The UK’s Options in Population Growth and Housing Shortages

The implications of too many people and too few homes gives England much to worry about. In terms of solutions, there are several possible paths to follow.

A pressing dilemma in England is endlessly discussed and crystal clear: there are too many people and too few houses. And while it seems as if basic laws of economics – those of supply and demand, and the incentives that high prices create to increase supply – should correct for this problem, the unfortunate fact is those “laws” are imperfect.

Why haven’t more homes been built as the UK population rose dramatically over the past generation? Why haven’t investors – deep-pocketed homebuilders, large banks, real estate investment trusts (REITs), strategic land developers – jumped in to build townhouses, flats and single-family homes wherever needed?

The answers and dynamics are complicated, of course. The UK has a relatively robust economy, with young people working and starting families (where some of that population growth comes from). Immigration (another population driver) brings workers and consumers to the country, which typically adds to the economy and very often to the entrepreneurial class. Each of those suggests the money is there to buy homes. Unfortunately, the combination of the financial crisis of 2008 and the subsequent tightening of credit made it more difficult for those young families to buy their homes. The Government’s Help to Buy scheme has shifted the balance to a noticeable degree since 2013, such that more homes are being built – and bought.

But the housing shortage is deep and will last for years to come, even with homebuilders working overtime to catch up. So the country can continue to consider several options to managing the situation. Those include:

1. Do nothing. The status quo necessitates cobbling together a 20 per cent deposit which is required to get a traditional bank loan to purchase a residence. This is unattainable for millions of working people. Help to Buy reduces that burden considerably, allowing as little as a five per cent deposit; however, the Government could discontinue this programme at any time. The net effect would likely be fewer buyers to stimulate construction, then fewer new homes added to the nation’s residential inventory. Supply-demand rules holding true would mean that the cost of owning and renting will continue an upward climb.

2. Limit population growth. There are those who would like to see immigration halted, and others who feel birth control is an answer as well. It should be noted that the aging-but-healthy UK population – Post-War babies are now retiring, after all – also contributes population numbers and mathematically represents an increase when previous models assumed a higher/sooner mortality rate. Advocates for and against immigration are advised by Forum for the Future (a sustainable development NGO) to eschew arbitrary limits when discussing immigration, but also that resource consumption has to be part of the discussion as well.

3. Build more. This seems the most straightforward approach, but of course the tricky dynamics of acquiring land, building infrastructure and contracting out construction for sale to homebuyers involves upfront investment with an uncertain return two or more years later – the work of visionaries with deep pockets, such as those involved with alternative investment funds. Social housing can fill some of the gaps, but the data show it’s lagged significantly over the past several decades. And both market-rate and social housing developers run up against those who oppose Greenfield and greenbelt development.

4. Thoughtfully address population and housing issues together. Clearly, population and real estate development are vortices of a host of financial, social and environmental issues that should be addressed in relation to each other. No one claims this is easy.

As more investors are drawn to the “build more” solution, they should consider engaging an independent financial advisor to help them sort through the level of risk they can optimally bear within the context of their overall investment portfolio. The UK absolutely needs more homes, but investors need also to act out of their own financial needs and strategies.

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