With falling house prices and a temporary collapse in house building, it may seem strange to be talking about a housing shortage. However, if we put aside the short term difficulties of the credit crunch and falling demand, there is an underlying problem that in the long term housing supply is forecast to fall well short of housing demand. For example, the government have stated that the UK requires an annual rate of 240,000 houses a year if we are to meet demand. However, the current rate is only 125,000. Even during the housing boom it was not possible to meet demand.
Reasons for Housing Shortage
Rising Demand
Firstly, the population of the UK (unlike many other western countries) is rising. This is partly driven by immigration and higher birth rates.
Furthermore, the number of households is rising faster than the population. For example, there is an increase in the number of one person households. This is due to factors such as divorce rates, ageing population and people leaving home earlier.
There is also rising demand for second homes and demand from abroad. The demand from foreigners is particularly noticeable in parts of London. Russian oligarchs take advantage of UK tax law to live in the UK and avoid paying tax. (It is rather perverse that locals are being forced out of their own housing market, so that Russian oligarchs can avoid paying tax. But, this isn’t just an ‘urban legend’ there is a lot of truth in it.
Restrictions on Supply
Not In My Back Yard.
The truth is that most people agree it would be good to build new houses. But, we would just prefer them not to be built anywhere near we live. I am as guilty as anyone. There is a proposal for a new eco town just outside Oxford, at Weston on the Green. I am opposed to it because it would mean losing a cycle track at an airfield. As an economist I agree more houses should be built, but on a personal level I don’t want the houses built here.
Protect House prices
An obvious motive for opposing homebuilding is that it increases the value of existing home prices. If 10,000 new houses are built in our town, it can only lead to lower prices. If we stop new houses being built, it increases the value of existing houses. Therefore, the majority of the population (homeowners) have a vested interest in preventing new homes being built. Some young, first time buyers, will be keen for new houses to be built, but, they are in a minority and so don’t have much influence in the local democratic situation
Environment
Britain has beautiful countryside, there is rightly an instinct to protect it. If we build homes everywhere and cover the south east in concrete, we will lose something special. This is a powerful motive against the building of new houses.
What does this Housing Shortage Mean?
Many in the UK, with good reason, would like to see lower house prices so that first time buyers can get on the property ladder. However, if demand rises faster than supply, then in the long run house prices will continue to be much higher than incomes.
Inequality. The current situation has benefited existing homeowners who have seen an increase in their wealth. First time buyers, will face tremendous costs to get on the property ladder.
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[...] we mentioned in this post, Why is there a housing shortage in the UK? we mentioned many reasons why it is difficult in the UK for housing supply to keep up with the [...]
[...] serious long term problem in the UK is a shortage of houses. (why is there a shortage of housing in UK?) The number of newly built houses in 2008, was the lowest figure since the second world war. [...]
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