The housebuilding target of 300,000 dwellings a year is firmly enmeshed in both the political world and media commentary. So frequently is the figure quoted that the impression given is that it must be true. If it was not, then why would it be used so often, and seemingly uncontested?
The latest reference to the 300,000 figure comes in a statement by Lisa Nandy.
"Labour has said ministers’ decision to scrap housebuilding targets in England could cost renters an extra £200 a year by 2030. The shadow housing secretary, Lisa Nandy, said Labour is “the party of homeownership” as the local elections campaign entered the final straight. Nandy said Labour would not treat tenants like “second class-citizens” and said the government’s approach to housebuilding, including withdrawing a 300,000-a-year target, would lead to the lowest rates of new-builds completed since the second world war." [Guardian, 30th April 2023]
So why is the 300,000 target the wrong figure? Research in 'Tackling the UK housing crisis: is supply the answer?', published in 2019 by the Collaberative Centre for Housing Evidence and authored by Ian Mulheirn, provides a counter argument. It states - "Data provided by the Ministry for Housing Communities and Local Government (MHCLG) show that, between 1996 and 2018, a net 3.7 million houses were added to the English housing stock. This represents an average of 168,000 net additions each year." Using data from the Labour Force Survey the report states "by Q2 2018 there were 3.24 million more households in England than at the same point in 1996, a growth rate averaging 147,000 net additional households per year."
As a result "The housing stock in England has therefore grown about 14% faster than the number of households over the period of interest. As a result, the ‘surplus’ housing stock grew by around 70%, from 660,000 in 1996 to 1.12 million by March 2018."
The data indicates an over rather than an under supply of housing. So why is there a housing crisis?
The CACHE report identifies the role of mortgage interest rates in pushing up house prices. Prior to the recent increases "Real interest rates on two-year fixed-rate products have fallen from around 5% in the late 1990s to zero today, while the rate on five-year fixed-rate products has gone from around 8% to 2%." Lower rates reduce the cost of purchasing and thereby increase money demand and therefore prices. Lower returns on capital have also played a part. As the rate of return on assets has fallen, housing has appeared a more profitable alternative, with the oft quoted comment that house values always go up a contributory element. "The scale of the fall in interest rates - and investors’ associated search for yield and demand for safe assets – in the context of an already liberalised mortgage market, makes the sustained jump in the price-to-income ratio unsurprising."
So while the evidence suggests that rising house prices are not a result of inadequate supply but rather due to low interest rates, this does not mean there is not a housing crisis. It is simply that the housing crisis - problems for first time buyers, people unable to buy and therefore moving into the rented sector with increasing rents, for example - arises from other factors.
These will be analysed in future posts.
[For a full analsis, why not read the full report "Tackling the UK housing crisis: is supply the answer?', CaCHE , 2019 by Ian Mulheirn,
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