As widely reported, the most recent house building figures for the first quarter of the year showed a 3% decrease in starts and a 9% decrease in completions compared to March last year, based on seasonally adjusted data. Whilst the number of homes built can vary considerably from quarter to quarter and the total number of completions over the last financial year did in fact increase compared to 2014-15, we are still a long way from building the number of homes we need.
A wobble or a sign of the times?
The drop in starts and completions in the first half of this year could be down to increased uncertainty on the part of builders. Whilst the looming EU referendum could be causing numerous industries to take a ‘wait and see’ approach, policy and budget changes could also be having a negative impact on housing delivery.
Much of the slow-down in completions has come from housing associations. This is unsurprising given that in less than 12 months, the sector has seen rents being unexpectedly subject to a four-year 1% cut, the ending of grant funding for sub-market rental housing, a voluntary deal extending Right to Buy to tenants and big changes to the regulation of asset disposals and borrowing.
Private completions have also fallen quarter-on-quarter for the first time in two years. Provisions in the Housing Act, such as requiring private developers to provide Starter Homes on top of traditional affordable home contributions, may have caused some anxiety over expected cash flows from development.
It’s yet to be seen whether last quarter’s slowdown is a blip or not and whether there is any link to policy instability or wider economic concerns. Either way, house building figures for 2015-16 as a whole were an improvement. Digging in to the data, however, shows there is still much to be desired.
London is back to square one, everywhere else is lagging
The DCLG press release accompanying the data was quick to point out that completions across England are at their highest since 2007-08. This increase, however, is largely driven by London; last year, the increase in homes completed in the capital alone was around 5900, compared to the 9600 increase seen across the whole of the rest of the country.
The number of homes finished in London saw growth of 32% on the previous year, returning completions to their 2004-05 pre-crisis peak. The story, unfortunately, doesn’t hold for the rest of the country – if completions continue to grow at their current rate, they won’t recover for another two years.
Is this enough?
Even if the numbers of completed homes return to their pre-crisis peaks across the country, years of undersupply mean that this is still unlikely to be enough to meet demand from the increasing number of households.
As previously blogged, last year’s TCPA report on housing need projections estimated that we need an additional 312,000 homes each year to house new households and catch up on our backlog by the end of this parliament. In London, we would need an additional 63,000 on top of last year’s total of new builds; so although London is recovering faster from the post-Crisis slump, it has the furthest to go in terms of building enough homes.
It is even more worrying that the areas outside of London with the worst backlogs will take some time to recover to pre-crisis levels of completed housing. If last year’s growth is replicated over the coming years, the East and West Midlands will take 2 years to recover, Yorkshire and the Humber and the South East will take 4 years; and they would still be lagging behind in terms of meeting the need for new homes.
More than a numbers game
Given the disappointing number of houses built last year, it is a step in the right direction for the government to commit to delivering a million homes this parliament. As a number of commentators have highlighted, DCLG may be relying on the fact that the net increase in housing supply is topped up by conversions of larger properties and changes of use, after taking in to account demolitions. In 2014-15, this meant there were around 46,000 homes added to the total on top of completed new builds.
Whatever is counted in the government’s target, the last quarter’s wobbles indicate that making hitting it will require a pragmatic and strategic approach. Unfortunately, several elements to last year’s Spending Review and the Housing and Planning Act do not really fit the bill. For example, as Savills have pointed out, uncertainty over how Starter Homes will be valued and how the discount applies could persist in to Autumn.
Moreover, even if 1 million homes are built, we will still have a back-log of supply compared to demand based on the number of households alone. This means prices are still likely to be high compared to wages, continuing to leave many families stuck in unaffordable private renting with home ownership options still out of reach. It is therefore vital that new homes are built in a variety of tenures, including secure rental options that are affordable to those on middle and low incomes.