In November 2011, David Cameron promised a package of policies to “get Britain building again”. Colin Jones, Professor of Estate Management at the IHURER research institute explains why housebuilding in the UK still fails to keep pace with population growth.
A UK government report in 2007 noted, “For a generation, the supply of new homes has not kept up with rising demand.” The veracity of this statement is reinforced by the 2011 Census that reported a 7% increase in the population of England and Wales and 5% in Scotland over the previous decade. An increase that was much higher than expected. Meanwhile 2007 turned out to be the peak year for UK house building and annual completions fell by 43% by 2010-11 following the credit crunch.
New house building in the UK was 146,460 units in 2011-12 which was the second lowest total (the previous year was the lowest) since 1924. The quarterly statistics on completions for 2012 published so far suggest that this financial year is on course to be even lower than 2010-11. In other words a new low. House building is simply not responding to demand in the short or long term.
The essential direction of the balance between house building and demographic change has been acknowledged in the policy pronouncements of the Coalition. The government offers all the right sound bites. In November 2011 David Cameron said, ”We are determined…to get the market moving” and “get Britain building again”. The policy package that accompanied these statements became live in April 2012:
- A stimulus to the Right to Buy in England by increasing discounts to a maximum of £75,000 was designed to generate funding new funding for affordable housing. (The government calculates that for every council house sold the funds will be sufficient to build a new affordable home).
- A mortgage indemnity scheme enables buyers of new homes to borrow up to 95% of their value. The government underwrites part of the associated risk. (The previous government’s policy of exempting first-time buyers from paying stamp duty on homes valued up to a £250,000 threshold lapsed at the end of March 2012.)
Both these schemes are attractive because they effectively cost the government nothing in the short term. There have also been changes to the planning system to stimulate new building.
The government has high hopes for these policies and they were trumpheted in the list of achievements in its Mid-Term Report. At the announcement of the indemnity scheme it was billed as potentially helping 100,000 people in England. However, in the first three months it supported only 250 new house buyers. It was anticipated by the government that the changes to the Right to Buy would stimulate an additional 20,000 sales over its first three years. Given that there were only 3720 such sales in 2010-11 and that the number had been broadly unchanged for the previous three years too this forecast appeared to be wishful thinking. Indeed actual sales in the first half of the latest financial year were only 1487 so the numbers are falling not rising. The government appears at best optimistic about these policies in the short term. And of course it will be some time before receipts from sales can be translated into new affordable housing. This also applies to the planning changes designed to stimulate new building.
But the problem is not just about the low numbers of new houses and the associated nimbyism and planning regulations. The picture is worse than it appears because of the types of houses being built. Look first at the private sector. In the late 1970s and 1980s the private house building industry focussed on starter homes offering small cheap flats and houses, but the house building industry working model is now generally high price, high mark up and low output of family homes and ‘luxury’ city centre flats. The average price of a new terraced or semi-detached house is £200,000, beyond the reach of most households even with just a 5% deposit.
Meanwhile with public sector expenditure reductions there has been an invigorated effort to make public sector subsidies (and now right to buy receipts) go further by reducing state support for new housing built by housing associations. In effect this has meant a redefinition of affordable housing provided by this sector. The result is that this publicly supported housing will need to charge much higher rents than traditionally for social housing, the order of 80 to 90% of market rents. Whilst ostensibly aimed at ‘areas where there is a demand for affordable housing’ the new schemes need to be in localities where they are viable, and these are not necessarily be those that have the greatest need. These new properties also attract professionals currently housed in the main stream private rented sector at rents that are equivalent to mortgage repayments. Indeed the advertisements for completed schemes note priority is given to applicants on high incomes that do not require housing benefit, and households do not have to be an existing social tenant or even on the waiting list.
The consequence is that new housing supply is offering an increasingly narrow menu – the dominant private sector is building for sale primarily at the top end of the market for high income families and the state is supporting housing at rents just below market levels to households who until recently would have bought. The policy language is all about helping households on to the housing ‘ladder’, and is implicitly a trickle down solution to the housing problem. Within this perspective new houses built at the top end of the market are bought by the rich who then vacate houses that are smaller/lower priced for the next lower income group to move into, and so on down the housing market chain. So the new affordable housing for rent at near market rents reduces the pressure on social housing indirectly by building housing for richer households.
Unfortunately there are a number of spanners in the argument. The mythical housing ‘ladder’ has first time purchasers buying a cheap starter home and gradually progressing by trading up. Yet the ladder is something of a mirage as many two income professional households start well up the ‘ladder’ and trading down can be a reality for many households. Family wealth is also an important influence on demand via mum and dad helping with the deposit or from inheritances. Any housing market chains created by these new government policies are likely to be very short, at best simply creating more space in the private rented sector for the squeezed middle, “Generation Rent”.
Many of the young people who are struggling to afford a home of their own will not be able to afford the mortgage payments on an expensive new home, even with a 5% deposit. The trickle, and a lagged trickle at that, of new houses generated by these policies will not keep pace with demographic growth and have only a marginal direct benefit to “Generation Rent”, and most importantly offer no indirect help to housing the poor. These trickle down policies may cost very little but they also achieve very little. They will not get the ‘housing market moving’ or ‘Britain building’.
Colin Jones is professor of estate management. His publications most directly linked to this blog are:
“The UK Housing Market Cycle and the Role of Planning: the Policy Challenge following the Financial Crisis” chapter in C Jones, M White and N Dunse (editors) Challenges of the Housing Economy: An International Perspective, Wiley-Blackwell, Oxford, 2012.