What If No More Homes Were Built in the UK?

Home building is finally picking up after years of recession. A lack of adequate housing can otherwise have far-reaching effects.

The Wall Street Journal told its readers in 2013 that Americans are increasing their investment in UK rental housing. The reasons they cite for this phenomenon is because the number of people who own their own properties in the UK has fallen by 200,000 in just four years, evidence of the effects of recession and general difficulties in achieving financing (per data from the Office of National Statistics).

So why are American greenbacks flying east over the pond now? Home sales by the end of the year (2013) are expected to climb to about one million, thanks to the government’s involvement in loosening lending, found in Chancellor Osborne’s “Help to Buy” scheme. There also is, in simplest terms, huge pent-up demand for housing that reflects increasing population even while construction lagged woefully behind during the recession.

With a little bit of goosing from the Exchequer, the long-awaited solutions to the housing shortage may have been found. And yet, these rosier scenarios are still based on projections, not end-results. A third-dip recession could derail hopes and lead to a retraction.

If that were the case, what would be the outcome? What would happen if developers and homebuilders cut back construction and no new homes were built? A report issued by the UK Parliament, “What influences house prices and why do governments intervene?” (2009), considered the close interdependency of the housing sector and the economy. Relative to available housing inventory, it suggests the following:

• Home prices will rise – “Given the forecast demographic changes over the next twenty years, clearly if the housing stock does not increase alongside this, available housing will become scarcer and thus prices will rise.”

• Fewer single-person households – Up until 2009, there were 3.6 million singles who owned their one-person residences in England alone, roughly a quarter of all owner-occupied dwellings. And yet, with rising prices against single incomes, this allocation of singles may drop. As with their married-and-parenting siblings, a shortage of housing will force them to share homes or remain living with relatives.

• Government impetus to intervene – Depending on one’s economic policy philosophy, a shortage of affordable housing can trigger government intervention in the housing market; others may argue instead for laissez-faire approaches. Note that this point, written in 2009, portends the 2012 lending scheme now taking effect.

Fortunately, the developers and builders have adjusted to a different attitude about housing. Through years when ownership became inaccessible, more and more working families have become adjusted to renting instead of owning. The Office of National Statistics reports that since 2009, 3.8 million more people are living in rentals, a whopping 23 per cent increase. In the first quarter of 2013, rents increased by an average of 2.4 per cent, with the national average monthly rate at £835. Just how long these renters wish to stay that way – if they plan to become owners at all – remains to be seen.

There is no edict against building new homes, fortunately, and the current uptick in building suggests a corner has been turned. Land investors are identifying specific areas where demand is greatest, which they turn into new developments that are fetching market-rate prices. Helping prompt this is the bifurcation of investment and risk between site developers and homebuilders, with the former making strategic land buys and site preparation before reselling the land to the latter, who construct homes that meet product and price expectations.

Individuals who choose to invest in real assets such as land and housing development should consult a qualified personal financial advisor. As with any investment, the risk profile of real estate needs to fit with the investor’s overall financial strategies.

Leave a Reply

Your email address will not be published. Required fields are marked *