Thursday, May 11, 2017
Why isn't Britain's housing crisis a bigger issue?
I am currently reading Vince Cable's book 'After the Storm' which is excellent, if a bit technical. Although the book was written before the vote to leave the EU, the chapter on housing is as pertinent now as it was then.
In particular, the former Business Secretary's analysis of where we are now in the housing market and how successive Governments have failed those wanting an accessible and affordable home is excellent.
Vince argues that the UK has just emerged from the aftermath of a financial crisis that had a housing boom at its heart. He says that there was a near quadrupling of house and land prices in a little over a decade, from the trough of the previous downturn to the peak in 2008, with mortgage borrowing leading to historically high levels of personal debt in relation to earnings.
He identifies the problem as one of supply. Over the decade 2004-13, the UK provided 0.4 new homes for every additional head of population, while Spain, Italy, France and Holland all provided more than one.
He says that there are many complex factors driving demand including demographic factors such as aging, family break-ups, regional and national net migration, the growth of second home ownership, investment demand and the cost and availability of mortgages. The availability of credit however is crucial. But it is the lack of supply that has been so damaging.
Vince points out that at its post-war peak in the late 1960s, over 400,000 homes were being built every year, for a UK population significantly smaller than today's. Of those roughly 250,000 were privately built and the rest council houses. In the 1990s total construction was around 175,000 to 250,000 houses per year of which around 30,000 were 'social housing', the rest private.
Despite the fact that the UK population has grown by 7 per cent over the last decade, which Vince says is the equivalent of 150,000 homes, building levels continue to decline. After the 2008 crash new house building was just over 100,000 per year. That compares to the peak year for that decade, in 2007 when 143,000 homes were started and 137,000 completed.
Vince says that by 2010 this had fallen to 107,000 completions, reviving to 141,000 in 2014 of which 30,000 were social housing. The government's aspiration for 2015 is just under 150,000 which is well below the 250,000 to 300,000 new homes identified as being needed by Kate Barker in her analysis of the housing market. Vince points out that some of the new homes being built now are to supply the luxury market in London for overseas investors and do nothing for the UK domestic market.
Vince says that the failure to supply enough homes to meet demand cannot all be put at the door of the 2008 collapse. He says that the UK recovered strongly from the shock of the 1929/31 collapse on the back of a boom in housing supply. Houses built by the private sector surged from130,000 in 1931 to almost 300,000 in 1934.
The difference was that at that time there were around 1,000 mutually owned, not-for-profit building societies, which were untouched by the crisis and were willing to lend. In other words both house builders and aspiring owners were able to borrow money at reasonable rates.
Vince identifies several problems that are constraining supply. The first of these is the banking crisis which has seriously affected credit to SMEs in the building industry. He says that we have had the ludicrous position where banks will lend to purchase homes but not to build them. As a result the supply of houses is now dependent on large builders that have access to equity and debt markets.
Vince adds that two decades ago 50 per cent of new builds were by companies contributing up to 500 units and the level was only a little lower in 2009, but since the market crashed, the bigger builders have accounted for 70% of supply. This imbalance needs to be addressed as a matter of urgency.
The most damning figures in this chapter are on the way we subsidise housing. Vince says that demand is increasingly subsidised via housing benefit to private landlords costing £9.3 billion per annum (up from £3.4 billion in 1998) and schemes like Help to Buy which cost £1.5 billion per annum.
Conversely, house building via housing associations is losing the small amount of subsidy it received. In 2014 registered social landlords received £1.1 billion from the UK Government, down from £2.3 billion in 2010. Housing Associations are also being forced to cut rents which reduces their ability to build more new homes. Vince says that subsidies for demand currently amount to £25 billion, while those for supply come to barely £1 billion.
What all this does of course is to push people into the private rented sector, which is less secure, more expensive and in many cases poorer quality. Vince points out that despite the Conservatives' strong ideological commitment to owner-occupation, this form of housing is falling quite sharply.
He says that for 18-34 year olds, owner occupation has fallen by a third since 2003 and by 18% for 35-44 year olds. This is down to affordability. The number of 25 to 34 year olds in private rented accommodation has increased by 90% over the period 2003-2013 and by 132% for 35 to 44 year olds. Young people under the age of 25 are almost exclusively in this sector. Vince says that a study by Price Waterhouse Cooper in July 2015 concluded that by 2025 half of all under 40s will be renting privately.
The social housing stock is also declining, mostly due to right to buy. Vince says much of the old stock has ended up with buy-to-let landlords. After 2003 there was a fall in social tenancy of 21% for 25-34 year olds and 18% for 35 to 44 year olds.
All of this needs to be debated during this General Election. This has to be a major change in UK Government policy that improves the availability of credit for small builders, releases land at affordable prices for new homes to be built on and switches Government subsidy from demand-led factors to supply so that we can massively increase the number of social homes being built.
