The Housing Shortage Timebomb

HAMISH_MCTAVISH

An Englishman's home is his castle. Or at least it used to be. Recent trading updates from Britain's housebuilders, signalling that they are building fewer homes than in the past, and a reluctance on the part of banks to offer mortgages, means that despite the Government's target of three million new homes in England by 2020, home ownership is fast becoming an unattainable ambition for many people.


Taylor Wimpey published its 2009 trading statement yesterday, reaffirming the view of others that the sector has recovered from its nadir a year ago. The group's debt pile has been cut and the average selling price of its homes is £160,000. While shareholders may toast the improvement, the Government will not have failed to notice that the statement included the fact that the company is building fewer homes: the number of completed houses fell to 10,186 in 2009, down from 13,394 a year earlier. One of the group's major competitors, Barratt Developments, last week said it had put up 5,028 houses in the first half of last year, down from 6,905 in 2008.

This is a massive departure from the number of homes that some say are necessary if Britain is to avoid a housing shortfall. The National Housing and Planning Advice Unit (NHPAU), an independent body set up by the Government to advise on housing affordability, says that as many as 290,500 new homes need to be built each year until 2031.

In a letter to John Healey, the Housing minister, last July, Steve Nickell, the then chairman of the NHPAU, warned: "The recession will have little impact on the number of homes that we need to build over the next 20 years. Declining affordability is having increasingly severe impacts. Worsening overcrowding; lengthening social-housing waiting lists; first-time buyers finding it harder to get on the housing ladder; and adult children living with parents for longer, are direct effects.

"But there are also likely to be increasingly serious wider economic and social consequences if we do not manage to bring the supply and demand for housing back towards balance and start tackling the backlog of unmet demand."

With the number of new homes falling, the Government targets, which depend on the private sector, look increasingly unrealistic. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "We were just about getting close to meeting the Government's target in the boom years, but even then the target looked ambitious and assumed that everything would stay the same in terms of development in the private sector.

"The Government never had any real power to deliver the target, and would have always have had to rely on the private sector to build the bulk of the planned new houses. Now, realistically, there are serious challenges to getting anywhere near the target."

Britain needs new homes to help combat a growing population. The Office for National Statistics estimates that the population will have risen to nearly 65 million by 2020, of which almost 12 million will be below the age of 30.

Many of these people, potentially first-time buyers, look set to be squeezed out of the market by a lack of supply and a lack of mortgage credit. Even housebuilders concede that the market faces a structural imbalance.

"Although they don't say it publicly, there is an acceptance in Government that the target will be missed," said Pete Redfern, the chief executive of Taylor Wimpey. "Government does genuinely desire more housing and is doing what it can to increase volumes, but there is a reasonable amount of realism that the targets were ambitious, even during the good times. A shortage will, however, lead to significant underlying structural problems, with the levels of demand outstripping supply."

The problems of insufficient housing supply are numerous. The homeless charity Shelter warned last week that housing costs are leading to as many as one in five couples putting off having children for up to six years, while there is also a danger of concentrated pockets of wealth developing among homeowners. More consumers are likely to save, especially as most banks require a 25 per cent deposit before approving mortgage applications, potentially inhibiting any short-term economic recovery.

The need for extra social housing is therefore also pressing. Last week, Mr Healey said that the Government was spending an extra £122.6m on a programme that will lead to 4,000 new council homes being built. The extra cash was in addition to the £2.4bn set aside for new council and housing association homes. The move was welcomed, but the minister and the Government know that the announcement is a drop in the ocean compared to what needs to be built if the target is to be hit.

In a statement yesterday, Mr Healey stressed that the Government was sticking by the target, saying: "The Government's ambition to build three million homes by 2020 is a clear demonstration of the scale of housing need across the country and the challenge that lies ahead."

He added: "Our focus is on keeping the construction industry going in the current climate: that's why we're increasing investment, kick-starting new housing projects and protecting jobs, and providing £7.5bn over this year and next [to] deliver more than 30,000 new homes. We know our long-term targets will be viewed by some as extremely challenging right now, but we're determined to take the action necessary to build for Britain's recovery."

Mr Redfern said Taylor Wimpey would carry on limiting the number of new houses it builds as it seeks higher-margin sales. If the pattern is copied, it will only exacerbate Britain's housing shortage.

"The question is, how are we going to provide accommodation for communities and for people's children?" asked the chairman of NHPAU, Peter Williams. "It's a debate that will affect a great many people."

http://www.independent.co.uk/news/business/analysis-and-features/the-housing-timebomb-1872158.html

With such a huge housing shortage, how on earth does anyone believe prices can do anything but rise strongly over the next 10 years?

Do any of the housing bears have a credible explanation for how 3 million new houses will be built in just 10 years? We are only on track to build a million or so, leaving a 66% shortfall.

