is there a problem with the current housing market? christine whitehead lse social implications of a...
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Is there a problem with the current housing market?
Christine WhiteheadLSE
Social implications of a changing housing marketESRC Festival of Social Science: Housing Event
Geffrye Museum of the Home12 November 2015
Housing: top of the political agenda?‘Everyone’ believes there is a major housing crisis arising from:•lack of new supply (completions in last decade running at less than half of current requirements);•House prices out of line with incomes and affordability in all tenures a growing problem;•Rapid growth of expensive private rented sector even for families;•Increasing Housing Benefit bill;•Problems especially concentrated in London where London economy growing rapidly and out of line with rest of the country;•‘Everyone’ blames the planners and shortage of land brownfield policy, green belt and bureaucracy or indeed democracy
Basic Economics• Demand depends on demographics but also incomes and
relative costs;• Supply depends on costs; profits/risks; price of land; • Demand can increase very quickly, while supply cannot
expand rapidly - building less than 0.5% of total each year;• Result is higher prices and rents BUT also higher land
prices;• Macro-economic volatility reduces incentives and capacity
to supply - post GFC but also 1989/90 and before;• Long run constraints on supply - economic growth
increases competition for land; existing infrastructure and building density limits adjustment; but also regulatory constraints – green belt; local plans; NIMBYism.
Sources of Population Change in the UK
Housing Completions by Tenure
House prices
Household expenditure by tenure
Looking to the future • The 2012 based projections suggest that, if past trends
continue, we will need to build an extra 222,000 homes in England each year from 2011 – 2031;
• This is less than earlier projections BUT ONLY because growth in household numbers has been restricted by lack of supply and problems of affordability - at least for the last decade and for younger households for a quarter of a century;
• So far since 2011 we have built only 54% of the homes required – so if we were to try to catch up by 2021 we would need to build over 300,000 each year;
• This compares with 138,000 starts and 125,000 completions in England in 2014/15.
The Regional Story
• Major differences in population and household growth between regions;– North East 11%, increase in household between 2011 and 2031;
London 33%; • Implies 25% of homes need to be in London – i.e. 55,000 units a year• Currently completions under 20,000 in 2014/15, although starts rising.
Conclusions• The housing system is failing to provide for population
and household formation let alone for economic growth;
• Even if we build 222,000 each year until 2031 some groups will still be worse off as compared to 2011 – notably couples in London;
• But very unlikely to build this number consistently over 20 years;
• If the economy is successful, incomes will rise and demand will be higher both for numbers and quality of housing;
• The likely impact is higher house prices and worsening affordability.
• Yes, we have a dysfunctional housing system.