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Housing crisis: 'Architects should challenge the issues of supply and demand'

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John McRae of ORMS poses some of his own questions about the housing crisis - and offers some possible solutions

‘The country is facing up to a house building crisis. A decade ago, the Barker Review of Housing Supply noted that about 250,000 homes needed to be built every year to prevent spiralling house prices and a shortage of affordable homes.’ The Guardian 

We’ve worked on only a relatively small amount of residential design over the past five years and avoided the temptation to enter the ‘prime and super prime’ residential markets. Yet I continue to be intrigued by the apparent shortage of homes which are either affordable for purchase or rental.

After attending the AJ120 event last week, where protesters attacked practices for their role in the overhaul of the Aylesbury estate, I wanted to understand if our elected government and housebuilders were correct - is building more housing and quickly the answer to the crisis?

Or is it more productive to fully understand the contributing factors of the shortage in housing and rising costs so a new proposition can be formed? (see AJ 26.06.15) And what role can architects play in resolving the ‘house building crisis’?

I do not wear black clothing nor claim to be an expert in residential development so my first port of call was to undertake desktop research into some key facts which can be found on local authority, government and charity websites. I have set out my findings below. What is fascinating is that the facts and figures vary enormously across sources. But the key statistics are:

  • UK Population: 64,100,100 (up 3.7million over the past 10 years and 63,200,000 in 2011 census)
  • Number of households: 26,767,000 (26,400,000; 2011 census plus 367,000 built since 2011)
  • Average household: 2.33 persons (in 2011 census albeit stated 2.36 in projections by ONS) with 2.48 in London (again 2011).
  • Last year: 140,500 new homes built across UK in 2014
  • London: projected to grow by 1 million over next decade 

If we accept the total number of households (as provided by the 2011 census and new homes constructed to end of 2014) across the UK is correct and the average household occupancy of 2.33 persons is applied then in theory we have housing capacity for a population of 62,367,100.

This is equivalent to a shortage of 744,000 homes.

Number of homes built in the UK

But, to give an indication of the nuances of the figures, this shortfall would change to 63,170,120 - equivalent to a shortage of 394,000 homes if 2.36 person occupancy was applied. If my basic mathematics are correct then over a five year period, and without any increase in population, we would need to build 78,800 – 148,800 new homes per year which is well within our current capabilities on the basis we are delivering the required housing stock that is affordable. So where does the perceived need for 250,000 new homes a year come from?

Experts talk convincingly about the need to ‘oversupply the housing market’ as the only way to resolve the shortage and bring prices down. In economic theory, the law of supply and demand is considered one of the fundamental principles governing an economy. Where supply increases, prices tend to drop and as demand rises the price will tend to increase. This is a principle that most people intuitively grasp and the 2004 Barker report concluded that we had to inject an oversupply into the market to keep house prices down, it suggested:

  • That the UK had experienced a long term upward trend of 2.4 per cent in real house prices over the past 30 years.
  • In order to reduce this rate of increase to 1.8 per cent an additional 70,000 houses in England each year may be required.
  • In order to reduce this rate to the EU average of 1.1 per cent an additional 120,000 houses each year may be required

So the Barker report should work. However we’ve a very different market where ‘demand’ is not just from a local market but a global market where housing is now seen as a commercial transaction. In London alone of the 40,000 new homes built in 2014, 73 per cent were in ‘demand’ from overseas investors. This removes supply from the market and further inflates cost as more people bid for even fewer properties way above a ‘fair price’. And what would this mean if London continued to grow?

It is projected that the London population is to grow by 1 million over 10 years so hypothetically (if the current 2.48 persons per household average is applied) we need a further 40,320 new homes per year.

However if only 27 per cent of this is going towards the genuine housing shortage then this figure would need to be nearer 150,000 per year to meet the projected growth (i.e. 1,500,000) which is unsustainable and unrealistic but it keeps demand high. Great if you are a large house builder.

When this is considered in conjunction with the decline in housing delivered by local authorities, see attached graph of 1969 - 2009, and the mirrored increase in the cost: income ratio as the housing associations and private developers have maintained their number of units per year; is it any wonder that we have a shortage of homes that are affordable. Is this reduction in Supply and the spike in Demand mere coincidence or are house builders now controlling prices and the market? And how do we return demand and supply to a state of equilibrium - which in turn could reduce house prices - when there is no incentive for large house builders to do so.

It is clear that the challenge of providing housing that is affordable cannot be resolved by one single gesture, be it commercial or architectural, such as over supplying the market or creating garden cities, but requires a considered plan of action that is not led by large house builders. The first step is to identify a consistent set of facts on the current housing stock which can then be used to assess our current and future needs.

Architects can help by debating and challenging the issues of supply and demand objectively and propose clear initiatives that inform a plan of action.

This plan should be led and co-ordinated by the government and local authorities.

Solutions?

1. Supply

  • Enable local authorities to borrow and build again - this will have a direct and meaningful impact
  • Dramatically increase the number of small house builders (currently only 3,000 across UK) by a further 9,000 (at 1980s levels) and on the basis that they can deliver a modest 10 households per year we can add a further 90,000 households into the system. This could keep cost down, place homes in the correct location and with Councils providing help with land or buildings.
  • Increase the average number of persons per household. A modest increase from 2.33 to 2.48 across the UK would have a significant impact.
  • 30 per cent of all building stock is held by people in retirement so could Councils provide specific housing for them in order to release housing stock back into the system.
  • Ensure all vacant buildings (currently 600,000 – 700,000) are compulsory purchased and brought back into the market.
  • Incentivise Universities to building housing for rent, not just for students, to young people
  • Supermarket giants build housing for local workers on ‘land banked’ sites which sit vacant for 12 months or more 

2. Demand

  • Defuse demand from the global market and get back to a local market.
  • Cap second home ownership unless it is guaranteed to be rented.
  • Move commerce to where housing is available or more easily built. London is not the only place in the UK. 
  • Make rental as attractive as buying.
  • Provide suitable accommodation for an ageing population; release family homes back into the stock
  • Architects: your country needs you.
  • 2 Comments

Readers' comments (2)

  • good points well made

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  • While many of the recommendations make a lot of sense, the need for 250,000 homes per year comes from people looking at things in more detail than just tautologically dividing up totals and averages.

    The idea that increasing the average household size to improve housing supply is a bit of an odd one. Increased household size is in part a symptom of the shortage of housing, not a solution. People who can't afford to move out of the family home, people not being able to afford their own housing and having to share.

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