What Is the Root of Home Shortages in the UK?

Speaking of ‘the UK housing shortage’ misses the point. Cities Outlook 2013 says that localizing the problem might be the national solution.

It is conventional wisdom in the United Kingdom that there is a housing shortage. And while that in fact is quite true and is evident in the high cost of housing overall, it is wrong to think the shortage is emblematic of only the economic downturn since 2007. In fact, this shortage goes back at least 30 years and arguably is due to failures in government policy in combination with robust population growth.

Various economics and population studies suggest that approximately 232,000 houses or housing units need to be constructed per year, simply to keep up with population growth (about 7% over the past decade, according to Census 2011). But since the mid-1980s, housing completions by the three main sectors – private enterprise, housing associations and local authorities – have exceeded that number only once. The shortfall has been cumulative and has rapidly gotten worse since the burst of the housing bubble that peaked in Q3 2007.

But the actual picture of housing shortages is mixed when examined city by city, according to a report titled Cities Outlook 2013, sponsored by The Centre for Cities and supported by the Local Government Association. According to their study, the problems in the housing sector vary considerably from city to city. London currently has the least affordable housing and highest demand found today, in 2013, greater than it was in 2007. This same situation of elevated prices and high demand is found in Cambridge and Bristol. In weaker economies (Hull, Hastings and Middlesbrough, for example) prices are lower, the existing housing stock is poor and jobs are lacking, illustrating how housing inventory is a vastly different picture and subject to, but not a driver of, local economic conditions (the quality of local jobs and connectivity to other markets are more influential to those economies).

This matters more than just how crowded and unaffordable housing has become. The Cities report also details how housing markets impact local economies in three key areas:

• Business and enterprise – A robust housing market, where buying and selling transactions occur, stimulates several industries: construction, estate agents and the mortgage industry, to name a few. When housing is expensive, it effectively puts a cost burden on business if companies need to pay more to attract essential workers to an under-built area.

• Labour markets – Workers are drawn to not just jobs but an area’s quality of life, therefore outsized housing prices tend to discourage labour mobility. And for those workers who move to expensive housing markets, consumption of other goods subsequently declines, negatively affecting the local economy.

• Infrastructure – Housing development is intrinsically related to transport infrastructure and consequently needs to be considered holistically: Build the roads and rails from public coffers as private investors and perhaps housing associations add to housing inventory.

According to Cities Outlook 2013, the crux of the problem is that housing policy and programmes are set on a national level. This then fails to address local challenges and opportunities (e.g., the Infrastructure point above). For example, some of the locales where housing is more plentiful (indeed, many properties are abandoned but could be rehabilitated) benefit little from new-construction incentives (which is how the “Help to Buy” scheme is largely focused).

Initiatives such as Get Britain Building, changes to the National Planning Policy Framework and the New Homes Bonus accomplish this inadequately, says the report. It acknowledges the Localism Act does this in part, but argues instead to jumpstart home building in 2013 by two means: focus government policy on development in the specific cities where housing demand is greatest, and incentivise retrofits and reconfigurations as well as new-build development. To this latter point, the government should look at cities where vacancy rates are highest then target funding and zoning powers to retrofit and build new, whichever makes the most sense (i.e., allow for local decision making).

Without question the role of the private developer is essential – centralised development that is too heavily focused on social housing does not lead to a balanced and thriving community. Increasingly, private development of housing involves groups of investors who work with professional strategic land buyers, who themselves develop raw land or brownfield properties where demand is greatest (and where public policy is amenable to such development).

Individuals who are unschooled in land development should consult with a qualified personal financial advisor to determine how and where their money can be wisely invested in housing development. As should be clear, it is a complex arena where special skills are extremely important.

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