What Can Be Learned From 40 Years of Housing Volatility in the UK?

Has the volatility in UK housing since the 1970s taught us anything?

There are many fingers pointed in as many directions as to why there is a housing shortage today in the UK. A look at history helps identify causes and solutions.

It is a widely understood fact that there is a housing shortage in the UK. Population increase is unmet by building, for various reasons, while the net effect is overcrowding and high ownership and rental costs. This particularly affects the lower-end of the income spectrum, but the middle class is affected as well in ways that can impact employers. They are increasingly stymied in where to locate their workplaces, given how employees have trouble moving to where the jobs are.

How did the UK end up in this situation? And why do not the market forces of supply and demand drive development of new and refurbished housing? These questions linger with regard to both market rate homes and social housing, and in residences built for ownership as well as the rental market. Certainly, land investment arising from capital growth funds seeks out opportunities to build where the opportunities are – and there is no shortage of market demand when population statistics are considered.

The Joseph Rowntree Foundation, which works to reduce poverty by promoting affordable housing, holds the position that a failure to produce a sufficient stock of housing – including lower-cost affordable residences in the private market – is what has pushed price volatility since the 1970s.

Digging a bit further into the weeds, a columnist for The Guardian opined in April 2013 that the roots of the crisis might be tied to key housing acts during and after the Thatcher era. The columnist first states that transferring social housing to private landlords (housing associations in particular), as well as increasing ownership of such properties, was Lady Thatcher’s goal. The 1980 Housing Act initiated a decade of subsidized ownership of council homes, enabling more than one million citizens to purchase council housing at a discount. Notably, the volume of social housing was reduced considerably as a result – even as the country’s population continued its increase at a steady clip as a result of both immigration and a strong birth rate (strongest in England, less so in Wales, Scotland and Northern Ireland). Real asset investing drew some private capital to the industry, which has increased as a by-product of the financial meltdown of 2008 because of a distrust in market-traded securities

The BBC’s Peter Shapely broke down the problem in the network’s “History and Policy” series into four components:

Rising population – Census 2011 showed that the total population of the UK increased by 7 per cent, an astounding number relative to other countries in the Eurozone that show no increase and in some cases losses. This is due to immigration, the strong birth rate and single-occupancy, both with younger people and pensioners who are living longer in the homes they’ve occupied for decades. Construction of new homes is currently (and has been for many years) at about half of what the population growth would require.

More single-occupant households – While only 11 per cent of households were occupied by just one person in 1997, that portion grew to 13 per cent in 2006 and is projected to continue upward to18 per cent by the year 2031. This represents a lifestyle change that is more pronounced in the middle and upper classes and one which places obvious additional demands on housing and other resources.

Finite land availability – The decades-old debate on the relaxed use of greenbelt lands for development wages on. But few question the necessity to designate some unused and underused agricultural land for residential development. With global trade and higher per-acre agricultural yields, it’s an easier argument to make.

Housing costs rising faster than wages – Shapely argues that this factor alone mandates that “only state intervention can resolve this crisis.” But he advises that such government involvement should be done with a sense of balance: enable those whose ambitions include ownership, but do not abandon social housing in the process.

The Shapely series ends with a “lessons from history” observation, which includes urging government not to overreach with programmes that fail to account for economic cycles and land scarcity. Nor should Government dictate what types of housing is provided. Rather, the Government should provide an adequate degree of choice for the market. The Joseph Rowntree Foundation recommends similar solutions, to encourage a mix of new construction that serves different economic strata.

From the private side, there is increasing interest by individuals as well as institutional investors in the housing market, both for ownership and to-let. They often engage in strategic land investment led by real asset portfolio managers. Individual investors – given this historical volatility and the effects of government and local planning authorities on housing programmes and land use – should speak with an independent financial advisor to determine their risk tolerance in this asset class.

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