In the first monthly focus, Ben Denton examines the shortfall in housing completions
But the story goes deeper than just the issue of high prices. The number of housing completions is a long way from the required demand specified by the DTLR, and there is no sign of the gap being bridged.
Government forecasts indicate that about 220,000 new homes need to be built each year. Current completions stand at between 150,000 and 170,000 a year. If the trend continues, that leaves a deficit of more than a million homes by 2020. No wonder house prices are soaring.
Unless there is a massive crash, the mismatch of supply of homes compared with demand will continue to fuel value inflation.
Housebuilders want to build homes and people need homes, so what is the problem? It is a combination of planning problems and the practical difficulties of bringing forward housing sites in inner-city areas, where land unification, nimbyism and environmental constraints abound. All these problems must be addressed to unblock the logjam.
Completions shortfall
The problems in the housing market are probably more deep-seated than was previously thought – and they are likely to get worse.
Despite the fact that the Housing Corporation is providing more funding (in real terms) for the development of new social housing, soaring land values and build costs mean that the real number of social homes able to be provided is on a downward trend. For example, in London the number of social housing unit completions has fallen from 4100 five years ago to 2500 last year, which is nowhere near the amount needed to meet the burgeoning demand of the local economy.
In an attempt to fund the mismatch, local authorities across the South are trying to put a higher burden of social housing provision on the developers of private housing. Added to this is the pressure of London mayor Ken Livingstone's 50% affordable housing idea, which is being tested by the government office for London at the moment.
However, it is all very well trying to shift the planning-gain burden of social housing on to housebuilders. If the burden becomes too high, it will depress land values and landowners will be tempted not to sell land for housing but for other, more valuable, uses such as industrial or retail.
As the National Housing Federation says: "Twenty-five per cent of something is better than 50% of nothing." All that these draconian policies are likely to achieve is a reduction in the amount of housing on the market and a further exacerbation in house price inflation.
North-south divide
As ever, the north-south divide is alive and well in the housing market. The South is classified as East Anglia, London and the South-east. The North is "the rest of England". For those in the North, the challenge is to ensure they do not fall into spiralling decline; for those in the South, house prices will continue to soar.
Councils as enablers
The government has gradually eroded local authorities' role as housing providers. In the North, councils need to re-establish their role as housing enablers. Local authorities in Manchester, for example, are already taking a joined-up approach to improve the choice and quality of homes.
For housebuilders, there is an opportunity to work on a partnership basis on a large scale with councils in target areas. This would include bringing land back into use and unifying sites through compulsory purchase order powers alongside private housebuilders. It would also involve working on a transparent basis to help provide an affordable level of social housing within large-scale, mixed-use schemes.
In the South, it's not possible to build more homes without more government resources. And increasing the social housing burden on private housing developments might have the opposite effect to what is required.
The problem in the North is different and centres on how to address areas of low demand. The DTLR estimates that around 800,000 homes suffer from low demand. Although it has recently announced a £25m pilot study to look at addressing this, the amount needed to deal with outdated stock could be in the region of £10–15bn.
Across the UK, councils are going to have to re-establish their roles, alongside housebuilders, to work with local authorities on a partnership basis to help deliver large-scale renewal.
Monthly Market Trends
Market trends for the initial months of 2002 present an unsettling economic picture, although against the economic indicators of a year ago, the picture doesn't look so bleak.
Nevertheless, the downward trend in productivity and output indicators plus inflation creeping upwards in the spring of this year has prompted worries among economists over the market's future. In particular, there are concerns that bank base rates might move up in the medium term, causing the perceived house-price bubble to burst.
However, with mortgage interest rates at a long-term low, providing a high level of purchaser affordability, only a sustained downturn seems likely to undermine the market.
The next few months of indicators will complete the picture as to whether the downturn is a short-term blip or a trend. (Please refer to table, left)
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Source
Housing Today
Postscript
Ben Denton is a senior director of ABROS, a specialist project finance advisory team delivering funding and implementation expertise to public and private sector clients on public-private partnership, PFI and major regeneration projects
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