People are living longer and more people are living alone. That means that there are more households being formed than previously. That means we need more houses or flats for people to live in.
To be specific there will be 232,000 households per year formed over the next couple of decades in the UK.
Where will these new houses and flats come from?
The answer in Britain since the 1980s has been that private enterprise will build them.
But there’s a problem with that, they aren’t building enough houses and they don’t show any inclination to build enough houses, especially given the effect of the credit crunch.
Here is a graph of the number of houses built by private enterprise since World War 2.
You can see that it is very rare that in a given year there will be more than 200,000 units built by private house builders in the UK.
And that is just the overall situation. The house building industry has been hit very hard by the credit crunch, as you would imagine for an industry that relies on credit at so many stages of its business. For example, people buy homes using mortgages and developers often buy land on credit.
In response to these shocks the largest house builders, much like the banks, are repairing their balance sheets. Jules Birch reports that Taylor Wimpey are “continuing prioritisation of margin improvement ahead of volume growth”, and IPPR’s recent housing report includes quotes from executives of major house builders saying things like ‘our focus is to rebuild our margins’ and, on the prospect of increasing overall output, ‘we’ll double in size, but halve the margins, so what’s the point?’
This is a big concern because the major house builders in the UK account for a lot of the houses built. Although I would not go so far as some in criticizing the lack of competition in the industry, the list of the biggest house builders in the UK does not change much from year to year.
Here is a chart showing the number of units built by the largest developers over the past couple of years. These numbers are taken from their annual reports.
Again, you can see the continuity from year to year and the relatively small numbers compared to what is needed given the demand for housing.
The traditional policy response to this apparent and worsening impasse has been to reform the planning system to try and make it easier for developers to build houses. The latest example of this is the National Planning Policy Framework.
This is insufficient for several reasons not least the fact that housing developers profit from the current levels of supply and that communities can still stall developments, within or without the planning system, if they are sufficiently organized.
It is worth saying that we consistently saw more than 232,000 new units built each year in the UK in the past, when Local Authorities also built houses.
This chart illustrates that point. It shows the total number of new houses built each year. The difference between the blue line and the red line is the number of social housing units built.
Journalists, housing advocates, academics and politicians have all called on the government to support housing associations to build new houses by variously guaranteeing bonds or altering the quantitive easing measures currently being pursued by the Bank of England.
Certainly, government action is necessary since the private house builders will not deliver the number of new homes that we need as things stand.