Despite an unprecedented flurry of government initiatives the housing crisis remains grim, with the gap between supply and demand slowly widening. Christine Whitehead (professor of housing economics at the LSE) explains in the RIBA Journal.

The housing situation is pretty depressing – prices are down by perhaps 30% in real terms; additions to the existing stock are running at perhaps half the level required if projected household growth is to be accommodated; and most commentators feel that little of what is being built meets the standards necessary for the next generation. Just as concerning are the likely scenarios were the economy to show signs of significant improvement. If incomes rise then demand for housing will increase against a very limited supply, pushing up prices long before supply can respond; if however credit remains tight, as it has since 2008, then those that can borrow will still put pressure on house prices but first time buyers in particular will find it extremely difficult to enter the market and will be forced to remain in private renting – and pay higher rates.

Current difficulties

The fundamentals behind this inbuilt volatility are relatively straightforward.  Unlike some other European countries often held up as exemplars, we have an expanding population with both healthy indigenous growth and continuing net immigration. As a result we need perhaps 230,000 additional dwellings per annum just to accommodate that increase.  If fewer units are available young people will have to spend longer at home; more households will have to share or live in overcrowded conditions, especially in London and other areas of economic growth; and both international competitiveness and the quality of life will be undermined.  On the other hand, net additions were above 200,000 only at the height of the investment boom in 2007/ 8, and even then new housebuilding output was running at below 170,000. So there has been a continuing shortfall over the economic cycle.

Moreover, what is being produced tends to be smaller than in the past.  In 2009, 60% of completions were of one or two bed units, while 50% were flats – most in the market sector. And we do not keep detailed records of the size of units – everything is thought about in terms of the number of rooms, forgetting that the square metres per dwelling have been falling for decades. As households and their needs change, perhaps the innovation which would most influence behaviour might be to ensure that information on square meterage – and cost per metre – was available as a matter of course to all potential purchasers, as it is in every other country in Europe.

Looking ahead

Looking to the future, the biggest problems in the short term are the lack of funds for developers and purchasers both for owner-occupation and private renting; and continued uncertainty about the future economy and housing market, which is reducing demand and supply while leaving the fundamental tensions unaffected. In the longer term there are concerns about loss of capacity in the development industry; the extent to which land prices and expectations are still out of line with underlying equilibrium; and particularly about the extent to which the planning system can ensure adequate land availability.

The government has put forward over 100 initiatives, including: contracts with housing associations and other providers for 170,000 new affordable homes by 2015;  public land to be made available for 100,000 homes to be provided on a build now pay later principle; a back stop guarantee system by which 100,000 95% mortgages can be supported; and a further 100,000 additional homes funded from right to buy sales on a one for one basis. Most of these initiatives are relatively short term.  The most important longer term initiative is the National Planning Policy Framework (NPPF) published at the end of March and implemented on the same day.

Future changes
The principles behind the NPPF are clear and potentially game changing.  Local authorities with an up to date plan must agree to all proposals that accord with it. Those without a plan must make decisions in line with the framework which gives a presumption in favour of development.

However, one reason for the generally positive response to the NPPF is that the new framework maintains many of the strongest constraints on development, including brownfield first, the emphasis on town centres, constraints on the use of urban public space, the greenbelt and an even greater emphasis on good design. No planning department will have difficulty turning down a development it does not like.  It may go through on appeal, but the delays and costs will be high.

The problem is not so much the framework but the fact that 44 documents that supported the existing planning system have been replaced or revoked. Doing away with a thousand pages of detailed guidance leaves stakeholders to work everything out for themselves, and core concepts are generally not defined clearly enough to stop those who dislike the outcomes appealing against planning decisions.

Any large changes in the planning system take a long while to work through – for instance Section 106 was not really fully operational for at least a decade. Even if the pro development agenda does eventually become embedded in the planning system, resulting in higher output, there are sure to be long delays and high costs associated with the new regime.

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