Is there a problem with the
current housing market?
Christine Whitehead
LSE
Social implications of a changing housing market
ESRC Festival of Social Science: Housing Event
Geffrye Museum of the Home
12 November 2015
Housing: top of the political agenda?
‘Everyone’ believes there is a major housing crisis arising from:
•lack of new supply (completions in last decade running at less
than half of current requirements);
•House prices out of line with incomes and affordability in all
tenures a growing problem;
•Rapid growth of expensive private rented sector even for
families;
•Increasing Housing Benefit bill;
•Problems especially concentrated in London where London
economy growing rapidly and out of line with rest of the country;
•‘Everyone’ blames the planners and shortage of land brownfield
policy, green belt and bureaucracy or indeed democracy
Basic Economics
• Demand depends on demographics but also incomes and
relative costs;
• Supply depends on costs; profits/risks; price of land;
• Demand can increase very quickly, while supply cannot
expand rapidly - building less than 0.5% of total each year;
• Result is higher prices and rents BUT also higher land
prices;
• Macro-economic volatility reduces incentives and capacity
to supply - post GFC but also 1989/90 and before;
• Long run constraints on supply - economic growth increases
competition for land; existing infrastructure and building
density limits adjustment; but also regulatory constraints –
green belt; local plans; NIMBYism.
Sources of Population Change in the UK
Housing Completions by Tenure
House prices
Household expenditure by tenure
Looking to the future
• The 2012 based projections suggest that, if past trends
continue, we will need to build an extra 222,000 homes
in England each year from 2011 – 2031;
• This is less than earlier projections BUT ONLY because
growth in household numbers has been restricted by lack
of supply and problems of affordability - at least for the
last decade and for younger households for a quarter of a
century;
• So far since 2011 we have built only 54% of the homes
required – so if we were to try to catch up by 2021 we
would need to build over 300,000 each year;
• This compares with 138,000 starts and 125,000
completions in England in 2014/15.
The Regional Story
• Major differences in population and household growth between
regions;
– North East 11%, increase in household between 2011 and 2031;
London 33%;
• Implies 25% of homes need to be in London – i.e. 55,000 units a year
• Currently completions under 20,000 in 2014/15, although starts rising.
Conclusions
• The housing system is failing to provide for population
and household formation let alone for economic
growth;
• Even if we build 222,000 each year until 2031 some
groups will still be worse off as compared to 2011 –
notably couples in London;
• But very unlikely to build this number consistently over
20 years;
• If the economy is successful, incomes will rise and
demand will be higher both for numbers and quality of
housing;
• The likely impact is higher house prices and worsening
affordability.
• Yes, we have a dysfunctional housing system.