Part IV: Affordable Housing & The Future
The past and present issues of affordable housing have been extensively reviewed and while the government adds £9.1 billion for 25,000 homes until 2021 to help ease the problem is this really going to help with the home shortages?
Housebuilder & Developer (H&D) recently asked in a headline ‘Is the UK’s housing crisis more than a supply and demand issue?' And while PM Theresa May and Mayor of London Mr. Sadiq Khan have declared a war of sorts on the lack of affordable housing others are asking if building new homes is the proper approach to this national problem.
One previous plan in 2016 committed £1.2 billion to build 300,000 affordable homes on sites in South East England that included a former military base, hospital and a goods yard.
Writing for CityLab Fergus O’Sullivan reported of the plan:
“On closer look, the plan seems somewhat less promising, partly because its use of the term “affordable” is so optimistic as to be meaningless.The new homes prices will be capped at £250,000 ($368,000) outside London and £450,000 ($663,000) within it—around 80 percent of the market rate. They will thus still be far beyond the means of the average person, who would need to have saved a deposit of £55,000 to secure the loan on a non-London starter home. Those that can manage that cost, meanwhile, will be free to sell their home after five years, pocketing the 20 percent cut themselves before putting the place on the market.”
The economist John Kay says the solution to the housing crunch is to just build more houses as immigration has been a critical element along with the decline in households. He recommends that nearly 300,000 per year is what should be the target for addressing the problem. But for the last decade that volume amount has only been met half way.
The H&D says:
“Kay says that the inevitable result of this supply and demand mismatch is a price hike and, lo and behold, since the early 1990s, house prices have more than doubled in real terms, despite the 2008 crisis.”
In opposing this strategy Nathan Brooker writing in the Financial Times says that to :
`...build yourself out of a housing crisis is like trying to dig yourself out of a hole’.
Brooker states that for central London the real problem is not a lack of housing its the amount of empty which are in abundance and overpriced.
H&D says of Brookers analysis:
“...that it’s not largely a problem of supply and demand, but of homes being too expensive. He blames this on high land values, a cumbersome planning system and the fact that house owners generally like high house price and worry when they fall. Easy credit and low interest rates have also played a part in increasing demand and pushing up prices to the extent that UK homes, at least in London, have become attractive assets for foreign investors.”
As I stated in Part II research found that 30% of foreign buyers would be using the property for living and 70% stated their intention for buying was for investment purposes only. Many in the affordable home movement have complained that most of these residences and unused office blocks remain empty as owners do not want to have to accommodate or spend money on making their units meet the local council requirements even if its for short term letting. Returns however since 1996 buy-to-let have seen returns increasing on average 1,400%.
What about subsidised housing?
H&D states: “Subsiding building doesn’t necessarily help either as Spain, Ireland and Portugal all tried that, but it achieved little for them other than large stocks of unwanted houses.”
“It’s not true, by the way, that our European neighbours rely more on subsidised social housing than the UK, where it accounts for about 18% of all homes. Only three European economies rely more on social housing than we do: the Netherlands, where it accounts for 32% of all homes, Austria at 23% and Denmark at 19%."
The number of empty dwellings estimated by the government is at its highest number in 20 years and almost 1 million additional homes above those required in Britain.
“In truth, these figures on empty homes are, in themselves, misleading. On their own, they don’t give a full picture because they include second homes, or properties which are empty because they are awaiting for tenants or home owners to move in.”
London is viewed as the extreme case when it comes to housing and demand with Mr. Kay saying that its not just about building homes but where they are built.
After the housing crash in the 1990’s many homebuilders registered with the National House Building Council went out of business with small housebuilding firms building 100 homes per year saw a decline of 12,000 builders in the 1980’s to nearly 3,000 by 2014. For the year 2013 small builders constructed 20,000 while ten years earlier the volume was 51,000.
The government has worked to attract new small builders into the national market with a £525 million Builders Finance Fund to assist with new construction.
H&D says of an analysis by Savills:“...that over the past 18 months, small and medium housebuilders have been re-entering themarket and it is from them that it expects any step change in supply to come.”
Craig Peterson, chief operating officer and co-founder of Growth Capital Ventures states in H&D:
“This is welcome news. As I’ve explained, the UK housing market is complicated; a simple supply and demand diagnosis doesn’t really explain its problems and a onesize-fits-all approach certainly won’t address them. We need to encourage the smaller independents to do again what they have been so good at doing in the past –providing affordable homes for people in the places where they want to live and get Britain building again.”