We aren’t building enough houses—and we’re building them in the wrong places

Areas expected to have the highest household growth are already falling furthest behind

December 20, 2016
File photo dated 19/1/2016 of terraced residential houses in south east London. The total value of the UK's privately-owned homes has grown to over £5.5 trillion for the first time, according to estimates.
File photo dated 19/1/2016 of terraced residential houses in south east London. The total value of the UK's privately-owned homes has grown to over £5.5 trillion for the first time, according to estimates.

You can take your pick of the horror stories about housing these days, but consider this update from the latest homelessness statistics: the number of households in temporary accommodation has grown by nine per cent in the past year, and by 55 per cent since the end of 2010. There are now more than 117,000 children in families with no permanent home.

The proximate cause of this steady rise in homelessness seems to have been the expensiveness of the private rented sector; as tenancies come up for renewal, growing numbers of people cannot afford either to stay put or to find a new place. Underlying this trend, however, is the chronic shortage of new homes needed to keep rents down as the population expands.

The net supply of housing (including not just new-build completions but also conversions and change of use) was 189,650 last year. This is the highest level since the crash but still only 90 per cent of the 210,000 average household growth rate that is projected for the next 25 years. Even that 90 per cent figure, however, makes matters sound better than they really are.

When we compared housing supply against household growth rates at district level for a new Civitas paper, we discovered very large variations from area to area. Worse, those places that are expected to experience the highest household growth are, by and large, the ones that are already falling furthest behind with the supply of new homes. They also tend to be—no surprise—those that are most expensive already.

Exhibit A is London, the fastest-growing area of the country and notoriously expensive already due not only to the existing mismatch between supply and demand but also the greater spending power of the average Londoner, and the capital’s attractiveness to domestic and overseas investors. But the shortage of homes is worsening every year and more severely than the national average. New homes equivalent to just 55 per cent of the capital’s annual projected household growth between 2014 and 2039 were built last year.

Outside London the next 30 fastest growing local authority areas are virtually all in the south east, and only five of them last year delivered enough new homes to accommodate their long-term household formation. The failure of many heavily built-up areas to keep up with further household growth is to some extent offset—as it is meant to be under the national planning guidelines—by compensatory higher supply in neighbouring authorities.

But that is often not the case either. London, which is categorised as a single housing market, is a case in point, as are the broad swathes of the south east with barely a district keeping up with its household projections. The Greater Manchester authorities are collectively failing to build enough homes, as are those making up the West Midlands. Not only are we not building enough, those we are building are not in the places we most need them.

It is important to bear in mind with projections about new households that they describe what statisticians would expect to happen, based on past trends, if there were enough homes for them to move into. If there aren’t, many of these households simply won’t be formed—young people will live with their parents for longer, or sofa surf, or join houseshares. Some may move to other parts of the country, but that is dependent on jobs growth in those destinations.

All of these trends we are seeing already, as we are that other consequence of a failure to build enough homes: rising homelessness. Without more homes in the right places we can expect to see more of this, with more people squeezed into too few homes, and more people squeezed out altogether.