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What next for the house build market?

Posted: 16 Jul, 2014.

Will there be enough houses to meet demand?

The country as a whole seems to be obsessed with the housing market and probably not without good reason. Many of us own or rent property and it is a significant expense and, in a broader sense the supply, or lack, of suitable housing impacts on the economy as a whole. It is evident that there is not enough housing stock particularly in the South East, where affordable homes are difficult to come by. As a company supplying doors to the construction sector we take an interest in house building statistics and the figures are quite sobering.

Statistics and more statistics

At the high point in 1968 there were over 350,000 housing completions in the UK of which over 200,000 were in the private sector. In 2013 there were 122,590 total housing starts, which is an improvement on the paltry 80,920 in 2010 but well below the necessary requirement. It is said that Britain will be short of 1 million homes by the end of the decade, owing to the increase in population and deficit in house building, but knowing that and doing something about it is a difficult problem.

The shortage of supply creates pressure on prices and the Office of National Statistics says that UK house prices rose by 10% to April this year, and in London they increased by 19%. The Local Government Association (LGA) says that in the last 14 years house prices have risen by 155% while average wages have risen by 41%. It is sobering to realise that 80% of homes on the market in England are unaffordable to people on average incomes.

As we know statistics get a bad press and they can prove what you want them to prove, but whichever way you look at it, there is something going wrong.

Is there a short term fix to a long term problem?

Doing nothing is usually not a good option, but successive governments have rather ignored the impending housing crisis. It is estimated by the housing charity Shelter there was a shortfall of 100,000 houses being built last year, and this is a continuation of a trend going back for a number of years. The government is creating a number of initiatives such as “Help to Buy” for those trying to get on the property ladder and “Right to Build” for those people wanting to build their own home.

The LGA believe that councils could build homes at a scale that would have a significant impact on the housing shortage. Interestingly way back in 1953 local authorities built a record 198,000 houses which represented 75% of the total houses built that year. It is unlikely that this sort of output would be achieved in modern times, although government is aware that local authorities have a role to play and has released some money for affordable house building (more information here)

One thing that is increasingly being talked about is incentivising builders to build. The LGA suggests that developers are given incentives to build on sites where they have planning permission instead of leaving them in their land bank for future use. Large builders have responsibilities to shareholders to make returns on their investment and it may not be in their interest to increase building dramatically, so smaller builders must be able to take up some of the slack. A study by KPMG the accountancy firm, says that 80% of homes in Austria are built by small builders. If small builders can be encouraged to build more perhaps with cheap loans available then it could make a difference.

Taking the long view

It is clear that there is little that can be done in the short term to resolve the problem of the housing shortage. There is clearly a space for some creative thinking from both government and local authorities, but the main thing is to get people building, whether as individual self-builders or commercial builders both large and small. In the first quarter this year there were 36,450 housing starts, which is not encouraging when you consider that most experts believe we need to be building 250,000 homes a year. Research has shown that if things stay as they are, half of all adults under 35 will be living at the home of their parents. If that doesn’t concentrate people’s minds then nothing will!

 

 

By James Cadman

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