Housing talk needs to be followed by action

An extremely important subject flickered onto our news radar last week. It was soon crowded out by other events but will return, I hope several times, before the May general election. Amidst headlines telling of an interim deal between Greece and its creditors, Madonna falling off a stage and the true identity of “Jihadi John”, this vital topic punched through. Housing is surely one of the most significant, and divisive, issues the UK now faces. And despite politicians’ reluctance to discuss it, the debate could well get heated in the run-up to polling day.

Last week’s housing news was driven by a warning from a leading international think-tank that Britain isn’t building enough homes. UK house prices are soaring, argued the Organisation for Cooperation and Development in a new report, because “housing supply has not risen to meet demand”. Such sharp price rises, the OECD continued, “may create risks to financial stability in the case of a downward adjustment”.

Then came a study from the English Housing Survey showing home ownership levels now at 63pc, a 29-year low. The share of 25-35 year olds who are owner-occupiers, in particular, has fallen from 59pc in 2004 to just 36pc last year. This “priced-out” generation, of course, is increasingly turning to the rental sector.
The share of young people renting has more than doubled over the last decade, to just under 50pc. Within that trend, the number of households with children now dependent on private landlords has tripled since 2004, to over 1.5m. Unlike owner-occupiers, or those living in social housing, private renting households often have little security beyond 6- or 12-month contracts – which can harm family cohesion and schooling. Market rents, meanwhile, rose over 8pc last year, while for many workers real wages fell.

In many areas of the country, particularly the South East, spiraling prices and a lack of mortgage finance, despite low headline borrowing costs, has put ownership simply beyond the reach of many youngsters – unless they command a very high wage or can rely on the “bank of Mum and Dad”.

At the other end of the spectrum, many older people now have little or no housing debt, which is why those owning their home outright last year outnumbered mortgage-holding owners for the first time. Around two-thirds of the 7.4m UK households now mortgage-free contain residents aged over 65. This points to an extreme generational inequality in the UK’s housing market.

Since before the Second World War, housing has been a source of British social mobility. Relatively low-income employees, if they worked steadily, could get on the housing ladder, watch their wealth grow and, with it, their stake in society. These days, many youngsters without access to a hefty parental handout just can’t afford to buy. For the first time in generations, then, the UK housing market is a source not of social progress, but deep social division.

Sharp regional divisions add to the picture of a divided nation. While prices have risen fast in London and the South East, and are now some 20pc higher than they were prior to the 2008 financial crisis, in many areas of the UK they’re yet to recover to pre-crisis levels. In the North East and North West of England, and also in Wales, prices remain some 5-10pc lower than they were before the Lehman Brothers collapse. In Northern Ireland, average house prices are still more than 30pc adrift.

That’s why while some will inwardly cheer last week’s news that UK house prices rose 9.9pc during the year to December, many will not. In some regions, the housing market remains depressed – a source of angst for many owners, rather than contentment. And, across more buoyant parts of the country, many of those renting – who are working hard, trying to amass a deposit – will be deeply resentful, as prices run ahead faster than they can save.

Over the last year, the price paid by first-time buyers across the UK rose 12pc to £160,300, with average deposits up no less than 15pc at over £29,000. Those who can get this kind of sum together (often with parental help, of course) have benefitted from lower stamp-duty charges for those buying a first home. For others, the bottom rung on the housing ladder has been pulled even further away.

The reality – and this is where it gets politically tricky – is that the UK needs to build a lot more houses in areas where people want to live. The Paris-based OECD is right, but isn’t telling us anything we don’t already know. The Barker Report, published 11 years ago this month, the last major government-commissioned study of the UK housing market, was crystal clear. Around 250,000 “housing completions” are required annually, the report concluded, to meet the natural growth in UK household numbers.

The housing supply record since then has been nothing short of woeful, driving prices relentlessly up. That feels good if you already own a home, not so good if you or your children are among the now fast-growing share who don’t. Back in 2004, when the economist Kate Barker wrote her report, the UK built around 140,000 homes – some 90,000 less than the required number. Completions then rose during the years until 2008, but still fell well short, averaging only around 160,00. Once the financial crisis hit, UK house building then plummeted, to less 115,000 in 2009. It’s pretty much stay at that level ever year since, despite the broader recovery. Over the last decade, then, we’ve built around a million fewer homes than were needed – which is major reason why prices, for so many, have become unaffordable.

Official figures released last week showed that new housing starts in England were 20pc down during the second half of 2014. House building is now at its slowest peace-time rate since the General Strike of 1926. The government’s “Help-to-Buy” scheme was supposed to spur house-building. Yet by further fuelling demand, at least for those with a chunky deposit, such state-sponsored home equity loans have probably polarized the market even more.

The main political parties talk about wanting more housing supply but their actions have been utterly ineffective. We need more housing land identified, better cooperation between local authorities and new Garden Cities and Garden Suburbs. Lawmakers should also get tough on developers that are clearly sitting on land, despite their denials, waiting for further prices rises.

A dysfunctional housing market, while it makes existing owners feel wealthy, harms the entire economy. Unaffordable housing in places where people need to live and work makes it harder to hire good workers. There’s a huge fiscal cost, also, as a supply crunch sends rents spiralling. Over the last five years, the share of private tenants with jobs whose rent is subsidized with housing benefit has doubled to 14pc. That’s seen the total housing benefit bill shoot up above £25bn.

“Since I wrote my report, continued local opposition to housing development has kept new supply far below the long-term growth of demand,” Kate Barker told me last week. She stresses, also, that many smaller house-builders, knocked-out by the financial crisis, didn’t recover. “It is vital that early in the term of the next government, firm action is taken to move suitable public land quickly into development,” Barker says, “while we work to identify sites for new garden cities or urban extensions”. While those words won’t be popular with some homeowners, particularly in leafy parts of affluent England, it strikes me that Barker is right.

http://www.telegraph.co.uk/finance/comment/11442000/Time-for-housebuilding-action-to-match-the-talk.html

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