Do we really need to build 300,000 Homes a year – How Bad is the Housing Shortage?

When we talk about UK housing, we tend to think of an acute shortage. And it is not surprising given the fact House Prices have reached nine times income, and we face a crisis of affordability. But, do we really need to build 300,000 homes a year like the government target?

In the last decade, the number of households in England and Wales rose 6% or 1.4 million, but the net number of dwellings in England alone rose by nearly 2 million. Ian Mulheirn of LSE claims in 2018, England had 1 million surplus housing.

(LSE)

The truth is the UK population has risen slower than past estimates. Five years ago, England’s population was expected to be 57 million, but it turned out to be actually half a million less. In 2014, there was a forecast of 216,000 new households in England per year. But, four years, later this was revised down to 150,000. Yet most housing targets are based on outdated forecasts. The number of new households is not growing as fast because of declining birth rates, slower growth in life expectancy, less migration than expected and the cost of living crisis encouraging young people to live with parents – something known as suppressed household formation.

Also, it is not just about the amount of homes built, but net new dwellings. Last year England built 210,070 new homes, but gained over 28,000 from the conversion and change of use (e.g converting business premise to housing).

Home building rates have fallen since the post-war period, but it is not the only metric. The 1970s, was significantly higher rates of housebuilding, but there were also more demolitions. This means the net increase in dwellings was actually higher in 2020/21 than the average of the 1970s.

So where did the government’s 300,000 homebuilding target came from? According to House of Commons Research Brief  It came from outdated predictions in household growth, but also was given a 35% uplift to meet the government’s own manifesto pledge.

However, at this may point you may ask if there is no acute shortage why is so desperately hard to get housing? Well in many regions there is a very genuine shortage – especially rented accommodation and Social Housing.

Social housing stock has been in steady decline, with former stock being sold off, demolished and not replaced. Shelter report there are 1.4 million fewer households in social housing than in 1980. And 1 million households are currently waiting for social housing. Combined with excessive house prices, making homes unaffordable, this has pushed demand into the private rental sector, where supply has been slow to keep up. The result is above inflationary increases in rents, especially in the south of England and big cities.

Would increasing the supply of homes reduce house prices? One goal of increasing supply is that it would reduce house prices and make them more affordable. This is true to some extent, but less than what you might expect. Numerous studies show that for every 1% increase in supply, prices and rents may fall 1.5% This could mean if we build 300,000 homes a year, house prices may be 10% less over 20 years (an average of 0.5% reduction in house price inflation).  Inflated house prices are primarily due to the distortion of ultra-low interest rates, and wealth inequality. It could mean that the current rise in interest rates will be significant in reducing prices.

The claim we don’t need 300,000 new homes is not settled wisdom. Firstly, we can’t just look at the past 10 or 20 years’ growth in households and supply, we also need to consider past backlogs and suppressed housing demand. A 2019 study at Heriot Watt University claims there is a severe backlog which includes overcrowding, poor conditions, unsuitable people living together and young adults stuck with their parents. This study claimed we need to build 350,000 new homes a year. It was based on the forecast of 216,000 new households, but also the demolition of unsuitable properties like Grenfell and additional suppressed household formation.

However, before we start digging up the green fields, there are other factors to consider. In England, there are 640,000 empty homes. More than a quarter of a million for more than six months. The worst areas for empty homes are in central London, with investors speculating on rising prices. Nearly 1 in 3 homes in the City of London were classified as empty. Also tourist areas have been hit by the rise of Airbnb and 2^nd homes. Cornwall reports 18,000 empty homes and 16,000 on waiting list for council homes, and 10,000 homes registered for AirBNB. (Open Democracy)

What about immigration and the need to build housing? Immigration usually pops up in the comment section. I often see a stat that there were 10 million migrants in past 10 years. But, I don’t know where this comes from. In the past 10 years, net migration has averaged 250,000.

Last year, this surged to 500,000, though that was partly a rebound from the 2021 Covid effect. Leaving the EU has brought down EU migration, but so far has been replaced by rise in non-EU migration. Future migration levels are uncertain though with labour shortages and more people leaving the labour force, there will be economic pressures to maintain migration levels around current levels. Future population levels are also uncertain, with many western countries experiencing bigger falls in birth rates and population than previously expected.

So how many new houses does the UK need to build? Arbitrary national targets are slightly misleading as a lot of the worst shortages are located in certain areas. But, more than anything – there is a need to build affordable social housing and housing for rent, something ignored in recent decades. Also, with a rapidly ageing population, we need to create more housing based on the needs of the elderly, which can free space for bigger young families. Britain does need to keep building housing, but not necessarily 300,000 a year, to fix Britain’s housing crisis there need to be other solutions such as making better use of existing stock and using land with existing planning permission. In a future video, I will look at more of these options.

Sources:

• Tackling the Under-supply of UK housing – Commons Briefing