Where are the balance coming from?

Because thats the only way to avoid significant HPI over the medium term.

blue_monkey_2

Your house can be worth as much as you want it to - but if you only have a handful of buyers interested in buying 100 houses is there any point in it being overpriced?

People will find somewhere else to live or will make do, I am quite happy to have my kids here until they are 40 if need be.

People will no longer buy a house they cannot afford because they are aware of the consequences whereas 2 years we had people buying houses they could not afford, pushing prices up. People are now more aware of the consequences whereas before they would think 'that will not happen to me'.

Notice all the 'For Sale' boards have now been replaced with 'To Let' boards??

My children will never be able to buy at these prices, nor will my friends children. Sure, SOME will be able to afford to buy or will not consider the consequences but there will be a whole generation of children living with parents much longer, children who would otherwise be out looking for a starter or even family home. Those buyers are not going to 'need' anywhere while they can live at home with Mum & Dad as they already have a room there!

So in 20 years time when you want to downsize your overpriced pile of bricks the buyers will not be there, they will be at home with M&D saving for another 10 years to ensure they can afford somewhere at the stupid prices houses are at now.

There are also a generation of 20 and 30 somethings either putting off or not having children because they cannot afford to. These will be the children wanting to buy your house in 20/30 years time. These kids are not going to be there to buy your house, so who will? I know lots of couples who want children but cannot have them because they have a house to pay for first. Sure, a lot of people in Social Housing are having children but are they going to have the money to buy your house? Unlikely.

The ripples of the stone thrown in the pond are far reaching and for many more years to come yet.

stueyhants

Part of the growth in demand for housing comes from imigration. Currently it make sense economicaly to come from another country and work and live here. If prices rise beyond a certain level (no idea what level that is !) then that demand will fall away. Will that drop off be enough the change the balance back in favour of supply, I must confess I don't know.

blue_monkey_2

I forgot to add, the housing shortage they talk about is for social housing. And this is because the private market has overpriced anyone who does not already have a house or that is earning 100k a year.

I actually do not know anyone looking to buy - however, I know more than I can care to mention living in overcrowded social housing or waiting for social housing. My friends with houses are simply sticking an extention on the back of the house ti give them more space. I also know of mum, dad and kids living with their parents as they cannot afford to buy.

The Housing Associations in this area build quite a few each year - it is the people around them that are shouting 'no more houses'. There is currently opposition where we are about building social housing on the land behind our house (I could not care less if it is helping people out and giving them a home!).

This is because there is no way they can afford market rents and be able to afford a mortgage. While people are paying their £800 a month rents and living costs there is no way they can also save the £50k deposit required to buy somewhere later. Then kids, if they can ever have them, cannot put roots down, make friends, be friends with neighbours as they are on the move. I know of a little girl, aged 8, who has moved 7 times in her life in Private Rent - and has behaviour problems. Any wonder!

I also know young executives that are struggling to buy because prices are too high.

The only people who think there is a shortage, think that the cost of housing HAS to go up or think their house is too cheap at the moment are houseowners who have a big house to sell. Those that want to buy somewhere will tell you a different story.

Ask most people who own a house and they will say 'thank god I bought when I did, I could not afford to now'.

RabbitMad

blue_monkey wrote: »

People will no longer buy a house they cannot afford because they are aware of the consequences whereas 2 years we had people buying houses they could not afford, pushing prices up. People are now more aware of the consequences whereas before they would think 'that will not happen to me'.

I bet lots of people said that after the 91 crash.

People have short memories and house prices will bubble again (when I don't know - 1, 2, 5, 10, 15 or 20 years time maybe), they will certain increase in price as we are an anglo saxon economy and inflation just they way of life.

System

No because there's a million empty homes innit.

Cleaver

HAMISH_MCTAVISH wrote: »

Do any of the housing bears have a credible explanation for how 3 million new houses will be built in just 10 years?

A mathematician bear would argue that the solution would be to build 822 houses every day for the next ten years.

Generali

Cleaver wrote: »

A mathematician bear would argue that the solution would be to build 822 houses every day for the next ten years.

That's about 10 per constituency per week.

abaxas

If there was a genuiune housing shortage, people would be breaking the law to obtain shelter. Either by using caravans on public land or even building their own.

The 'shortage' is of properties people can afford.

Bonia77

abaxas wrote: »

If there was a genuiune housing shortage, people would be breaking the law to obtain shelter. Either by using caravans on public land or even building their own.

Couldn't agree more. There supposed 3 million 'homeless' are already in some kind of accommodation.

Cleaver

Generali wrote: »

That's about 10 per constituency per week.

I know a builder called Dave who'd sort it for you. He's like lightning.