Illogical Dichotomies – UK Housing’s Supply/Demand Disparity
By Matthew Robinson
The April 2014 Residential Market Survey from RICS proclaims the headline: ‘Demand Supply Imbalance Continues to Push Prices Higher’ – 8% higher this year alone. Whilst the demand for housing in the UK continues to grow (supported by more favourable credit conditions), supply is lagging far behind. In fact most UK regions have now seen a decline in new property coming onto the market for a number of consecutive months. Even with a basic grasp of macroeconomics it is clear to see that houses prices can only go only one way – up – with RICS envisaging an average price growth of 6% per annum over the coming 5 years. This acute disparity is fuelling concerns that the UK housing market is entering into another property bubble.
So what can the Bank do? Make changes to the government’s housing market schemes? Influence lenders? Alter mortgage rules? Change interest rates? Yes. All of these. And we may see a drop in demand. But what the Bank cannot influence is the supply. This is one for the planners I’m afraid.
We all know the messages coming from central government – build, build, build. Build Britain out of the recession. Working with the likes of the Home Builders Federation, the Chartered Institute of Housing, the UK Green Building Council, the National Housing Federation and the Homes & Communities Agency, central government is introducing a number of mechanisms to increase the supply of homes. These include:
A £570 million Get Britain Building investment fund for developers with stalled sites;
The identification of surplus public sector land to support up to 100,000 new homes;
The New Homes Bonus;
The Build to Rent Fund to encourage more investors to build houses for private rent;
The Community Right to Build and Community Right to Reclaim Land; and
The New Buy Guarantee scheme offering mortgages on new-build homes with reduced deposits.
From a policy perspective, the National Planning Policy Framework has been in play for over 2 years now and figures published by the Home Builders Federation show that residential permissions were 22% higher following the publication of the NPPF. However, these measures clearly aren’t enough to cope with the growing demand or the backlog of years of undersupply.
Perhaps the solution lies closer to home. The NPPF gave local planning authorities 12 months to adopt a new style Local Plan. However, as of January 2014, only 52% of local planning authorities had achieved this. Furthermore, recent research shows that of the 100+ Local Plans examined or submitted for examination, a significant number have been withdrawn or stalled due to failing to meet objectively assessed needs, with housing targets remaining the key area of contention.
A significant concern is that over half of the Local Plans submitted propose less housing than under the previous Regional Strategies. In the meantime, authorities are undergoing appeal after appeal with some, such as Cheshire East Council, challenging decisions through the courts.
It’s a mess. And it needs to be sorted now if the NPPF is to be applied properly at the local level. With this level of confusion over (and resistance to) meeting objectively assessed needs, the supply of housing is not going to match demand anytime soon.
Keep adding to your savings account for the time being.