Is there a problem with the current housing market? Christine Whitehead LSE Social implications of a changing housing market ESRC Festival of Social Science: Housing Event Geffrye Museum of the Home 12 November 2015

Housing: top of the political agenda? ‘Everyone’ believes there is a major housing crisis arising from: lack of new supply (completions in last decade running at less than half of current requirements); House prices out of line with incomes and affordability in all tenures a growing problem; Rapid growth of expensive private rented sector even for families; Increasing Housing Benefit bill; Problems especially concentrated in London where London economy growing rapidly and out of line with rest of the country; ‘Everyone’ blames the planners and shortage of land brownfield policy, green belt and bureaucracy or indeed democracy

Basic Economics Demand depends on demographics but also incomes and relative costs; Supply depends on costs; profits/risks; price of land; Demand can increase very quickly, while supply cannot expand rapidly - building less than 0.5% of total each year; Result is higher prices and rents BUT also higher land prices; Macro-economic volatility reduces incentives and capacity to supply - post GFC but also 1989/90 and before; Long run constraints on supply - economic growth increases competition for land; existing infrastructure and building density limits adjustment; but also regulatory constraints – green belt; local plans; NIMBYism.

Sources of Population Change in the UK

Housing Completions by Tenure

House prices

Household expenditure by tenure

Looking to the future The 2012 based projections suggest that, if past trends continue, we will need to build an extra 222,000 homes in England each year from 2011 – 2031; This is less than earlier projections BUT ONLY because growth in household numbers has been restricted by lack of supply and problems of affordability - at least for the last decade and for younger households for a quarter of a century; So far since 2011 we have built only 54% of the homes required – so if we were to try to catch up by 2021 we would need to build over 300,000 each year; This compares with 138,000 starts and 125,000 completions in England in 2014/15.

The Regional Story Major differences in population and household growth between regions; – North East 11%, increase in household between 2011 and 2031; London 33%; Implies 25% of homes need to be in London – i.e. 55,000 units a year Currently completions under 20,000 in 2014/15, although starts rising.

Conclusions The housing system is failing to provide for population and household formation let alone for economic growth; Even if we build 222,000 each year until 2031 some groups will still be worse off as compared to 2011 – notably couples in London; But very unlikely to build this number consistently over 20 years; If the economy is successful, incomes will rise and demand will be higher both for numbers and quality of housing; The likely impact is higher house prices and worsening affordability. Yes, we have a dysfunctional housing system.