There is a conventional story about the housing crisis – one you’ve probably heard trotted out time and again by prime ministers and journalists for years.
It runs as follows: We build too few homes. We have built too few homes for decades. And, as a result, we have a housing crisis: too many people chasing too few homes. The solution is to build more homes.
That, in a nutshell, is how government housing policy functions at the moment. But what if it’s simply wrong?
What if the problem facing the UK housing market isn’t a simple lack of homes, one that can be solved by the silver bullet of new housing stock? What if our politicians, trapped in their metropolitan bubble, have been misreading what’s really going on?
Having covered the housing market for a decade and a half, I’ve often wondered about this. I’ve read with interest alternative thesis about what’s really going on. Some, for instance Oxford Economics analyst Ian Mulheirn, have claimed that the real problem is not supply but credit – that cheap money has made it easier to buy homes and has pushed up prices all around the country.
Others, for instance Oxford University professor Danny Dorling, have claimed that the real problem is not supply but distribution: that there are enough homes but they are unevenly spread between the population.
The problem with these explanations – compelling as they are – is that while they seem to apply in part, they do not tell the full story. Clearly there are parts of the country where there are not enough homes. There are parts where there is a supply problem – and parts where those competing explanations seem more valid.
But thus far there has been no comprehensive effort to try to map those various issues facing the housing market, and to show how much they apply to different parts of the country. So that’s what we’ve done today. In conjunction with Neal Hudson from Residential Analysts, we’ve built the first set of maps highlighting which parts of the country are facing which particular issues.
And we’ve determined that actually the UK is facing not a single nationwide housing crisis – but five starkly different crises which are more or less intense in different areas of the UK.
The crises – or perhaps “pressures” might be a better word – are as follows:
1. The supply crisis – the conventional explanation of the housing crisis, with too few homes. This is certainly an issue in London and the South East, which account for pretty much the entire top 20 of affected areas around the UK. The only exception is Slough, which is both close to London and on the green belt. There are other key areas which face lack of supply: Oxford, Manchester and Luton, for instance.
2. The demand crisis. In many parts of the UK the problem isn’t a lack of supply but a lack of demand for housing. Because people have moved out of these areas, many homes are left empty and derelict. This is an issue faced in particular by areas with low income and employment levels – especially communities where the dominant industry has shut down. So in our top 20 areas affected by the demand crisis you’ll find old mining towns in Wales and Scotland. There are places like Derry City and Strabane, Redcar and Cleveland, Blackpool and Blaenau Gwent. These are parts of the country where, in order for the housing market to become functional, the local economy needs to recover, taking wages and employment with it.
3. A distributional crisis – which one might also call an underoccupation crisis. This goes back to Prof Dorling’s thesis. In many parts of the country there are more than enough homes for everyone. The problem is those homes are unevenly spread between old, well-off people living in houses with lots of spare bedrooms and those forced to rent because they cannot afford to buy a property. But, again, this issue is concentrated in particular areas with elderly and wealthy residents: places like Rutland and Stratford-upon-Avon. Again, building more homes isn’t necessarily the answer here (though it might help a bit). A better solution is to find ways to encourage those in big homes to downsize.
4. A housing quality crisis. For some parts of the country, the problem isn’t the number of homes out there but their quality. So alongside the other three crises is a housing quality crisis. This particularly affects old towns with period properties that have been left to decay over time. So while there are many new, smart apartment blocks in cities like Liverpool, there are also streets and neighbourhoods with poor quality homes. This issue is particularly acute in the private rental sector. The solution here is not so much to add to the housing stock, as to find ways to encourage landlords and owners to renovate their existing houses.
5. The cost/credit crisis. This crisis goes back to the thesis propounded by Mr Mulheirn – that what’s driving house prices is not the supply of homes but the amounts of cash being funnelled into the economy, thanks to low interest rates. If you’re after a single nationwide crisis, this dynamic is perhaps closest to it – it is far more widespread than crisis number 1, for instance. Even (Taiwan OTC: 6436.TWO – news) so, it is most extreme in places like London and its commuter towns. In a place like Southend-on-Sea, high house prices make it harder for younger first-time buyers to get on the ladder. Indeed, because it is harder than it was before the financial crisis to get a mortgage, this credit issue has exacerbated the gap between haves and have-nots.
So there you have it, five different crises, all with their own idiosyncratic solutions, all affecting different areas of the country in different intensities. Some parts of the UK are fortunate – they come very low down in our rankings of all five crises: Lisburn and Castlereagh in Northern Ireland is a good example: it is far down on the list for all these problems. And yet central Belfast, next door, suffers serious lack of demand, relatively poor housing quality and is mid-table when it comes to the impact of cost and availability of credit.
The City of Westminster faces serious supply and credit pressures – and has pockets of poor housing quality. Compare that to somewhere like Selby in Yorkshire, which comes low down in all our measures. It is a complex story with no single conclusion.
The analysis underlines that the government has been oversimplifying its analysis of the crisis and, in so doing, may be reaching for the wrong solutions. Indeed, new research from the Office for National Statistics earlier this week suggested that because the number of new households being created in the UK is rising at a much slower rate than expected, the need for new homes is even less than was assumed at the time of the government’s latest white paper on housing.
The lesson is that instead of trying to seek out a catch-all solution, government should be tailoring its solutions for local areas – examining the pressures before trying to prescribe the response.
Source: Yahoo News UK