subsidies to enable them to keep fixed costs and rents at a lower level, with a low-interest loan covering more than a third of construction costs.

Other funding for social housing construction in Vienna comes from a 0.5% payroll tax for both employee and employer, which raises hundreds of millions per year.

Contrast this to London, where, especially in the years following former Prime Minister Liz Truss’s mini-budget, interest rates soared. Even in 2026, developers can usually expect to pay up to 12% when borrowing. This issue has often been raised by both the Mayor of London and Copley when defending their housebuilding record. As a result, many residents of Vienna actively choose to rent due to reasonable rates and a sense of stability.

Can London become like Vienna?

City Hall’s announcement on Friday was the most aggressive move towards a new social housing model in years. Combined with rent convergence reforms set to come into force in April – landlords will be able to gradually raise rent, with any extra funds ringfenced for investment in existing and new social housing stock – it appears London is trying to learn lessons from its Austrian counterpart.

However, there are still stark fundamental differences – for example, the Right to Buy scheme which allows council tenants to buy their home at a discount, taking stock off the rental market entirely.

The current scheme is also looking to build affordable homes primarily to clear London’s council housing waiting list, rather than, like Vienna, create a market where people of all incomes actively choose to rent.

How do stakeholders feel?

Sadiq Khan said: “We’re doing something that hasn’t been done in decades – providing low-interest loans to build the affordable homes Londoners desperately need. There are so many good, affordable housing projects in our city that need some extra support to get going. These low-interest loans will help make these homes a reality.”

Zoë Garbett, Chair of the London Assembly Housing Committee, told the Local Democracy Reporting Service (LDRS): “Any additional investment into the delivery of much needed affordable housing in London is welcomed.

“It is vital that any new affordable homes also meet the needs of all Londoners. We found that family homes and accessible homes for disabled Londoners are desperately needed, yet the most difficult to build.

“We hope to see this investment drive forward the much needed housing delivery for London, and will monitor its impact through our cross party committee work.”

James Small-Edwards AM, Labour’s spokesperson for Planning on the London Assembly, added: “The spiralling cost of construction materials, rising energy costs, and the damaging economic legacy left by the previous government have slowed housebuilding in London to a near standstill.

“This model works in other European cities – most notably Vienna – where affordable housing is built with low interest loans at a lower cost to the taxpayer.”

Has there been any criticism of the plans?

Lord Bailey, housing spokesman for the City Hall Conservatives, said the £1.5bn investment was simply taxpayers’ money covering up for years of flawed policy.

“I will always back anything that truly delivers more homes for Londoners, but let’s not pretend we got here by accident,” he told the Local Democracy Reporting Service (LDRS).

“We are in this position because the Mayor’s housing policies have fallen woefully short of Londoner’s needs. These loans are just a rescue package for developments which he has made unviable by his constant interference in the market and poor judgment.

“Londoners are now being asked to foot the bill through their taxes to clean up a crisis they did not create, while housing costs spiral further out of reach for ordinary families. It’s obscene.

“If the Mayor believes that pouring ever more taxpayers’ money into fixing problems borne of his own decisions is a sustainable plan, then every Londoner who pays tax or struggles under sky-high housing costs has a right to be angry.”

The Liberal Democrats welcomed the move but said it was long overdue.

Hina Bokhari, the leader of the party’s group on the London Assembly, said: “The Lib Dems have been calling for City Hall to intervene and undertake housing development itself for a long time but the Mayor has been slow to get this off the ground.

“The devil will now be in the detail as to how this fund will be spent and whether it will actually deliver the affordable homes London families are desperate for.”

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