The Mervyn Smith Blog – The Housing Crisis – More than a Crisis of Supply?

14.02.2019

(This blog is reprinted from the Mervyn Smith article in the current Spring edition of the Ham and Petersham Community Magazine).

 

 

When the News isn’t (occasionally!) dominated by Brexit, another recurring topic is the housing crisis. It has similar qualities, – if thats the word, – to Brexit, in that it can also be framed as a disconnect between the haves and the have nots—and it’s been brewing for years.

Back in 2006 the Barker Report demonstrated that every year there were more ‘households ’ being formed than houses being built—and the discrepancy was getting wider all the time. Why are there more households – (ie a person or a unit of people who want to live in a single property?) Many reasons – we live longer, live on our own more, split up more and there’s higher net immigration than emigration. At the same time, we’ve been building less, and massively less than in previous building-booms such as the 1960s. The number of households recently has actually started to fall, but this is partly misleading because, for example, children live with their parents longer because they can’t afford to rent, – never mind buy, – their own property. Before the financial crisis, 2.7million adults aged 20 to 34 lived at home. Today its 3.4million.

The kneejerk rationale is rents and property prices are too high because supply is too low. But firstly it should be understood that the major shortfall in UK housebuilding in the last 40 years, – compared to the 50 years before, – is in public housing. Ham and Petersham is typical of this story. Our local authority stock stretches back to the early 20th century, with another boom in the the late 40s and 50s and then flats built in the 60s. Since then it’s been relatively small scale infills. Nationally, there have only been about 750,000 council and housing association homes built in the last 40 years. In the same period, since the Housing Act 1980, 2.5 million former local authority homes have passed into private ownership under Right to Buy. Private developers have not made up the difference, – some would say they have not wanted or needed to in order to maximise profits, though another view would be that they have been continually restricted or slowed down by the rigours of our planning ‘system.’ Right to buy helped many families onto the housing ladder, but many of these properties- possibly over 40% in London, -are rented back from private landlords by the local authorities who used to own them.

In the last decade, economic problems have poured more petrol onto this bonfire. After the financial crisis, Central Banks worldwide cut interest rates to their lowest ever level and subsidised debt by artificially buying up their own bonds and other financial instruments. Result worldwide—a massive hike in asset values. Great if you have properties or stocks and shares– terrible if you haven’t. Worse still, while property prices have soared, average incomes have plateaued. At the Millennium, the average property cost 5 times average income. It is now about 8.5 times. In our area its much more. In the most recent Land Registry data available, the average property in Richmond Borough sells for £645,348. Many millennials are resigned to never owning their own home. They are forced into renting, or returning home to Mum and Dad, or borrowing from Mum and Dad. In 2018 the Bank of Mum and Dad were the UKs 12th biggest mortgage lender, doling out £5.7 billion. And many more young people in the private rented sector—and staying there longer, – in turn means less spaces and more competition for those needing social housing.

Richmond’s waiting list for housing association accommodation is usually over 3000 and frequently over 5,500. At any one time there are typically over 250 homeless households amongst them.

Technically, Richmond Council no longer actually own any council housing. Registered Social Landlords (i.e. housing associations) provide social housing. Mostly this is Richmond Housing Partnership (RHP). But even housing associations have moved more towards market and speculative developments – 18% of their turnover in 2017, – while the supposed ‘core purpose’ of providing social housing at low rents has shrunk. Of new housing association properties, most have not been for ‘social rent’ but ‘affordable rent’ which in the South East can be a very high figure, potentially trapping low earners into benefit dependency. For both the private and public sectors there is clearly more than a supply crisis but a crisis of fairness and allocation. The 2017 UK Housing Review Briefing Paper argued that while supply is critical, “so is the rather more neglected issue of affordability.’ In their report, ‘What more can be done to build the homes we need? the IPPR stress “it is not just the number built but also the balance of tenures and affordability which need to be thought through for an effective housing strategy.”

Policy initiatives of recent governments, irrespective of party, have benefited only sections of those in need whilst schemes Help to Buy arguably help housebuilders more than house buyers. Another often overlooked factor is that many existing properties have no one living in them at all. Whilst Government figures suggest we need to build 350,000 homes annually (- but only managed about 220,000 last year) –other data show at any one time over 600,000 properties are empty, with 200,000 properties empty for 6 months or more. The Housing Act 2004 gave local authorities the right to put an unoccupied property back into use through Empty Dwelling Management Orders (EDMOs). I was consulted by a property owner threatened with this last year but it’s very unusual. Less than 10% of local authorities may have used these powers. I was myself struck one evening last summer on a riverboat trip from Richmond to Tower Bridge by the sheer number of new apartments facing the river with no lights on in any of them. Are we under- supplied or undersupplied with what we really need?

Some propose the magic bullet of cheaper and quicker modern methods of construction. In Ham and Petersham this probably wouldn’t be impactful. Our village is a narrow corridor between the river and the Park where the major part of a property’s value is not the building itself but the land it stands on. When I calculate buildings insurance, the sum insured is based on the ’rebuild’ cost, eg what would it cost to replace the building with one approximately the same size and specification. This figure might be less than two thirds the market value of the property. When land is expensive, building properties more efficiently might not make a game changing difference to average price.

Of course there’s a shortfall in the supply of housing, but this is only part of the problem, and if we’ve learned anything from the Brexit process it is probably that things are more complicated and more intertwined than they first appear. We also have to consider that the call to solve the housing crisis by building more properties hasn’t worked so far – even when property prices are sky high, – so there must be more involved. Yes, the housing crisis is one of supply but it is also one of quality, affordability and distribution.

 

(In this piece, I’ve drawn on opinion and data from other RICS members in our January/February 2019 Journal, especially Michael Sanders ‘Behind the Housing Crisis’ based on his Masters thesis on the subject. I’ve also drawn on the December 2018 House of Commons Library Briefing Paper ‘Tackling the Under Supply of Housing in England’ and the thought provoking material of Action on Empty Homes).