Everyone in England agrees that we are in the midst of a housing crisis. The scale of the problem is shown in the estimates for ‘household formation’ issued every year by the Department for Communities and Local Government (DCLG). These estimate that between 2012 and 2037, a total of 5.2 million new households will be created, each of which will be in the market for somewhere to live, whether purchased or rented. New households are formed not just as a result of normal population growth (the excess of births over deaths) and net immigration (families and single people who will migrate into this country minus those who leave), but because of the increasing number of single-person households. There are more of these because people live longer than in the past, resulting in more widows and widowers living alone, and because more marriages and similar such relationships end in separation and divorce, so that one household splits into two.
The DCLG uses its estimate to calculate a figure for ‘housing need’ - currently 220,000/year for England as a whole. Unfortunately, far fewer new dwellings are completed each year - only 155,000 in 2014 plus another 25,000 converted by subdividing larger properties. Since some houses were demolished, the net gain in the number of dwellings was 171,000. The result of this kind of shortfall each year is a faster rise in house prices in England than in any other country, such that the ratio of houses prices to average earnings (the P/E ratio) has doubled in the last 30 years. The great housing mystery is why are so few houses built when demand is so high?
The answer to this mystery is that the supply of housing in this country is determined by a small number of very large development corporations, each of which control all aspects of the building process, from land-acquisition, planning-permission and construction, through to sales. This is time-consuming and expensive and no money comes in until the houses are sold. So the development corporations tend to be risk-averse, and will certainly avoid building houses they can not sell. How many they can sell at any particular time depends on the number of people who are able to get loan finance and afford the deposit and monthly repayments. These factors are in turn determined by the general state of the economy. This creates an interesting paradox. The chronic shortage of houses raises their price, which increases the P/E ration, which means that fewer people can afford to buy a house. This in turn means that less are built, which further increases the price.
In the past, the gap between houses needed and houses built was filled by local authorities and (to a lesser degree) by housing associations. But government policy in recent years has instead been to secure the supply of lower-cost houses by imposing a requirement on developers that 40% of the new houses they build will be ‘affordable’. This term has usually designated houses that are rented from housing associations or are sold at 80% of market rates. The aim of this policy is to avoid segregating the population into owner-occupied and rented sectors. However laudable, this policy means that the supply of new affordable housing is determined by the number of market-priced houses that the development corporations decide to build. So in times of recession, when fewer people can afford to buy a house, the development corporations naturally reduce rates of construction, which means that the number of ‘affordable’ houses for rent also falls.
Even in more prosperous times, it pays for the development corporations to maintain the supply of new houses below demand. This pushes up prices and profits, but also has political benefits. The development corporations use the housing crisis to argue that the Government should respond by ‘freeing the market’, which means relaxations in planning controls, building on greenbelt land, and freeing the development corporations of the obligation to build affordable homes. Such measures would massively increase profits, but the arguments are utterly spurious. There is no shortage of land designated for housebuilding in England. At present, planning permission has been granted for 450,000 houses which have not yet been built, while the development corporations own land available for another 300,000 dwellings in their ‘land banks’. Other land for housing will become available during this decade as the supermarket chains offload sites because of the rapid rise in home delivery.
There is therefore no ‘housing crisis’ for the four large development corporations in England, which all report higher sale prices for their houses, increased profits and larger bonuses for their managers. The crisis is instead felt acutely by those who need to spend an ever-higher proportion of their income on renting cramped rooms and flats.
