A couple of interesting articles have prompted me to post this update on house building numbers. My last post included a table from Acadametrics showing transaction numbers in England and Wales 2006-2012. That table ended in July 2012 and showed the graph on a healthy uptick. This is the most recent update:
It does seem like a pattern has emerged over the last four years from January 2009, with transactions rising to just over 60,000 in the summer and dropping back close to 40,000 per month in each January. No signs yet that the housing market returning to the pre-crunch six-figure numbers and perhaps no one should be very surprised. Demand has been flat and is likely to remain so as the economy generally flat lines.
Savills Residential research latest blog post by Christopher Buckle, demonstrates how even if private sector housebuilding increases in output by 7% year on year, a growth rate not seen since the 1950s, then by 2017 output will still be 10,000 below the 50 year average of 140,000 never mind the additional 70,000 homes per year we need to meet DCLG’s household projection figures (232,000 new households less 29,000 pa affordable homes, the current level of delivery, less 133,000 from Savills projections). The Savills post ends:
“To meet housing need, we need to find other ways to deliver new homes. This is likely to include Build to Rent, where significant activity is already underway. It also requires new ways of funding affordable housing, without returning to Section 106 and renewing constraints to development viability.“
However the problem is worse even than Christopher Buckle suggests. The question he doesn’t ask in the Savills post is why on earth private sector house builders would want to increase supply at the unprecedented rate of 7.5% per annum. I pointed out in my previous post that house builders have no incentive to increase volumes when demand is weak, as it is currently, and I have in the past expressed my skepticism about the government’s claims to be “Getting Britain Building”. Chis Brown makes the same point in his recent blog post and rightly goes on to to show how the current government “incentives” are ending up in the pockets of house builder managers, shareholders and their bankers. Far from “Getting Britain Building” the government incentives are merely boosting house builders profits. As Chris puts it:
“The challenge is how to focus government action on increasing production rather than subsidy leaking out in house builders’ bonuses or for banks to deposit with the Bank of England“
As Mr Buckle does, he also offers some solutions; principally government funded house building (for sale, rather than affordable rent) and somehow encouraging house builders to change their model to ‘Custom Build’. There are of course problems with both these alternatives as there are with building to rent. Government funded house building could be seen to be unwarranted intervention in the private sector, which will inevitably have some distorting effects on the market. However the position is stark and decent housing is fast becoming unaffordable for many so it should be possible to argue that such intervention is necessary in the public interest. Persuading enough house builders to sell plots rather than built homes sounds a great idea but I’m struggling to see who might go down this route and why; I’m also a little skeptical that there is a real appetite for custom build amongst the home buying public.
What is really disappointing is that whilst people in the industry, such as Chris Brown and Christopher Buckle, are pointing out the obvious truth that to the current government approach isn’t and won’t work, and that other options need to be worked up and funded, the government is blithely pretending there is no problem. If we don’t so something different, such as the government funded housing, PRS or even Custom Build, then our children will not leave home because there won’t be anywhere they can afford to move to and maybe their children will have to grow up in their grandparent’s house too. Or perhaps our government have a hidden agenda to return to extended families in a single dwelling. That is certainly where we are headed at the moment.