Housing Supply and Demand

02 May

Housing Supply and Demand

Housing supply across the UK has not kept up with demand. Reasons for rising demand include but are not limited to, longer life expectancy and increases in one-person households. The government currently aims to deliver 300,000 homes per year. 164,000 homes were built in 2015/16 and 184,000 in 2016/17, a slight increase but still below the pre-recession peak of 200,000.

According to the Office for National Statistics (ONS) the number of households in England are projected to rise from 22.9 million in 2016 to 26.9 million in 2041; an average increase of approximately 159,000 households per year.

From 1991 to 2011, in across the UK overall and in England, housing stock increased by 16% but growth varied from region to region. The South West had the largest rise in stock of 22%, while the North East had the lowest at 9%.

There were around 23.7 million residential dwellings in England as of 31st March 2016. Research by Heriot-Watt University estimated that England has a backlog of 3.91 million homes and needs to build 340,000 new homes per year until 2031 just to meet demand.

In 2017-2018, England’s housing stock saw a net gain of 222,190 homes. This does not mean, however, that all homes were completed new builds. Change of use from non-residential to residential property has accounted for a rising proportion of new housing supply, producing 29,720 dwellings in 2017-2018 compared to 20,150 in 2006-2007.

Almost 10% of land across England is classified as ‘urban’ and 1% has domestic buildings on it. This may seem enough land to build on but economically, it is scarce and fixed, which is viewed as a barrier to house building. Developers face strong competition for land, while uncertain of the planning permission they will be able to secure.

The planning system controls where housing development takes place, density levels, supporting infrastructure, and the obligation to provide a proportion of affordable housing as part of a development. Planning, though, essential has frequently been cited as a ‘block’ to delivering the housing needed to meet demand.

Purpose-built private rented sector complexes are viewed as a means of providing much needed housing by both national and local government, and simplifications were made to streamline the planning process and remove barriers to development. The number of completed Build-to-Rent (BTR) developments was up 29% annually at the end of Q4 2018, with the number of under-construction developments rising by 39% on 2017, and an additional 10% in the planning stages.

Driven by high demand, house prices are to continue to rise in the long-term. Over the next 5 years, research by Savills forecast house prices to increase by an average of 14.8%. Values across the North of England are expected to outpace London and the South East for the first time, with growth of 17.6% in the North East, 20.5% across Yorkshire and the Humber, and 21.6% in the North West. The Midlands are also expected to see an upsurge of 19.3%. While, growth in London and the South East will be subdued to single digits of 4.5% and 9.3% respectively.

The same research indicated that rental prices will also increase by an average of 13.7% across regional cities, and 15.9% in London. Having grown significantly over the last 5 years, the private rented sector now accounts for 20% of UK households. With that proportion expected to rise by 5% by 2021 and renting predicted to outgrow home ownership in the near future.

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