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From The Times

June 7, 2007

First-time buyers priced out by the failure to build new homes

A crisis is looming, but it seems that the Government is in no hurry to respond

Graham Searjeant

Houses will become completely unaffordable for first-time buyers unless many more are built, according to the National Housing and Planning Advisory Unit.

The unit was set up after Kate Barker, the economist, proposed in an official report that regional authorities ought to be advised on how much and what type of housing should be planned.

It is chaired by the economist Stephen Nickell, who was a member of the Bank of England’s Monetary Policy Committee, where he shared many a debate on interest rates with Ms Barker. This experience taught them both that the housing market cannot sensibly be regulated by interest rates while it is fundamentally distorted by a long-term shortage of supply.

Ms Barker put the accumulated shortfall at up to 600,000 homes in England alone, and new households were being formed at least one third faster than homes were being built. Yet forecasts that were used in Ms Barker’s report three years ago were soon obsolete.

Whitehall had underestimated wildly the numbers of migrant workers arriving from new EU member states such as Poland. These workers are already seen by many economists as vital to keep the economy growing. They need places to live, as do young British people leaving home. So do rising numbers of foreign students and British residents going to university. As late as last year, however, the main source of the projected 209,000 extra households a year was from an increasing number of over35s living alone.

Ms Barker suggested that the rate of housebuilding in England needed to rise by 50 per cent to stop prices spiralling out of control, and would have to double to bring price increases in line with the growth in average incomes.

“Continuing at the current rate of housebuilding is not a realistic option,” she wrote in her report in 2003-04. Since then, annual housing starts in England – where Whitehall’s writ runs – have risen by 23,000 to 173,000.

Allowing for the higher migration rate, output would need to be more than double that to make any impression on the accumulated shortage. Yet this modest unit has taken three years to set up. Changes in planning that were deemed essential for a steep rise in output have yet to be made. There seems to be no big hurry.

In 1951, the Conservatives swept to office partly on a promise to build 300,000 houses a year, up from 200,000 a year shortly after the war. Harold Macmillan, the new Cabin-et-level Housing Minister, was told by his Prime Minister, Sir Winston Churchill, that his performance would “make or break his political career”. He organised the building of 327,000 homes in 1953 and 354,000 in 1954.

This feat was not unique. Between 1919 and 1939, when the population was about two thirds of the current level, four million homes were built in Britain, rising to an average 334,000 a year between 1935 and 1939. Building outpaced the increase in demand, creating an estimated surplus of 600,000. This approach is the only way to make housing affordable for families on average incomes, according to the policy mantra trotted out by ministers. Yet Yvette Cooper, the Housing Minister, shows no sign that her career depends on anything like 300,000 houses being build each year in the next three years.

Secretly, we do not want a rational housing market. A shortage suits so many people, including existing homeowners, all the main banks that lend and roll up interest to maintain demand, and the mortgage brokers and estate agents on ad val-orem commissions.

The haves wring their hands over the plight of the have-nots. Their paranoia is reserved for the threat that house prices might stop rising, if only in real terms or for a couple of years.

If enough skilled artisans are available, the number of homes being built could be doubled. History suggests, however, that it will not be achieved simply by throwing the green belt open to developers. In the inter-war period, and again in the 1960s, housing that was subsidised by taxpayers made up a quarter to a third of the total.

By the time that Margaret Thatcher promised the right to buy, council housing had become such a racket in some parts that few would want to return to it on a large scale.

It could be replaced by a new, cheaper, leasehold sector. The public sector would provide suitable surplus land free, instead of selling it to developers. The State would retain freehold and levy economic ground rents, keeping prices lower.

Commercial property developers would provide another sector if planning guidance obliged them to include a big residential element, say 40 per cent, in all large developments. This sector would play the key role in easing urban shortage. A new type of development using enforceable covenants would be needed to address rural housing problems.

These partnership schemes will only balance supply and demand if all the new building goes into the market pool, not into a separate, fenced-off sector. To do that, politicians need to take a long view. The myopic, like Ms Cooper’s recent predecessors, pretend to address the needs of the have-nots by dreaming up palliative schemes to subsidise demand without increasing supply. That just makes things worse, except for the haves, who can rub their hands over another boost to their housing equity.

