View the article online at http://citywire.co.uk/money/article/a520341
Affordable housing, for when the market has no answers
Notwithstanding its obvious vested interest, the National Housing Federation is right to call for a big increase in social housing.
What better timing for maximum media coverage than the tail end of an August bank holiday to drop an apocalyptic property market prediction?
According to a new report by the National Housing Federation, based on research and economic modeling by Oxford Economics, everything that’s financially painful for people who don’t currently own their own homes is about to occur, all at once.
Property prices will rise, and by 21.3% across the next five years, leaving the average home worth £260,304 in 2016. Levels of home ownership will drop back rapidly, back to mid-1980s proportions. According to the report, the percentage of UK residents who own their own homes will fall to 63.8% in 2021 (from a 2001 peak of 72.5%).
In the capital, the change will be even more dramatic, turning renting into the norm, with homeowners accounting for just 44% of Londoners. Rents, as a result, will also rise, by a similar rate to prices, and more people will need to rely on social and affordable housing, of which a chronic shortage will be exacerbated to emergency proportions.
As a brutal example of the two-sides-to-every-coin principle, this translated, in the Daily Express, to 'fantastic news for the property market'. A boom – driven by rising demand and a housing shortage – will be a welcome relief to homeowners struggling with negative equity. The managing director of a leading home search company greeted the projection as 'massively positive'.
But receiving the report more in the spirit in which it was intended: what’s the solution for the hard-working city-dweller who can’t afford to buy, and soon might not be able to afford to rent?
Unsurprisingly, since the National Housing Federation is a body representing the interests of housing associations, the solution put forward is: build. Build more affordable housing.
The National Housing Federation is hardly the first body to predict a social housing crisis. Back in March, the Institute for Public Policy Research – in a document looking at how different economic scenarios were likely to affect demand for different types of property – concluded that demand for social housing would increase, no matter what happened in the wider environment. Demand would outstrip supply by as much a further three quarters of a million households by 2025. But the IPPR’s reasons were somewhat different. The report cited immigration, life expectancy and a trend toward single person households… all more convincing reasons than house prices.
Despite a clear need, the outlook for building is cloudy. The government rhetoric is nicely polished, as the National Housing Federation discovered in minister Grant Shapps’s response to the report, a barrage of intentions and programs, from the decentralisation of planning control to incentivised construction, the selling off of state-owned land, easier/cheaper change-of-use of commercial buildings and the somewhat desperate-sounding increased planning permission for houseboats.
But there’s a little catching up to do. Last year saw just 105,000 new homes built, the smallest amount since the 1920s.
Where the government and the social housing pressure groups appear to be suffering a disconnect is that government policy, despite all the hurt and anger of recent years, still favours home-ownership as the single positive outcome. By building more homes, the government argues, prices needn’t spiral out of control again. This, despite recent experience showing that credit conditions are far more likely to affect a property market than the traditional supply-and-demand model. When credit’s cheap and plentiful, property prices rise, irrespective of the amount of new property coming available (look at the last UK boom, or the Spanish one). When it isn’t, people don’t buy because they can’t. If the government wants to get first-time buyers onto the property ladder, showing them homes they can’t get loans for won’t help.
Nor does it help groups like the National Housing Federation to launch a campaign off extravagant house price predictions. The report came just days after the latest Hometrack index showing falling demand, increasing discounts on asking price, increasing average times on the market before a sale (over three months for a third of the country), and an outlook for a further weakening market over the next six months.
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