FEATURE Housing
RE g
ACTUAL AND FORECAST CHANGES IN HOUSING NEED IN ENGLAND (%) WITH BREAKDOWN BY TYPE UNSUITABLE OVERCROWDED
CONCEALED
SHARING RENTAL AFFORDABILITY MORTGAGE DIFFICULTY
Source:Estimating housing need (2010), Department for Communities and Local Government
compared with average incomes. House prices became more and more unaffordable in the period up to 2007, but since then the affordability gap has closed some- what. The main barrier facing fi rst-time buyers is the need to fi nd much bigger deposits: 100% mortgages are a thing of the past.
Potential entrants to the market now divide into two groups. First in the queue are those who can get help from the ‘bank of mum and dad’. The number of such buyers who are under 30 years old is almost the same now (at 80,700) than before the credit crunch (80,200). Then there are the rest, who have to save the deposit themselves. Typically they now have to wait until they are 36 before they can buy. Professor Steve Wilcox, joint editor of the UK Housing Review 2010/11, estimates that, compared with 2006, 100,000 fewer potential buyers are now entering the market each year, prevented from doing so because they lack the required deposit. The other side of the equation is housing demand. Household growth tends to be limited by the supply of homes, of course, resulting in a build-up of unmet need. As the chart shows, most of this is made up of sharing, overcrowded and otherwise ‘concealed’ households. The remainder is due to affordability problems, mortgage payment dif- fi culties, or houses being unsuitable (for example, for disabled people). Estimating housing
need suggests rather optimistically that need will fall slowly over the next ten years, as access to homeownership improves and private housebuilding picks up. But even if this proves correct, there will still
40 PublicFinance APRIL 2011
be more households in need in 2021 than there were in 2004.
That raises the question of whether government policy will improve housing supply. Ministers say they want to ‘build more of the homes that people want in the places they want to live’. They appear to pin their hopes for the private market on a combination of sound economic measures and changes to planning and housing policy.
The biggest unknown is whether there will be a double-dip recession. But leaving this aside, there are still big problems facing the private market: public sector cuts and job losses; household budgets hit by increases in VAT and food and fuel prices; and the general caution that is leading people to pay off their mortgages rather than borrow more. While the market is sluggish and house prices remain below their 2007 peak, there is little incentive to build new homes that might never be sold.
HOUSING COMPLETIONS 2010 AND ARE NOW
FELL AGAIN IN THEIR 2007 PEAK42% BELOW
The government is famously spurning ‘top-down’ policies. So house building targets and regional planning mechanisms are out. In their place are: the New Homes Bonus, which gives communities a fi nancial incentive to agree to new house-building; the Community Right to Build, which will allow local people and communi- ties across England to decide what new homes, shops, businesses and facilities to build and where; and a much less restrictive planning regime. One forecast is that the New Homes Bonus might produce 14,000 extra new homes per year.
At the same time, there have been dire predictions of cancelled housing schemes by planning authorities. For example, last November consultancy Tetlow King told the Commons communities and local government select committee that local targets had been cut in total by 182,000 homes, despite the promise of the New Homes Bonus.
And now the government seems to have started to worry about the housing market. While housing
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