Labouring over the housing shortage
Source: ONS, Callanish Capital
Housing is always close to the top of any government’s agenda and the new UK government is no different. Labour’s proposed easing of planning rules may help to alleviate the housing shortage, but it is unlikely to be successful unless the private and public sector work together.
Simple supply and demand economics dictate that prices rise during a shortage. While this has led to some quite marked urban regeneration, as people have moved back into our city centres, the corollary is that housing has become unaffordable to many, particularly the young.
The above chart shows new “permanent dwellings” completed by three segments: the private sector, the local government sector, and housing associations. Together in the 1960s they were able to build about 350,000 dwellings a year. Today, they struggle to build more than about 165,000.
This is not nearly enough when one considers that we have annual population growth of over 200,000 people a year, inward migration last year of 745,000 people, a trend to smaller households, and the need to rebuild obsolete housing.
The reason for the steady decline in housebuilding is clear in the chart above. In the 1980s, funding was withdrawn from the local authorities and they simply ceased to build. At the time it was hoped that the private sector would step in, but they did not. The private sector has been remarkably consistent in producing about 165,000 a year almost regardless of what the public sector was doing.
Since the local authorities exited the scene the housing associations have increased their output, but as the chart shows their contribution is more welcome than genuinely significant.
Why has the private sector failed to build more houses? Anyone who has had to apply to the planning authorities will have a view, particularly those who have had to perform needless bat and newt surveys in order to get planning approval.
In the 1950s and 1960s the local councils seemed to be happy to approve themselves to build (and what a great job they did with some of our urban housing estates) but seem loath to let the private sector replace them.
Whether it is the councils scoring a political point, pique, or red tape, it is clear that the private sector has to provide capital and expertise, local councils have to act more quickly, and the NIMBYs need to understand that their rooms with a view may change. We would love the new government to be successful and markedly increase the number of homes built, but the experience of the last 40 years suggests not.
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