David Curry

As part of the 2001 general election campaign, the Conservatives printed a poster which read: "You've paid for the teachers (and policemen and nurses): where are they?" The argument was that taxes were going up but services were not improving. The answer to the rhetorical question, at least as far as London and the South-east were concerned, was: "pushed out by soaring housing costs".

According to Keep London Working, a coalition of London local authorities and housing providers, the situation has got worse. This group, organised by the Peabody Trust and chaired by Sir Hugh Cubitt, has published the results of a survey of teachers, nurses and bus drivers, as well as a clutch of academic studies. It says more than 17,000 key workers want to leave London each year, including 21% of all nurses (nearly 10,000 people) and 13% of teachers (about 7600). Vacancy and turnover rates for key workers have nearly doubled in a decade, causing recruitment problems for the public and private sectors.

The group argues that 7000 key worker homes need to be provided annually. It calls for more rented accommodation aimed at those earning between £15,000 and £30,000 a year, ringfencing housing for people in particular jobs, and more focused working partnerships between employers, councils and housing providers. It argues that "affordable" should be defined not in terms of discount from market rent but in relation to income.

None of this is likely to come as a great surprise to the government. It has been struggling to deliver its existing key worker programme against a background of house price inflation. Its three-year "starter home" scheme to house 10,000 key workers – mostly in London and the South-east – ends next spring. So far, it has accommodated less than half that number, although it expects eventually to reach the 9000 mark. Of the 4500 workers who have been given housing, 80% are teachers and health workers, with police officers a poor third – which reflects the priorities of the initial allocations.

The government's initiative has been geared to house purchase. Housing associations have received Housing Corporation funds to build for shared ownership and have handed out interest-free loans for key workers to buy on the open market – as long as their properties were in the bottom quarter of the market and within reasonable distance from work. However, the main criticism has been the shortage of options for rented accommodation and the lack of suitable houses to retain as well as attract key workers.

Keep London Working argues that 7000 key worker homes need to be provided annually

John Prescott is now thrashing out the details of the successor initiative, which falls within the framework of his communities plan. His department will argue that it answers Keep London Working's demands. It envisages a £1bn expenditure over three years focused on four mechanisms, two of which are familiar and two more innovatory. The two familiar ones are open-market purchase, with housing associations contributing loans of at least 25% (up to £50,000) and shared ownership new-build. Scheme three, which is very highly targeted, will offer bigger loans to entice future headteachers to stay in London. The fourth mechanism will offer rented accommodation at intermediate rates. The Housing Corporation is inviting bids for the special teacher scheme from registered social landlords with land with planning permission.

Beyond these basic mechanisms, the details are still being thrashed out. The government looks likely to tie at least part of the programme more closely to certain jobs, and whereas the £250m package was specifically for starter homes, the new proposals will bring family homes within the programme. It is also looking for employer contributions.

Prescott is trialling another approach to providing affordable housing for London's key workers: English Partnerships is to assemble sites and obtain development partners to build homes on a fee-paid basis through competition. Later on, the intention is for it to find investment partners for further site acquisition and development. This may turn out to be the most useful initiative of the lot over the longer term.

Key worker housing is a hot political potato.