There is a stark difference between the 1960s and post 2000 – the number of homes being built across the decade has fallen from 3.6 million homes to around 1.5 million homes. In a world of growing population that simply doesn’t sound right and it a driving factor behind where the current UK housing market finds itself. So an accelerating population yet a reduction in housing stock supply. Alongside this is a switch in the type of homes being built – a significant increase of flats has occurred, which is clearly less space than a detached four bedroom! The UK has the smallest homes in Europe being built. It all boils together with house prices rising by 207% in real terms between 1970 and 2021. That certainly gives food for thought.
Home ownership is now harder to achieve than before. And what you ultimately own is smaller than other European counterparts. If you have watched your packets of chocolate over the years you may have noticed two things – an increasing price but also a decreasing size. The average size of a house has shrunk by about 20% since the 1970s and now standard at the smallest amongst a number of Western Countries in Europe. We are always taught that size doesn’t matter but you have wonder does this smaller size make a difference to quality of life.
The rise in house prices and the creation of the affordability issue is not solely down to not building enough and creating a supply issue. The prolonged period of low interest rates (though partially corrected recently with the rises), increase competition and more active global asset prices has also contributed. UK house price growth has grown more than average earnings. In 1970, the average house price was £4,741 but now standards in 2022 at £267,338. A real time increase of 207%.
That said supply is clearly a driving factor behind the state of the UK Housing Market at the moment.
To address this factor of support you have to look at where can we build in the UK. There was a lot of noise within the Conservative party around where they would like (or rather not like) homes to be built. There has always also been a broader desire to build solely on brownfield sites – which isn’t feasible to meet the supply that is needed. Brownfield sites also present, in certain areas, an increases cost of development due to the remediation required. Brownfield sites has a historical lower build out rate so provides slower development. There is a balance between how much greenfield sites do we build on – as it’s the only way to meet the supply needed.
Now with the high house prices there has been a notable reduction in home ownership – mainly because a large number cannot afford to get onto the property ladder. I am a fan of home ownership, having a secure tenure and seeing an investment in my housing costs (as opposed to spending on rent). The situation in the UK is not unique but not as prevalent as in mainland Europe. The current housing figures are showing that older people are increasing home ownership while younger are decreasing – so the underlying position is quite stark. The demands on the bank of mum and dad as well mean a dependency of the younger generation in accessing the property ladder. This factor is helping to drive significant growth for build-to-rent, to reflect a change in dynamic of people wanting the flexibility of tenure coupled with those simply unable to secure a house.
But you have to ask would an increase in supply help?
Housing development has always been unpopular with many of those in the communities affected, but recently those tensions have become even more acute. The delivery problems the country faces when it comes to housing are a result of a malfunctioning planning system which creates distinctive incentives for the large housebuilders particularly. Land banking is due to a range of complex issues and problems within the system. But what about the idea of shifting development elsewhere – primarily to brownfield? The challenge here is that brownfield sites are better to suited to employment needs and therefore by utilising this space for housing would create a challenge for the economy.
So, the overall context is that housebuilding has declined which goes against the population growth. This decline is contrasted with a rise in house prices and rent, while ultimately homeownership has fallen. Britain needs to build more homes in the places where people want to live.