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Housing supply – where will we live?

Successive Governments have failed to ensure housing supply matches demand. After a long period under the radar, the shortage of housing supply has been thrown into the spotlight thanks to the combination of a recent price boom and stagnant real wages.

Though it may only recently have captured widespread political attention, it has been clear for some time that housing supply is not keeping up with the additional demand generated by rising life expectancy, immigration and the growing number of one-person households.

Estimates put the need for additional housing in England at between 232,000 to 300,000 new units per year, a level not reached since  the late 1970s and two to three times current supply.

Chart 1: Gap between households and house building

The number of new households each year has exceeded the number of homes built in every year since 2008, and the gap has grown in recent years, new dwellings (bars) by tenure, and new households (line), 1972-2013 (projections of new households to 2020).

Chart showing the number of new dwellings by tenure (private sector, houssing association, local authority) and new households between 1972 and 2013

The resultant house price inflation in areas of high demand has led commentators to suggest that by 2020 home ownership will be an 'impossible dream' for those not already on the ladder.

Declining affordability would suggest that, for many, that dream is already impossible.

Chart 2: House price to income ratio

Across the income distribution, home ownership has become increasingly hard to afford. House price to income ratio, median and 90th percentile incomes, Great Britain, 1993–2014.

chart showing house price to income ratio, median and 90th percentile incomes in Great Britain between 1993-2014

One consequence of the difficulties households face in accessing home ownership (and social housing) has been the growth of the private rented sector: there are now more households renting privately in England than there are in social housing.

Chart 3: Households by tenure

The private rental sector has grown substantially over the past decade. Households by tenure, share of the total 1991–2013/14.
Chart showing households by tenure (outright owners, owners with mortgages, social renters and privte renters) as a share of total households between 1991 and 2013/14

Social housing: Affordable v social rents

Since local authorities stopped building homes in large numbers, non-profit making housing associations are mainly responsible for building new social housing. They do so principally using central government subsidies together with private finance.

The October 2010 Spending Review reduced the capital subsidy available up to 2014-15 for the development of new affordable housing to £4.5 billion (down from £8.4 billion over the period of the previous Spending Review).  But housing associations were encouraged to build properties with rent levels at up to 80% of market rents instead of social rents (which are typically half the market rate).

This additional revenue can be reinvested in new-build; therefore, reduced capital subsidy has been partly counterbalanced by this new rental model. Bidding for the 2011–15 round was well subscribed, but looks to be less enthusiastic for the £3.3 billion allocated for 2015–18.

This may be partly down to uncertainty about the impact of welfare reform: since nearly three-quarters of affordable rent tenants receive housing benefit to help them pay, ongoing welfare reform is viewed by the lenders to the sector as high risk, given its potential to disrupt rental streams.

The new Government may wish to look again at the level of social housing subsidy, and consider how much should come directly from capital funding, and indirectly in the form of housing benefit.

Fiscal constraints could limit the Government's room for manoeuvre, however; and if it is to significantly reduce the social housing shortage, it may need to look to the private sector for new sources of investment and for more creative means of delivery.

Planning reform

Constraints in the planning system are often cited as reasons why it has proved so difficult to build enough houses.

To help boost housing supply, the previous Government made widespread changes to planning policy in the 2012 National Planning Policy Framework (NPPF).

The NPPF introduced the "presumption in favour of sustainable development", which can make refusing planning consent more difficult for local planning authorities without up-to-date local plan housing policies.

To restart stalled developments the Growth and Infrastructure Act 2013 provided developers with a mechanism to renegotiate affordable housing requirements where they were no longer economically viable.

New permitted development rights were added to allow the conversion of a variety of buildings, such as offices, former agricultural and industrial buildings, into homes without the need for planning permission.

It is difficult to assess the impact of these reforms in isolation from other factors affecting housing supply. It has been reported that planning approvals increased 20% since the introduction of the NPPF, with fewer applications refused or withdrawn.

Concerns remain, however, that there has been no noticeable rise in planning approvals for the most needed types of housing.

The greenbelt debate

Another reason commonly cited for inadequate housing supply is a shortage of available land, blocked in some areas by policies designed to protect green spaces.

Although greenbelt policy has been effective in preventing urban sprawl, and maintaining a clear physical distinction between town and country, it is argued that it has prevented houses from being built where they are most needed, contributing to unaffordable house prices for first time buyers.

There are calls on all sides for greenbelt principles to be re-evaluated: some want stronger protections to help meet the challenges of climate change and food security; others question how areas of the greenbelt without public access and/or high environmental value can continue to justify protection.

Party Lines

  • Conservatives: extend the right to buy to housing associations and build 200,000 new starter homes
  • Greens: provide 500,000 social rented homes
  • Labour: build at least 200,000 new homes a year by 2020
  • Liberal democrats: build 300,000 homes a year and publish a long-term plan to set out how this will be achieved in the first year of the parliament
  • SNP: will support investment in a house-building target of 100,000 affordable homes per year in the UK
  • UKIP: build 1 million homes on brownfield sites by 2015

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