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Opinion: The Real Problem With Our Housing Supply

Published on: 15 Jun, 2021
Updated on: 21 Jun, 2021

By Niels Laub

retired architect

I am a little tired of hearing about the need to build 300,000 dwellings per year to increase the affordability of housing.

The government has made an assumption that, if housing supply can exceed the forecast increase in households over a sufficient period of time, then house prices will fall relative to incomes.

…we will continue our progress towards our target of 300,000 homes a year by the mid-2020s” Conservative manifesto 2019

This is the basis of the government’s “Standard Method” of calculating housing need which has been incorporated into the National Planning Policy Framework (NPPF) and is now mandatory.

When drawing up Local Plans, borough councils are now required to demonstrate that they can not only meet the objectively assessed housing need (OAN) over the period of the plan but must also increase supply by a significant factor to ensure affordability.

If they cannot meet this requirement within the existing urban environment, they must release more land on the assumption that this will automatically generate an increase in housing supply which in turn will ensure affordability.

So what really determines the value of properties?

The price of property is governed by factors such as prevailing interest rates and the availability of money – not by how many new houses can be built.

The housing market and the value of property is driven by demand rather than need. 90 per cent of the turnover in the housing market is in existing properties and it is this demand that ultimately determines property values.

When the cost of borrowing is low, as it has been for the last ten years, people can afford to borrow more, and the demand for houses will increase, causing property prices to rise.

The demand for housing, which ultimately drives the value of housing, is actually being driven by the historically low interest rates and the government’s introduction of a stamp duty holiday on the first £500,000 of a home’s cost.

According to an article in The Times on June 8 2021, house prices increased in value by 9.5 per cent in the year to May, the biggest annual increase since June 2014.

So it is low interest rates, the availability of money and the government’s incentives like the stamp duty holiday that really drives the value of property.

What determines the supply of housing?

Developers will never be persuaded to build more houses to bring the cost of houses down. That’s not how it works. Developers build houses at their own pace to maximize profitability.

According to analysis by the Local Government Association in February 2020, more than a million homes which have been granted planning permission in the past decade have not yet been built. Latest figures show that 2,564,600 units have been granted planning permission by councils since 2009/10 while only 1,530,680 have been completed.

The number of planning permissions granted for new homes has almost doubled since 2012/13 with councils approving 9 in 10 applications, therefore the planning process itself cannot be blamed for any housing shortage.

The supply of new properties is driven by demand. Newly forming households are overwhelmingly the young, and as they have been hit hardest by the downward pressure on wages and increased indebtedness from student loans, they find it very difficult to save for a deposit or obtain mortgages. Hence the poor demand for new housing and the reluctance of the major developers to increase supply.

Do we need to release more land to increase housing supply?

According to the Campaign to Protect Rural England (CPRE), government figures show that the amount of brownfield land becoming available for re-development is far outstripping the rate at which it is being used and there is enough available for 1.5 million new homes. The release of more land is therefore not necessarily the answer.

Consider Ebbsfleet in Kent where the government announced plans to build a new garden city in 2014 with plans to provide 15,000 new homes. So far, despite the availability of land, only 100 homes have been built.

According to The Guardian on December 31, 2015, the biggest house builders in the UK have enough land to build more than 615,000 new homes. The four largest firms, Berkeley, Barratt, Persimmon and Taylor Wimpey, either own or have an option to build on more than 450,000 plots.

And according to a report in The Telegraph on December 19, 2016, the UK’s biggest house builders are sitting on 14 years worth of land on which almost one million homes could be built.

Research carried out by the housing charity Shelter found that the ten firms control 404,000 plots through their current land banks and a further 558,000 plots in so-called “strategic land banks”.

Developers prefer greenfield sites.

So why are developers pushing for the release of more land?

Developers prefer to develop greenfield sites because they are generally much cheaper and quicker to establish in terms of site set up than urban sites, involve no costly removal of contaminated soil and are therefore much more profitable.

Developers much prefer to develop “green belt” sites because the uplift in land value is eye-watering. Farmland in the green belt around Guildford could be bought for about £7,000 per acre over the past ten to twenty years. As development land, its value can increase to about £1.2 m per acre in areas such as Blackwell Farm. Ask any local estate agent.

Should we rely on the private sector to provide affordable housing?

In my view, it is inappropriate to rely on the private sector to provide affordable housing. It is the equivalent of asking Jaguar Land Rover to increase the supply of Range Rovers to make them more affordable.

An increase in the supply of affordable housing will only be realised when the government:

  • enables councils to borrow more money to build more housing for subsidised rent;
  • ends the “right to buy” policy which sells off council housing without replacing it;
  • makes subletting council houses a criminal offence and enforces it;
  • adjusts the tax system further to deter the “buy to let” market;
  • prohibits speculation in the residential market by non-UK residents (this is a big issue in London);
  • requires all universities to provide adequate accommodation for their students;
  • fully embraces and incentivises prefabrication in the construction industry;
  • finds a way of encouraging elderly people locked into in large properties to downsize;
  • incentivises the reuse of empty residential accommodation above shops.

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test 3 Responses to Opinion: The Real Problem With Our Housing Supply

  1. J Holt Reply

    June 15, 2021 at 2:52 pm

    Well said.

  2. David Roberts Reply

    June 16, 2021 at 10:57 am

    A very accurate analysis.

    No amount of new building will ever bring local house prices down since, here in the Home Counties, we live in the “Land of Infinite Demand”.

    What self-respecting Russian oligarch, Mexican drug lord or Chinese party baron would not want to launder his legal or illegal wealth through the London property market when it’s so easy?

    Candy & Candy are reportedly considering an offer of £125 million in Bitcoin for a flat in the West End, stretching prices for honest folk like a piece of elastic.

    Zero per cent interest rates, astronomical personal savings levels, land-banking by developers and foolish government stimuli all make this worse.

    Politicians have been drugging us for 50 years with the myth that we’re nobodies unless we own bricks and mortar, buying votes with extravagant promises of new homes. Time for rehab.

    Ownership of ever-more ‘stuff’ is a 1950s consumerist left-over, as the young appreciate.

    It’s unproductive and unsustainable.

    Let’s invest in nature and renewables and rent the things we need.

  3. Matthew Smith Reply

    June 16, 2021 at 2:38 pm

    Difficult to disagree with much of this well-informed article.

    I would only stress the need to do much more to remove buy-to-let landlords – personal and institutional – from the equation.

    Why prohibit speculation from non-UK residents and not buy-to-let purchases, with the latter having a much more severe effect on the market as a whole?

    In addition to driving up the cost of rent, and making it more difficult for first-time buyers to make their first purchase, many also have a tendency to do the absolute minimum in terms of maintenance and improvement work.

    This not only makes life more unpleasant for those who have no option but to rent but also means that when a buy-to-let property is listed for sale any potential purchaser is likely to have to budget for tens of thousands of pounds of work.

  4. Mark Bray-Parry Reply

    June 21, 2021 at 10:55 am

    I applaud Niels Laub who, unlike many others including the government and the opposition parties, hits the nail on the head with what policies are needed to lower house prices to bring them more in line with local wages.

    If only we could have policy, driven by experts, to meet the government’s political aim (ie align house prices with wages). Wasn’t that the purpose of the civil service? How have ended up with political parties delivering policies piecemeal?

    Mark Bray-Parry is a spokesman for the Green Party

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