UK housing market: ‘Not fixed, but less broken’
Decades of underinvestment, underbuilding and overegulation have clobbered the housing market.
The UK is now short about 4.3m homes, with the worst crisis in cities.
Labour, which made solving that crisis a central mission of its first year in government, has made tracks to get Britain building again – reforming planning, trying to bridge the skills gap, and announcing a hodge-podge of financial top-ups to building programmes.
On 11 June, Rachel Reeves announced the government’s biggest supply-side cash injections yet to kickstart construction, too.
“[The government has] released two of the biggest brakes which were holding back the growth of housing supply,” RBC analysts Anthony Codling said.
The two brakes are funding and long-term certainty on rents: Housebuilders were given a £39bn 10-year affordable housing program and a 10-year above inflation social and affordable rent agreement in the spending review.
A Planning Bill, currently making its way through Parliament, relaxes – if not overturns – universally-disliked red-tape, with nearly all housebuilders praising the changes (some have said the changes don’t go quite far enough).
Stocks in FTSE housebuilders have been slow to respond but investor confidence has started to look up this year, with Persimmon, Vistry and Bellway all up around 20 per cent in the year to date.
The ‘big if’ of 1.5m homes
Analysts have described the changes in language like “great strides” and “first steps”. So far, very few have suggested the government’s target of 1.5m homes will be met.
“A big step yes, but the first of many,” Codling said of the £39bn funding injection. “Don’t expect housebuilding volumes to increase overnight, it will take time for local authorities and housing associations to get their hands on the money and a bit longer still to deploy it.”
“Is the housing market now fixed? Not yet, but it is now less broken,” he added.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, rated the steps taken so far as a “seven out of ten”.
“[It] will definitely rise to eight out of 10 – at least – if we see more progress on the ground in reaching as close as possible to that ambitious target.
“Progress is being made with housebuilding but we would also want to hear that planning and delivery numbers are being checked regularly to see if they’re meeting aspirations and, if not, taking further action as necessary,” he said.
Others have cautioned that the government can only do so much to boost supply in a market economy.
“The government does not control housing supply. Housebuilders do. They are looking to maximise profit and therefore run a tight ship when it comes to maintaining the supply and pricing level of new homes,” Dr David Crosthwaite, chief economist at BCIS, said.
“Building 1.5 million homes is still a big if. More funding over 10 years is a contribution, not a guarantee of delivery.”
Funding must be focused in cities
The housing shortage is most serious in “successful, high-demand cities”, Andrew Carter, chief executive of Centre for Cities, said. This is particularly true of London.
There are 336,366 households on London local authority waiting lists for social housing – a ten-year high – and the capital accounts for 56 per cent of all homeless households in England.
London Councils has warned that boroughs need to reduce their spending on council housing by £264m just to avoid “busting their budgets” in the next three years. The city spends £4m every day on temporary acccommodation.
The viability – the chance of making money – on homes in urban areas is generally lower than in the countryside, so fewer homes are built even as more people flock to cities for work.
Housebuilders have become more reliant on grants in urban areas due to the lower viability, so the slow drying-up of grants combined with ever-rising demand over the last two decades has created a loop where the cycle becomes ever-more acute.
“Funding must be focused where need is highest – particularly in and around thriving city centres – and backed by planning reform and support for local authorities,” Carter said.
The Centre for Cities has estimated that the UK needs £16.6bn every year to match the levels of housebuilding seen in the 1960s.
Carter described the £39bn of funding – £3.9bn per year – as a “welcome step”.
Hopefully it is the harbinger of many more.