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The housing (non-existent) shortfall – how not to work out your figures!

This February, a report published by the Centre for Cities revealed that the UK had not been building enough houses and had a shortfall of 4.3 million. They stated “Addressing this backlog is the key to solving the housing crisis."
Bold words. But is there a large shortfall?
Turning to their methodology they state “This report uses this new data [from the UN] and other sources to compare British housebuilding and outcomes to that in Ireland, France, Belgium, the Netherlands, (West) Germany, Austria, Switzerland, Denmark, Sweden, Norway, and Finland from 1955 to 2015. It finds that Britain’s housing shortage began at the beginning of the post-war period, not at its conclusion.”
According to the report “In 1955, the UK had a ratio of dwellings per person that was 5.5 per cent above the European average, but by 1979 it was 1.8 per cent below it, and by 2015 it had fallen further to at least 7.8 per cent below the modern average." “The result of this underperformance is that England needs 442,000 new homes a year to close its housing backlog with the average European country over 25 years, or 654,000 to close it in ten years.
That’s a lot of new houses! The Centre for Cities then conclude that the planning system needs changing to allow more houses to be built. The refrain of many who think supply is the issue!.
The report implies that the housing crisis is one of affordability, presumably due to a housing shortfall, rather than an actual lack of houses although this is not made clear. “Today though, there is a severe housing crisis in Britain, especially in the most prosperous places in the Greater South East. Across England, the average house costs more than ten times the average salary,”
A critique
Lets look at the flaws in the report, for there are several. For one thing, it looks at dwellings per person. Using households is a more feasible approach. It is implied that high house prices in relation to earnings are a consequence of low supply. But this assumption runs counter to the view that rising house prices result from increases in asset prices due to low interest rates and also from an increase in incomes which also tend to push up values. The report fails to explore why prices have risen, a fundamental error.
But the crucial point is, if we compare the number of dwellings to the number of households, we find there is a surplus of housing not a deficit. Analysis by Ian Mulheirn in 2019, suggested that we actually had a surplus of housing in England. The report (1) stated "the ‘surplus’ housing stock grew by around 70%, from 660,000 in 1996 to 1.12 million by March 2018”. Data from the 2021 census confirms this picture, it gives 24.9 million dwellings yet households total 23.4 million, giving a surplus of 1.5 million or 6.4%.
And if we look at some other European countries what do we find? We might assume from the Centre for Cities report that they have higher levels of dwellings in relation to households? Not so. Sweden has a surplus of 5.5%, Germany 5.4%, France 8.6%. Contrary to the Centre for Cities contention, England with 6.4% is little different from other European countries with regard to stock and households.
The problem is that yes we do have a housing crisis with some households unable to purchase a house or afford to rent. But this crisis is not one of a lack of supply but reflects various factors – rising asset prices as assets are seen as a safe haven during the period of low interest rates; changes in mortgage lending rules following the Great Financial Crash; cuts in housing support for younger age groups – part of the coalition governments austerity package.
The Centre for Cities report ignores the impact of the UK, particularly London, being part of a global housing market; demand for second homes and properties used for holiday lets instead of for residential use.
A policy change is required, one which takes account of the real issues and addresses these rather than pushing the discredited ‘we must build more houses’ refrain!
(1) Mulheirn, August 2019, Tackling the UK housing crisis: is supply the answer?.

The Report from the Centre for Cities ''The Housebuilding crisis, the UK's missing 4 million homes', Samuel Watling, Anthony Breach, February 2023.


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