Will any of that happen? I am not holding my breath.
In particular, the former Business Secretary's analysis of where we are now in the housing market and how successive Governments have failed those wanting an accessible and affordable home is excellent.
Vince argues that the UK has just emerged from the aftermath of a financial crisis that had a housing boom at its heart. He says that there was a near quadrupling of house and land prices in a little over a decade, from the trough of the previous downturn to the peak in 2008, with mortgage borrowing leading to historically high levels of personal debt in relation to earnings.
He identifies the problem as one of supply. Over the decade 2004-13, the UK provided 0.4 new homes for every additional head of population, while Spain, Italy, France and Holland all provided more than one.
He says that there are many complex factors driving demand including demographic factors such as aging, family break-ups, regional and national net migration, the growth of second home ownership, investment demand and the cost and availability of mortgages. The availability of credit however is crucial. But it is the lack of supply that has been so damaging.
Vince points out that at its post-war peak in the late 1960s, over 400,000 homes were being built every year, for a UK population significantly smaller than today's. Of those roughly 250,000 were privately built and the rest council houses. In the 1990s total construction was around 175,000 to 250,000 houses per year of which around 30,000 were 'social housing', the rest private.
Despite the fact that the UK population has grown by 7 per cent over the last decade, which Vince says is the equivalent of 150,000 homes, building levels continue to decline. After the 2008 crash new house building was just over 100,000 per year. That compares to the peak year for that decade, in 2007 when 143,000 homes were started and 137,000 completed.
Vince says that by 2010 this had fallen to 107,000 completions, reviving to 141,000 in 2014 of which 30,000 were social housing. The government's aspiration for 2015 is just under 150,000 which is well below the 250,000 to 300,000 new homes identified as being needed by Kate Barker in her analysis of the housing market. Vince points out that some of the new homes being built now are to supply the luxury market in London for overseas investors and do nothing for the UK domestic market.
Vince says that the failure to supply enough homes to meet demand cannot all be put at the door of the 2008 collapse. He says that the UK recovered strongly from the shock of the 1929/31 collapse on the back of a boom in housing supply. Houses built by the private sector surged from130,000 in 1931 to almost 300,000 in 1934.
The difference was that at that time there were around 1,000 mutually owned, not-for-profit building societies, which were untouched by the crisis and were willing to lend. In other words both house builders and aspiring owners were able to borrow money at reasonable rates.
Vince identifies several problems that are constraining supply. The first of these is the banking crisis which has seriously affected credit to SMEs in the building industry. He says that we have had the ludicrous position where banks will lend to purchase homes but not to build them. As a result the supply of houses is now dependent on large builders that have access to equity and debt markets.
Vince adds that two decades ago 50 per cent of new builds were by companies contributing up to 500 units and the level was only a little lower in 2009, but since the market crashed, the bigger builders have accounted for 70% of supply. This imbalance needs to be addressed as a matter of urgency.
The most damning figures in this chapter are on the way we subsidise housing. Vince says that demand is increasingly subsidised via housing benefit to private landlords costing £9.3 billion per annum (up from £3.4 billion in 1998) and schemes like Help to Buy which cost £1.5 billion per annum.
Conversely, house building via housing associations is losing the small amount of subsidy it received. In 2014 registered social landlords received £1.1 billion from the UK Government, down from £2.3 billion in 2010. Housing Associations are also being forced to cut rents which reduces their ability to build more new homes. Vince says that subsidies for demand currently amount to £25 billion, while those for supply come to barely £1 billion.
What all this does of course is to push people into the private rented sector, which is less secure, more expensive and in many cases poorer quality. Vince points out that despite the Conservatives' strong ideological commitment to owner-occupation, this form of housing is falling quite sharply.
He says that for 18-34 year olds, owner occupation has fallen by a third since 2003 and by 18% for 35-44 year olds. This is down to affordability. The number of 25 to 34 year olds in private rented accommodation has increased by 90% over the period 2003-2013 and by 132% for 35 to 44 year olds. Young people under the age of 25 are almost exclusively in this sector. Vince says that a study by Price Waterhouse Cooper in July 2015 concluded that by 2025 half of all under 40s will be renting privately.
The social housing stock is also declining, mostly due to right to buy. Vince says much of the old stock has ended up with buy-to-let landlords. After 2003 there was a fall in social tenancy of 21% for 25-34 year olds and 18% for 35 to 44 year olds.
All of this needs to be debated during this General Election. This has to be a major change in UK Government policy that improves the availability of credit for small builders, releases land at affordable prices for new homes to be built on and switches Government subsidy from demand-led factors to supply so that we can massively increase the number of social homes being built.
Will any of that happen? I am not holding my breath.
