How can we build enough houses to support demand?

There is an obvious need in the UK to build more houses. Since the Barker Review in 2004, policy makers, academics and politicians across the board have recognised the need to significantly increase the supply of new homes in order to meet current and future housing needs, and limit further dramatic increases in housing costs.

Where there is a high demand for housing but not enough supply, this leads to high house prices which exacerbates the problem for those trying to buy. So, theoretically if we increase the supply of housing, prices will fall.

However, 14 years on from the Barker Review, while development of housing remains a high priority issue and although there seems to be residential building sites wherever you look, the shortfall of housing doesn’t seem to be reducing. Not to mention the fact that the sale price of new-build houses remains high, precluding a great many people from buying their own home.

So, what determines house prices? Let’s break the equation down. In a given year the price will be based on the number of people who want to buy a house in that year, the amount of money they have to spend and the number of houses for sale in that year.

Currently we have this situation:

  • There are a growing number of people who want to buy a house – mainly people who are currently not in the housing market, and are usually those wanting to buy at the lower end of the housing market.
  • The amount of money people have to spend on a home is not rising (as wages have been largely static.)
  • The number of houses on the market has not increased sufficiently. Successive governments have had a housebuilding target of between 200,000-300,000 against a fairly static actual supply of around 160,000 houses a year.
  • The vast majority of houses coming on to the market in a given year are not new-builds, but already-existing houses, and this number has dropped from around 2 million per year in the 1980s to under 1 million in recent years. This means even if the building targets were hit we would still not address the shortfall in the number of houses on the market each year.

We should stop beating ourselves up over this shortfall, and recognise it is not just a need for 1000’s of new builds that will solve this problem.

It’s not just about quantity

We also need to consider the types and tenure of houses that are being built. If we look at why the numbers of existing properties on the market has fallen there are a few reasons, such as:

  • With prices rising fast, people are not rushing to sell up
  • Staying put and extending is a more attractive option
  • Stamp duty has risen, making the cost of moving more expensive
  • Mortgages are harder to get

A key factor is also that the existing homeowner is an aging one and older people are less likely to want to move. This fact then also raises the question on the size of houses that need to be built (are more smaller houses required to attract older homeowners?)

From a developer’s perspective it is easy to understand that they gain to make more profit from building a larger house as the cost of building an extra bedroom is proportionally less than the value added to the sale value. However, this also has to be reconciled with the average number of people per household being 2.3, so the most sought-after property is a 3-4 bedroomed house.

But this figure doesn’t take into account the skewed nature of the population dynamic looking for a home, where more people are likely to be looking for a 1 or 2 bed house. On a typical development this size property may only account for less than a third of the overall homes available and this again forces property values of these houses higher. This has the inevitable result that many people cannot afford to buy.

Affordable housing, brown field sites & infrastructure

So, how do we solve this seemingly unsolvable problem with an unachievable target?

Affordable Housing schemes can come into play at this point. The Association for Public Service Excellence (APSE) has just published a report citing that 63% of Councils regard their Affordable Housing need as severe. Surely if more smaller homes were available the prices of these homes would be lower?

This seems to be more sensible than engaging in extensive and complex agreements which compound the problem further by delaying consent times, tying up planning officers’ time and resulting in numerous conditions being imposed which then have to be discharged and/or monitored. AND on top of all of this, we create a new problem by inadvertently placing a negative stigma on the people and the homes within these schemes.

Another area the UK government should be exploring seriously is green and brown field sites. According to the UK National Ecosystem Assessment (NEA), only 2% of all of England’s land mass is built on (it’s just 1% elsewhere in the UK). By ‘built on’ this means anything covered in buildings, roads, car parks, railways, concrete, paths, etc.

If this was increased a little all the residential property issues could potentially be solved. To that end, the brownfield register was conceived in 2016 and came into effect last year. 73 councils across England are tasked with piloting one of these brownfield registers. These provide house builders with up-to-date and publicly available information on all brownfield sites available for housing locally.

The idea of these registers is that they help housebuilders identify suitable sites quickly, speeding up the construction of new homes. They will also allow communities to draw attention to local sites for listing, including in some cases derelict buildings and eyesores that are primed for redevelopment and that could attract investment to the area.

There are also massive improvements the UK government could make in the area of infrastructure investment. For instance, over recent years cities near motorways and rail routes have prospered and expanded dramatically, but where there has been minimal or no government spend on infrastructure, no one wants houses as there are usually few jobs in those areas.

There are some positives. For instance, in recent years the increasing popularity of self-build projects is encouraging. The more citizens that group together and are proactive in tackling their own housing needs the better, as in doing so they take control of the price and quality of that housing too, rather than being at the mercy of large developers.

Evidently, the answer to solving the housing shortfall is in the hands of not just the government, but developers too. The key is putting in place legislation and guidance that will work cross-party, avoiding party politics and the barriers that this can put in the way. We need something that will work for the nation over the coming years and decades as demand increases more and more.

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