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Researcher blames government not rich foreign buyers for UK housing crisis
Decades of planning policies that constrain the supply of houses and land and turn them into something like gold or artworks is to blame for the current housing crisis in the UK rather than foreign buyers, according to a new analysis. The problem is not foreign speculators buying luxury flats as an investment in London which then lie empty but that for more than 30 years not enough homes have been built, says Paul Cheshire, Professor Emeritus of economic geography at the London School of Economics. He also believes that homes that have been built have too often been in the wrong place or of the wrong type to meet demand. For example, twice as many houses were built in Doncaster and Barnsley in the five years to 2013 than in Oxford and Cambridge. It means that in northern cities more homes have been built that in the southern part of the country where the demand and population is greater. Pace has also not kept up to demand. According to his analysis from 1969 to 1989 over 4.3 million houses were built in England but from 1994 to 2012 there were fewer than 2.7 million. In 2009, the National Housing and Planning Advice Unit, which was set up as an independent technical source of advice in the wake of the Barker Reviews of housing supply and planning, estimated that to stabilise affordability, it would be necessary to build between 237,800 and 290,500 houses a year. On a conservative estimate, that implies building 260,000 houses a year, which over 19 years would mean a total of over 4.9 million. Taking the difference between actual building between 1969 and 1989 and the advice unit’s estimate of necessary annual building, this implies that between 1994 and 2012, building fell short of what was needed by between 1.6 and 2.3 million houses. ‘This is what explains the crisis of housing affordability. We have a longstanding and endemic crisis of housing supply and it is caused primarily by policies that intentionally constrain the supply of housing land. It is not surprising to find that house prices increased by a factor of 3.36 from the start of 1998 to late 2013 in Britain as a whole and by a factor of 4.24 over the same period in London,’ said Cheshire. He explained that it is a long standing problem as discounting inflation, house prices have gone up fivefold since 1955 but the price of the land needed to put houses on has increased in real terms by 15 fold over the same period. He also explained that in the UK houses are converted from places in which to live into the most important financial asset people have and the little land you can build them on becomes not just an input into house construction but a financial asset in its own right. ‘In other words, what policy is doing is turning houses and housing land into something like… Continue reading
New home lending rises in Australia as interest rates are cut
New home lending in Australia saw a healthy rise during June, up 2.3% and up 6.3% compared to the same month in 2015, the latest data from the Australian Bureau of Statistics shows. The Reserve Bank of Australia cut its interest rate at the beginning of May so June’s housing finance results are the first month’s data to fully capture the effect of cheaper mortgage costs. According to Shane Garrett, Housing Industry Association (HIA) senior economist, prospective home buyers seem to have taken advantage of the lower interest rate environment. ‘June was also dominated by the close federal election campaign which was the source of some uncertainty across the economy. This data indicates that the benefits of lower interest rates trumped any reluctance by buyers to enter the market during the tight election race. It’s therefore likely that the interest rate cut will help bolster activity on the new home building side,’ he explained. A breakdown of the figures shows that the strongest growth in new home lending over the year to June 2016 was in Victoria with an uptick of 19.1%, followed by New South Wales with growth of 10.8% while there was a more measured increase in Queensland of 4.3%. Over the same period, there were substantial reductions in other states, most notably a fall of 20.7% in Western Australian, a fall of 17.7% in the Northern Territory and a more modest fall of 3.5% in Tasmania. New home lending to owner occupiers in South Australia and the ACT during June 2016 was comparable with the level a year ago. Meanwhile, the HIA’s New Home Sales Report, a survey of Australia’s largest volume builders, shows that total new home sales ended 2015/2016 on a higher note. The overall trend is still one of modest decline for new home sales but a bounce of 8.2% in June 2016 highlights the resilience of the national new home building sector, according to HIA chief economist, Harley Dale. ‘The overall profile of HIA new home sales is signalling an orderly correction to national new home construction in the short term, as are other leading housing indicators. Below the national surface, the large geographical divergences between state housing markets have been a prominent feature of the current cycle and that will continue,’ he explained. Comparing the second quarter of 2016 with the same period last year shows that detached house sales were down sharply in South Australia by 21.4%, in Western Australia by 27.5% and in down by 7.3% in New South Wales but up by 17% in Victoria and by 7.1% in Queensland. Overall the sale of detached houses bounced back by 7.2% month on month in June 2016 while multi-unit’ sales continued their recent recovery, up by 11.5% after a lift of 4.9% in May. In the month of June 2016 detached house sales increased in all five mainland states with the largest increase in Queensland at 14.9% and up by 9.1% in Western… Continue reading
Average UK house prices up 8.7% year on year in June, official data shows
Average house prices in the UK increased by 8.7% in the year to June 2016, up from 8.5% in the year to May 2016, according to the latest national house price index compiled by the Office of National Statistics (ONS). This took the average UK price to £214,000 in June 2016, some £17,000 higher than in June 2015 and £2,100 higher than the previous month but it should be noted that the data was recorded before any Brexit effect would be discernible. The HPI report says that strong house price growth has been seen since the end of 2013 but there is regional variation and in June the main contribution to the increase in UK house prices came from England. On a regional basis house prices increased by 9.3% in England over the year to June 2016, with the average price in England £229,000. Wales saw house prices increase by 4.9% to £145,000 while in Scotland, the average price increased by 4.6% to £143,000. The average price in Northern Ireland is was £123,000. London continues to be the region with the highest average house price at £472,000, followed by the South East and the East of England, which stand at £309,000 and £270,000 respectively. The lowest average price continues to be in the North East at £124,000. However, the East of England has replaced London as the region which showed the highest annual growth, with prices increasing by 14.3% in the year to June 2016. Growth in London remains high at 12.6%, followed by the South East with a 12.3% annual growth. The lowest annual growth was in the North East, where prices increased by 1.5% over the year. Richard Snook, senior economist, PwC, pointed out that the figures only capture one week of market activity after the vote to leave the EU on 23 June, so it is too early to draw any firm conclusions from this set of data. ‘Nevertheless, we expect that the vote to leave the EU will have a significant impact on the housing market. In our main scenario, average UK house property growth will decelerate to around 3% this year and around 1% in 2017,’ he said. ‘Cumulatively, our estimates suggest average UK house prices in 2018 could be 8% lower than if the UK had voted to stay in the EU,’ he added. According to John Goodall, chief executive officer of peer to peer platform Landbay, high demand drove the uplift in prices, with mortgage lending volumes jumping 16% in June alone. He pointed out that all eyes will be on next month’s figures, and early indications suggest house prices growth cooled slightly in July, but adding that any Brexit effect won’t be seen immediately. Increased house price growth in June could also have been due to the new stamp duty rate for buy to let purchasers, according to Andrew McPhillips, chief economist at Yorkshire Building Society. ‘This caused landlords to flood the market to beat the new rate,… Continue reading
