Is there a problem with the current housing market?

Christine WhiteheadLSE

Social implications of a changing housing marketESRC Festival of Social Science: Housing Event

Geffrye Museum of the Home12 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.