The housing crisis?
Of course, we all know what to do, says new Valuer contributor and author David Garnett
Everybody knows that Britain has a housing problem, and everybody knows that a lack of supply is at the root of this problem. More than ten years have now passed since the Barker Review alerted us to the historic shortfall that needs to be addressed. In 2004 Kate Barker highlighted the need to build some 250,000 homes a year in England alone if we were to avoid the social and economic difficulties associated with housing market volatility and achieve decent, affordable homes for our children and grandchildren.
Housing market volatility is affected by a number of interrelated factors. As these include income, wealth and the availability of lending, the market is clearly sensitive to overall economic conditions. The financial crisis in 2008 had a significant effect, with house prices falling in the UK as a whole by some 15% from January 2008 to March 2009. In addition to this, the number of property sales in the UK almost halved from a peak of 1.67 million in 2006 to 0.86 million in 2009. Since then, the number of sales has recovered somewhat and reached 1.07 million in 2013. Financial markets have regained their stability and in the post-crisis period, it is unquestionably the low level of supply that has become the key feature of the current “housing crisis”.
In the decades following the Second World War, the UK built some 300,000 new homes a year. In recent years we have managed about half that number. This is not only low in terms of historical comparison, it is also low compared to other developed economies. In May 2014, Mark Carney, governor of the Bank of England, pointed out that house building in the UK was half that of his native Canada, despite the UK having a population twice the size. The consequences of this low level of supply vary across the country – but in all cases they are negative in nature. In certain districts overcrowding has re-emerged as a social problem. In some pressured areas prices are rising much faster than incomes. In many areas, social housing tenancies are becoming difficult to acquire and virtually everywhere would-be first-time buyers are being frustrated. In addition to these regional problems, the construction industry is failing to fulfil its potential as an engine for national economic growth.
The consequences of building barely half the homes needed is particularly damaging to younger people. With house prices now ranging from seven to eleven times average incomes and rental affordability for decent accommodation under pressure, access to housing is one of the most important issues for people in their twenties and thirties. Now that post graduation debt has become an established feature of British society, housing affordability is no longer a problem that is restricted to low-earning or unqualified youngsters. Many of those who do not have access to the “Bank of Mum and Dad” have given up any hope of home ownership and have become what is being termed “generation rent”. As a result, one significant change to the housing system is that private renting has experienced an upsurge. The private rented sector is now larger than its social rented counterpart. One consequence of this tenure realignment is that it is bringing to the fore questions about how private renting should be regulated in order to make it fit for purpose in the twenty first century.
All political parties have publicly recognised that supply deficiency is the key housing issue. The last coalition government’s housing strategy “Laying the Foundations”, made an unambiguous statement about construction. The foreword, signed by the then Prime Minister and Deputy Prime Minister, stated: “One of the most important things each generation can do for the next is to build high quality homes that will stand the test of time. But for decades in Britain we have under-built.”’
In his 2015 Housing Review, carried out on behalf of the Labour Party, Sir Michael Lyons suggested that we face the biggest housing crisis in a generation. Again, the Lyons Report indicated that decades of under provision lay at the seat of the “crisis”. The Labour Party has declared house building to be a national priority and prior to the election made a commitment to build in excess of 200,000 new homes a year, “not only because our children and grandchildren need the homes we should be providing now, but because greater house building will make a direct contribution to national economic growth.” (Foreword to the Lyons Review).
Most commentators recognise that house building is more than a moral issue and that getting house building moving again is crucial for economic growth. Housing construction has created an average 3 per cent of GDP over the last ten years and it is generally accepted that for every new home built, up to two new jobs are created for a year. Prior to the election, most politicians put forward the argument that without building new homes our economic recovery will take longer than it needs to.
Given the degree of political consensus about the need to adopt policies to stimulate supply, it was surprising that the focus of attention during the election campaign was so heavily skewed towards the advocacy of demand-side policies. Any first year student of economics will tell you that where increasing supply is a complicated process and takes time to achieve (as is the case for house building), public monies directed towards stimulating demand are likely to be “burned off” in higher prices. The political emphasis on demand-side policies during the general election therefore needs some explanation.
During its term of office the previous government acted on its understanding of the need to stimulate supply by introducing measures designed to release publicly owned land and streamlining the planning system, including the introduction of the starter homes initiative. However, when it came to the election campaign, the supply arguments were drowned out by a barrage of populist demand-side promises that included a continuing commitment to “help to buy” programmes for first time buyers, reforming inheritance tax for older home owners, and extending the “rightto- buy” for social tenants. Although the Labour Party’s 2007 commitment to build over 240,000 new homes a year by 2016 became a manifesto pledge, what hit the headlines during the campaign was its populist declarations to put a cap on private sector rent increases, scrap stamp duty for first-time buyers of moderately priced homes, and introduce a “mansion tax” on homes worth over £2 million.
Given that most politicians clearly understand the urgent and over-riding need for an increase to the supply of homes, how do we explain the demand-side fiscal slants given to the debates and discussions about housing policy during the election period? There can only be one credible explanation – namely that the electorate at large are ambivalent about increasing the rate of house building and, as a result, politicians are diffident about over-emphasising the need for a large-scale construction programme. It would appear that in many locations there exists a tension between the community’s acceptance of the need for more homes and the reluctance of people to allow building to take place near to where they live. This ambivalence is well understood and for years has been branded as “NIMBYism” (Not In My Back Yard).
Such negative attitudes to new development proposals can be uncompromising and characterised with the acronym NOTE (Not Over There Either’) or even NTNA (Not There Not Anywhere). What is needed is what the general election failed to provide – a non-cynical, mature and well-informed national debate about how we can best respond to the clear and present challenges we face as a result of years of failing to supply sufficient decent, affordable homes. This would involve: • reconsidering the role of local authorities as active enablers of new housing provision (in line with recommendations of the 2015 Elphicke-House Report) • taking a further look at planning policies (including taking a more rational approach to maintaining the green belts around urban centres) • revising the regulatory system governing social housing developments and, above all, • shifting the emphasis of fiscal policies for housing away from irrational demand-side stimuli to the much overdue support for creating sources of finance for housing construction.
Subsidising present demand is irresponsible in one other important respect. Given that a unit of new housing outlives its original occupant and that present construction is expected to cater for future as well current generations, the new government has a responsibility to respond to those demographic changes that are already in the pipeline. The housing market is myopic and has no vision beyond the present and near future. Left to its own devices, it is unlikely to cater adequately for future needs. Projections indicate that by 2030, one in six people living in England will be over seventy years of age (a 50% increase from now). The “new baby-boomers” of eight million births between 2001 and 2012 will shortly enter the housing market and a simple projection of current policies will mean that the number of young adults living with owner-occupied parents could rise to 3.7million by 2020. The less fortunate will be inadequately housed in ways that will stunt their chances of a decent, productive life. In short, “we all know what to do” – but do we have the will and foresight to do it?
David Garnett is an author and expert on housing issues. His book, A-Z of Housing (Professional Keywords) is due for release in July.