Tall order

4 million People in England think they will never own their home

74% Proportion of adults who think house prices in their local area are a problem

245,000 Homes need to be built each year to steady market

174,060 Number of housing starts in the year to March 2007

Sources: NHPAU, Times archive, DCLG, Nationwide

Gordon Brown is to blame. He stated in his 1997 budget speech, 'I will not let house prices spiral out of control' Some of the biggest contributors to the Labour party are House building companies, including those who have recently been accused of awarding 'proxy' donations.
Prescott stated houses would be built for Â£60k, which went on the market for over Â£250k.
House building companies 'landbank' sites to keep the market value high. There seems to be a 'secret unspoken understanding' among everyone who owns a house, including those in the media, that when the housing market is discussed, all the wrong issues are discussed, instead of the people who's HUMAN RIGHTS are being trampled upon. THE FTB'S.
IF the housing market did come down, those people who own their houses would be no poorer. FTB's are the ones who are in desperate situations. I earn Â£30k PA. And i cannot afford a truly grotty bedist above a shop in a northern town centre.

The Labour government are 100% to blame.

David, Yorkshire, UK

Could we please have a new acronym for us would be FTB's.

NTB - No Time Buyer

Patiently waiting for my status to be upgraded from NTP to FTB once we get underway at full steam

N T B, NW, UK

"These workers are already seen by many economists as vital to keep the economy growing. "

Which economists? I'm an academic and, in many discussions with economist colleagues, not one has suggested this as a major factor, predominantly because the 4 million (or more) people added to our economy since the 1991 census have been mostly unskilled. The dominant effect mentioned is a consequent decrease in costs of goods and services, since almost all of our immigrant population is employed as unskilled labour, so keeping wage-growth down. In other words, mass immigration is a short-term economic benefit to the middle class, but certainly not for the working class.

The second effect mentioned is the diminishing returns of mass immigration: initially, the access to good workers willing to work for less is a great advantage, but the final cost of infrastructure can be high, as we are seeing with over-crowding in the South-East.

Fairfax, Cambridge,

This will soon become a major political issue. Whichever party promises to build the most houses will get my vote. Railroad it past the greedy NIMBYS. If nothing is done soon the country will see an even bigger increase in emigration as young people realise that they can afford a much higher standard of living abroad. That will be followed by demonstrations and rioting on the streets. We will not allow our standards of living to regress to 19th century levels. Those that are riding on the property bandwagon should take note, your greed is strangling the country.

Steve, London, England

Of course they are not in a hurry to build the correct number of houses , the effect would be to collapse the housing market . This being the only thing keeping Mr Brown's 'stability' in place means that for now those who cannot afford a house will have to wait until the market corrects itself , which shouldn't be too long now.

Lets at least hope it happens on Mr Brown's watch , it's no less than he deserves for transfering all the wealth in the wrong direction this last ten years , pratt.

Regards

DbD, Glos',

If the housing market was a, "Real market ". I would
agree with you. Supply has been controlled for
Blairs advantage. It raised a lot of money and given
him the tools to increase public spending.

Well, Tory Blairs stake holder economy is soon to
become the "non stake holder economy ".

Politicians and their promises. I dunno.

It raised alot of money and kept him power for 10 yrs,
which is what the real deal was.

m walker, Bromsgrove, worcestershire

[quote]Secretly, we do not want a rational housing market. A shortage suits so many people, including existing homeowners, all the main banks that lend and roll up interest to maintain demand, and the mortgage brokers and estate agents on ad val-orem commissions.[/quote]

A rational housing market would ultimately kill our 'miracle' economy, which depends on house price inflation and the illusion of wealth to keep consumer borrowing and spending high. If the property-owning class were to lose their limitless cash machines high street spending would be hit, unemployment would rise accordingly, and the miracle would end. House prices shold never have been removed from the official inflation figures. The result is that we have had massive 'hidden' inflation while interest rates have been kept too low for too long. Groups (such as the teachers unions) are now demanding wage increases above the official CPI which is the first sign of a dangerous upward inflationary spiral.

Chris, London,

In twenty years time the Housing Benefit bill will be colossal and most young peole if they want children and a life will be forced to live abroad. I'm already urging my son to do this.
While there may be so called economic gains now from high housing costs, in the future these will be a serious disadvantage to all in the UK since there will not be enough young people to fill all kinds of jobs. Everything that people take for granted now, like shop assistants, care workers, BT engineers will have fled. So please wake up!
I love Les's idea of a RRP for houses.
Having lived in social housing mysefl I can tell you its no solution. They are wasteful and inefficient. It has cost me 20 thousand pounds to live in this house for three years during which time I've had to work like a dog trying to improve it and put up with numerous interuptions to my life as they do the repairs after you move in, not before. Its no joy. I'd not recommend it.
The way forward is affordable FULL-ownership

jane, oxford,

There are plenty of "affordable homes" being built, I'm sitting on the edge of several new developments here. Trouble is, they are all flats. Reminds me of the promise of affordable homes after the second world war, and all the lovely new flats going up. And look what happened to them.

