Housing Market

The Department for Communities and Local Government (DCLG) in its Single Departmental Plan 2015-2020 aimed to secure 400,000 affordable housing (including Starter Homes) starts by 2020-21, increase housing supply by improving the planning process, bring forward public sector land, and diversify house building by helping small builders.

February’s Housing White Paper, Fixing our broken housing market identified a complex problem and “solving it requires a radical re-think of our whole approach to home building”.

The RICS UK Residential Market Survey (August 2017), “Record low stock numbers, political uncertainty and the aftermath of tax changes are obstacles hindering the UK housing market, with price growth and sales activity subdued during the month of July.”

So we have to ask, will the government’s interventions achieve the desired outcomes?

At its peak in the mid/ late 1960s, when more than 400,000 new homes were being completed each year, the private sector was contributing around half of this level.

Private developers have only achieved +200,000 completions a year seven times since 1949. The 1960’s production peak was achieved because more than 200,000 local authority and housing association homes were developed each year. The equivalent figure in 2016 was less than 32,000. History would suggest that relying on the private sector to increase production to the required levels might not achieve the awaited results.

Private developers respond to a very sensitive housing market, with continued price rises and squeezed affordability. Since UK housing is seen as an investment, this ever rising value is essential in preserving the country’s economic stability. Home owners do not have much interest in house prices going down, either as a by-product of significantly increased/ accelerated supply or through intervention in the land market, which is widely acknowledged to be at the root of the UK’s housing market dysfunctionality. In fact, to bring today’s house prices back to “sanity” – let’s say to the levels that pertained in the mid-1990s – would require a 40% fall nationally, and probably more than 50% in London.

It is not unreasonable to assume the overall number of homes built for owner occupation will remain relatively steady, or even decrease, as unaffordability continues, especially after some years of negative real wage growth in the UK. There is an increasing demand for rented accommodation, both in the affordable and private sectors. It is probably safe to assume this demand will continue to grow, in the short term if BREXIT uncertainties continue, and in the longer term. There are a significant number of investors looking for opportunities in the private rented market and the challenge currently seems to be identifying enough deliverable sites to satisfy this.

What many policy makers seem unwilling to accept is that the current shortfall in the annual production of new homes is still unlikely to be met without significant public investment. Such initiatives as Starter Homes (which are included within the ever widening definition of ‘affordable’) seem destined to wither on the vine as recent years’ initiative-itis looks set to be cured with a healthy dose of realism. Rumours abound about the future of Accelerated Construction, one of the more recent initiatives, under which constructors are required to build homes as quickly as possible, even if they can’t be sold.

Riverside’s job continues to be to navigate these choppy and unpredictable waters and do what we do best: work creatively with public partners in areas of housing demand and economic growth, create places people want to live in and generate value for our shareholders.

 

Dave Bullock

Dave is Managing Director of Compendium Living

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