UK Government insists on higher housing output

INVESTMENT PROPERTY NEWS: CIOB ONLINE

The latest pronouncement from the United Kingdom Government on housing policy underlines how important are the industry’s efforts to create a new stream of affordable housing opportunities. Figures released by the Office of the Deputy Prime Minister show that only three out of ten of today’s ten year olds will be able to afford to buy their own homes unless the volume of house building increases.

This statement is based on a forecast that if the country carries on with current building rates, by 2026 the proportion of England’s thirty-something couples able to afford to buy is set to fall to approximately one third compared to half today and two thirds in the 1980s.

These preliminary projections as the ODPM calls them are based on analysis as part of the Government’s response to Kate Barker’s review of housing supply. It demonstrates, says the department, that building more homes reduces pressure on prices and helps more families to afford their own homes.

Kate Barker herself said much the same. For many people, she said, housing has become increasingly unaffordable over time. “The aspiration for home ownership is as strong as ever, yet the reality is that for many this aspiration will remain unfulfilled unless the trend in real house prices is reduced.”

The Government is concerned about what it calls the threat to social mobility. ODPM figures show that 23 per cent of first time buyers are now relying on gifts and family loans in order to afford a deposit, compared to just 4 per cent 25 years ago. This trend points to a steady erosion of purchasing power in the housing market.

Growing problems of affordability

ODPM quotes the Barker Review as saying that Britain has not been building enough homes to meet rising demand for several decades. The result has been rising house prices and growing problems of affordability. Over the past 30 years the number of households has increased by over 30 per cent, but the building of new homes has fallen by over 50 per cent. In the South and East of England, for every seven new households, only four new homes are being built.

These statements were presented as indicators that the Government’s response to Kate Barker’s review is on the way, recognising that her Housing Supply report called for a step change in house building to meet rising demand. Part of the Government’s reply will be to say that it has already set out proposals for an increase in house building over the next ten years as part of the Sustainable Communities Plan. For example, over 70 per cent of new homes are now being built on brownfield land compared to 56 per cent when the Government first came into office.

But those developments in themselves have hardly touched the problem of affordability. Evidence of this is seen not only in the latest housing analysis from the ODPM, but in the fact that over the period 2006-08 the Housing Corporation will be spending nigh on £4 billion in its largest ever grant allocation for affordable homes.

One important feature of the sustainable communities/affordable homes programme is the determination on ‘driving down the costs of construction and driving up the quality of design’. Driving down the cost of construction is something that the industry would welcome if it meant an easing in the remorseless inflation of tender prices.

Construction costs on an upward trend

But according to the latest forecast by the RICS Building Cost Information Service tender price index (October 2005), with quite strong upward pressure from input cost increases, and with new work output expected to grow a little faster than trend in 2006, tender prices will rise well ahead of general inflation between the third quarter of this year and the third quarter of next.

Over the second year of the forecast (2006-07), input cost increases are expected to slow somewhat, but with new work output growth anticipated to be well ahead of trend in 2007, tender prices are forecast to continue to rise significantly faster than inflation.

This is an upward trend that has so far defied all attempts to curb it short of recession and in construction that does not appear to be an immediate prospect. The Government says nothing about the other important component of housing development, land prices, and in any case at present it has no means of driving them down except by employment of generous subsidies.

Kate Barker has some ideas on dealing with that aspect of housing affordability, but it seems unlikely that the Government will accept her proposal for the planning gain supplement owing to the previous failure of such charges on development. It will no doubt confirm plans to introduce a general tariff for Section 106 contributions, but useful as these are they will not cover much more than the basic cost of infrastructure provision on the new sites.

So when Housing and Planning Minister Yvette Cooper admits to the Local Government Association that it is unsustainable to carry on as we are, that we have to protect the environment for the next generation and that we need to make sure they have homes to live in, she is referring to a huge task which is going to consume an increasing proportion of the U.K. construction industry’s resources.

In the Government’s forthcoming response to Kate Barker’s report, no doubt much will be made of the gathering impetus behind the programme for modern methods of construction. This is now set to demonstrate that houses of modest dimensions can be built for less than £60,000. The fact that this effort is now being brought to fruition is a timely demonstration of the industry’s resourcefulness when faced with a real challenge.

But that only covers part of the problem of affordability. If the Government fails to grasp the opportunity to deal with every aspect of housing economics, it will fail to meet the aspirations not only of this generation but the next also.

- 13 October 2005