Following on from my last blog I concluded that ever-rising property prices are as a result of a fundamental shortage in housing stock in the UK property market. How did we get to this shortage and why?
With an ever-growing population, whether it be from increasing life expectancy or a growth in immigration, there are more people now trying to get a ‘piece of the pie’. Therefore we have an increasing demand for a limited supply. Furthermore, we now live in a day and age where homeowners occupy properties in the ratio two people to one home whereas (as an example) in the 1930’s there may have been up to eight to nine occupants in one house.
Over-population aside, there are now fewer people occupying more homes.
Restrictions on planning laws
Specifically the Town & Country Planning Act 1947 made it illegal for people to build anything without planning permission. It was imposed by the government that they would provide most of the new homes in the UK and the development of private homes would be restricted. From this act the green belt (a way of controlling urbanisation across certain parts of the UK) was born, inevitably restricting where developers can build.
Even if the above was possible the following question one should pose is, are the fundamentals there to facilitate the increase in population?
For example, in Sherburn-In Elmet (on the outskirts of Selby) an application for 498 Red Row homes has been approved between Moor Lane and Low Street. Local residents have complained about the already limited parking within the area and the impact on traffic, lack of facilities down to the local shops and doctor’s surgery.
Conversely, a brownfield site near York’s train station referred to as ‘the teardrop’ has been given Enterprise zone status by the government creating in the region of 2,500 new homes as well as providing high-quality office space.
Comparatively York has sufficiently more jobs and infrastructure required to handle the increase in population.
The last point I would like to draw upon is, even if the government liberalised the regulation on building on green belt land, can we even facilitate the requirements to build enough homes to cope with this increasing level of demand?
Insufficient number of households being built
As mentioned in a previous blog a report published in 2004 (The Barker review) identified that we need to be building in the region of a quarter of a million homes each year to meet the current levels of demand however for the last ten years we have not hit that target once.
George Osborne announced in his Autumn Statement (2015) that the housing budget would be doubled to £2 billion per year, funding 400,000 new homes by 2020.
However Mark Hayward, Managing Director of the National Association of Estate Agents, stipulated that we are unlikely to reach that target down to a shortage of tradespeople in the building industry.
In the Jan/Feb 2016 Property professional magazine, Mark says “They can’t deliver in the time given. A recent report showed that we need 100,000 more carpenters, 80,000 plumbers & 50,000 bricklayers & roofers in the UK.” He continues, “Most large house builders can only increase their output by 10-12%. It’s all very good and well giving out targets but are they achievable?”
Empty British homes
There are currently thousands of homes across the UK currently unoccupied. One might question the reason for leaving a property vacant especially if the property owner has certain financial obligations to which they must attend. According to a report published in autumn of last year by Helen Williams, CEO of Empty Homes national campaigning charity, in 2015 there were 77,117 dwellings empty in Yorkshire & Humber, 3.27% of the total number of dwellings in that region. Of these figures 27,058 properties were regarded as ‘long-term empty’ i.e. vacant in excess of six months.
Some of the reasons quoted by the report for the aforementioned staggering figures are as follows:
- A landlord previously rented out a property and it now needs a lot of work before it can be let again and the landlord is unable to find the money to get the works done.
- Someone has inherited a property (perhaps jointly with another family member) and is unsure what is best to do with it: whether to sell, rent, or move into it.
- People have bought properties to do up and for a variety of reasons, including the pressure of other commitments and financial constraints, are taking a long time to complete the works or the works have stalled.
- People are holding a property empty anticipating a rise in its market value before seeking to sell it. Added to which, some people have unrealistic expectations of the price their property could fetch given the local market.
The final bullet point above relates to a term which has been thrown about called ‘buy to leave’, where investment in property is purely for the benefits of capital appreciation and not to generate a rental income whatsoever. Some investors may feel that the costs of letting the property, wear & tear and any other costs associated with the on-going running of the investment may exceed the benefit of the rental income incurred.
As a side note, the tax changes on wear & tear allowance imposed by George Osborne’s summer budget is unlikely to help matters.
Rather than focusing purely on new-builds, there needs to be some emphasis on existing properties and either getting them back into a rent-able condition, on the grounds they are uninhabitable, or to place heavier sanctions on investors who leave perfectly livable properties vacant for longer periods of time purely for the sake of capital growth.
One set of figures to bear in mind is the relationship between house prices and income. If we compare today with 30 years ago on average house prices were 3.5 times earnings whereas now they are roughly 5 times earnings. Before the crash (2006-07) they were as high as 6 times earnings.
Interest rates on mortgages were significantly higher in the 1980’s which will inevitably impact property prices as servicing of these are currently more affordable, meaning people are more willing to invest. One last point I will add is the buy-to-let (BTL) mortgage was not introduced until the late 90’s. The bar graph below shows the growth in the UK Private Rental Sector since 1986. We can see that the 1988 Housing Act (by extension the birth of the assured short-hold tenancy) and the introduction of BTL mortgages has contributed heavily to the where the property market is today.
So what do you think is the solution to get us out of the UK housing crisis?
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