I applied for a council flat once, but being single was told I could only have one bedroom, and not on the ground floor, as families with children need a door out onto the street... not a garden? Not a decent amount of space?

We get cramped and unaffordable (for the majority, yes the majority) flats, no houses for low income familes, and yet, there are houses derelict all over the country. Not to mention second-homers, who have priced local working people out of home ownership in their own communities, as has happened all over the South West.

This governments housing policy is shambles and bent towards developers NOT towards those who need a decent home. Labour? Disgrace.

Jennifer Hynes, Plymouth, England

This is a good description of self-interest on behalf of one social group crippling the long-term economic interests of a country. Previous generations of home-owners could have strangled supply to raise prices too if they wanted to, however they made decisions for the common good instead (a foreign concept to people today) rather than line their own pockets. It's in nobody's interest to have long-term high housing costs as it diverts investment away from more productive elements of the economy and imposes burdens on young couples, lowering the birth-rate, causing future dependency ratio problems.

Why can't the planning committees make plots available for self-build projects, for example? This is how my parents-in-law got their first house - plots of land would be made available in batches for individual home-owners or small tradesmen to build on. Now the large construction conglomerates get their mitts immediately on any new land that becomes available for residential building.

MB, Edinburgh,

Mr Hall, it seems that you cannot bring yourself to acknowledge that the £50 000 slash in price of your bungalow is, in all probability, incomparably smaller than the capital gain you have enjoyed on that property over the past 5-10 years. So please don't play the victim.

It seems the most sensible objectives for the government to set itself is 1) dramatically increase the number of new houses being built, as is suggested by the article, and 2) set a legally binding limit on the size of mortgages that companies can offer. If, by law, mortgages could not exceed 4x or 5x salaries, then the astronomical bidding game currently being played would promptly stop.

In the meantime, I, for one, am already arranging my immigration papers for the US. Tata.

Wykehamist, Oxford, UK

Les, you are incorrect. No one has the "right" to buy a property any more than any one has the "right" to buy a car, or the "right" to buy a designer bag. It has always been the case, that if you don't earn enough money then you can't afford to buy a property, simple as that. This has been the situation for decades. More people should just accept this situation as the way life is.

Anon, Cambridge,

I'm one of the 4 million people who think they'll never own a house. I'm 25 and have been saving towards a deposit for a couple of years. What was 5% of a house price then certainly isn't now, and no doubt won't be this time next year - prices are going up quicker than my salary and I doubt I'll ever catch up. Getting a mortgage for £100,000 is only just within my reach but I'm finding that I can't actually buy anything for that amount - definitely not something I would ever consider living in, anyway! So renting it is for me... and virtually everybody I know.

Jo, Nottingham,

I have been trying to sell my 4 bedroom bungalow for 9 months inn a desirable village in Leicester and can find no borrowers even though I have now reduced the price by almost £50,000! There are many other properties for sale around this area which are just not selling! The papers just look at the situation in London and the surrounding suburbs and not the rest of the country! They should wake up to what is happening in the other areas of the UK!

MARTIN HALL, leicester, UK

Gordon Brown has failed the voters of Britain by failing to curb public spending and thus fueling the price rises. The government now needs to 'cap' the housing market and set realistic prices, by setting a RRP on a house which reflects the actual cost of building/modernising the property without the huge profit margin. All working people have the right to own their own property were they can make a home and around which real communities can be built. Those who buy property merely for investment should stick to hotels, offices and shops etc.

Les, Southport, England

ALL land should be leased by the government.

Land rights are a travesty. There is no rational defence for them.

R, London,

The way to re-invigorate the housing market is to release more plots for self-build.

Self-builder normally build higher quality houses than general house builder, with greater consideration being given to green elements and design.

Self-building gives people the option to work on their own house, reducing the cost and making it more afforable.

Andy, Glos, UK,

What a bloody shambles! Politicians have let the people flounder again.We are massively overpopulated as it is,nearly TEN MILLION people are economically inactive,the welfare state has become a way of life,and we are importing hundreds of thousands of immigrants to do work the indigenous population should be doing.
It is a recipe for social diaster.
'Things can only get better.'
What a joke.

Michael J Rigby, Blackburn, England