Housing shortage to scupper growth?

Jennifer Lowe

June 10, 2006

There is much talk of the shortage of housing in the UK, which has become even more alarming in the last ten years as the rate of new home construction fails to keep up with rapidly growing demand. However, new figures on the growing number of households released by the Government shows the true extent of Britain’s worsening housing supply crisis over the next 20 years, and it is even more serious than previously predicted.

By comparing the increase in households with current statistics on housebuilding, it is possible to reveal the precise shortage of homes in each area of the UK.

The number of households in England is expected to increase from 20.9 million in 2003 to 25.7 million by 2026, an annual growth of 209,000 according to the Department for Communities and Local Government. This is a result of growth in the adult population, increased numbers of single households, rising divorce rates and increased immigration. However, the already low rate of new homes being built is increasing at a much slower pace of just 2% per year.

London faces the most severe shortage, with households increasing by 36,200 per year but only 18,163 new homes being built annually. Consequently, the city will see only half of the new homes needed being built between now and 2026.

The South West and South East are also facing chronic shortages if radical action is not taken to increase housing supply. The South West will have a deficit of 11,489 homes per year and the South East a deficit of 9,158 homes. The only area of the UK in which levels of housebuilding are exceeding the rise in households is the North East, where new homes are being built at a rate of 7,368 compared to a 5,300 annual increase in the number of households.

Although the number of homes being built is on the up, with a 17% rise in new homes completions in the first quarter of this year compared to the same period in 2005, this is still far from sufficient. Developers are keen to increase levels of building, but they are being held back by an antiquated planning system which is extremely slow and shows little sign of coping with current or future demands. The planning system is already creaking under the weight of existing applications and causing enormous frustration for housebuilders who are keen to get on and build.

New innovations in housebuilding could also help increase levels of activity, provided the planning system is overhauled. Modern Methods of Construction (MMC), where all or part of the construction takes place in a factory, could offer a solution to the shortage, allowing homes to be built at a much faster rate as well as achieving greater quality due to highly automated factory conditions. Only by embracing such innovations and changing the way we both plan and build, does the industry have a chance of meeting this demand.

In addition, the affordable housing crisis is worsening, with 70% of all homes built now priced at more than £150,000. There has been a drop in the number of affordable homes being built by housing associations – of the 52,140 applications to build new homes in the first quarter of 2006, just 6,317 were by, or on behalf of, housing associations – 11% down on the same period of 2005. This reduction in the building of affordable homes is at odds with the Government’s efforts to improve the supply of low cost homes for struggling first time buyers and those priced out of the housing market altogether.

The Government must do more to assist first time buyers with the expansion of the shared equity scheme, along with the release of Government-owned land for the creation of more low-cost homes which are truly affordable. According to the Halifax the average age of a first time buyer is now 33, resulting in high numbers of young people in their twenties and thirties being left with no choice but to continue living with their parents, unable to afford a home of their own. If there are not enough suitable properties on the market, the Government’s shared equity schemes will only serve to push prices up higher by creating hundreds of thousands more potential owners while failing to provide enough new homes.

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