Britain must build one million homes to meet shortfall, says new report

As prices surge, fuelled by a lack of properties for sale, a new report suggests Britain needs to build one million homes to meet huge demand

PUBLISHED : Wednesday, 16 April, 2014, 5:39am
UPDATED : Wednesday, 16 April, 2014, 5:39am

There is little more than a gaping hole where Britain's first new town in more than 40 years is due to be built: it's a symbol of the huge housing shortage that successive governments have failed to fill.

For almost 10 years the project, 32 kilometres east of London, has languished - first as developers worried about its vast scale and then as the financial crisis hit the construction industry.

However, now, under a new government-backed plan, more than 20,000 new homes will be built in Ebbsfleet, which is only 17minutes from the centre of the capital on a high-speed rail line.

Yet that number of homes is a mere drop in the ocean, says a housing report last month by a former Bank of England policymaker: it suggests Britain needs at least one million homes.

This shortfall has helped push up house prices in the country over the past year by nearly 10 per cent - and much more in London - bringing with it echoes of past booms and busts.

"We've had to reshape colossal, almost biblical, amounts of land," said Jeremy Kite, leader of the local council in Dartford, the nearest main town. He has been working with the site's owner, Land Securities, to get work started in disused chalk quarries.

Construction in England slumped after the 2007-09 financial crisis when banks, alarmed by a 20 per cent drop in property prices, stopped lending.

In 2013, 110,000 homes were built - the second-lowest level since records began in 1978, and down from 177,000 in 2007.

A rebound is expected: work has started in Britain on almost 25 per cent more homes than a year ago. But even if house-building gets back to pre-crisis levels, Britain is still likely to face a housing shortage that could unbalance its economic recovery.

The Bank of England, the central bank, is watching closely as it considers when to start raising interest rates from record lows.

Mark Carney, the bank's governor, has given warning that Britain's housing market can move rapidly "from stall speed to warp speed" - a major concern given the country's high level of homeownership.

Last week the International Monetary Fund pointed to the risks presented by the country's "surging" house prices.

There is concern even in the real estate sector. The Royal Institution of Chartered Surveyors said last week that the lack of property for sale was now a major concern. There was a "desperate need for more", it said.

Kate Barker, a former Bank policymaker, said in her report prepared for the Home Builders Federation, that the number of new, privately built homes would need to almost treble to 260,000 a year to bring down Britain's rate of house-price inflation closer to that in the rest of Europe.

Yet attaining that level is likely to be many years away because the industry has been ravaged, and also because of a shortage of land that can be used for housing.

John Stewart, the Federation's director of economic affairs, said that building 200,000homes a year by 2020 was more realistic. "The industry's capacity has been severely hit by the crash of 2007-08."

Martin Warner, chief executive of brick maker, Michelmersh, said stocks of bricks were down to two months' supply - the "lowest level in living memory".

The Federation of Master Builders, which represents small- and medium-sized construction companies, said bricklayers were pushing for pay rises of between 10 and 15 per cent.

Keith Adey, chief financial officer of home builder, Bellway, said he expected the company to finish 20 per cent more homes in the present financial year, but that annual growth was likely to slow to 10 per cent after that.

Adey and Stewart both believe the main long-term constraint on construction is land supply.

Since the 1980s Britain's local authorities have gained increasing powers to determine what type of housing is built on what land, and to demand payments from developers for infrastructure, such as schools and clinics.

Stewart said: "We have moved away from a system where private house builders were market-responsive - if demand picked up, you found more land, built more houses and away you went - to a system that is virtually managed by the state."

He hoped local authorities would show more flexibility, citing planning reforms in 2012, which placed more onus on local authorities to ensure they have sufficient housing. "This is the best chance we've had in 25years to right some of the wrongs in the planning system," he said.

Kite, a Conservative leader of Dartford Council, said he was keen to see more homes in his area, although local politicians had to carefully manage development. "We don't want loads of sprawling houses; we want a rounded community," he said.

Last month, the government gave a boost to demand by extending until 2020 an equity loan scheme to encourage people to buy newly built homes.

The Federation said this was crucial in giving construction companies confidence to buy land, seek planning permission and build, which takes about five years from start to finish. But if greater supply does not come, prices could spiral further.

At the national political level, there is broad agreement that more housing is needed.

Britain's main opposition, the Labour Party, has said it will make sure 200,000 homes are built each year if it wins the next national election in May 2015.

Net immigration has added about two million people to Britain's population over the past 10 years - roughly half of total growth. The UK Independence Party - which is opposed to the European Union - has seized upon the issue and is expected to do well in next month's European parliamentary elections.

Idriz Shaba, an Albanian-speaker, who runs a car wash and has lived in Britain for 15 years, shares a dislike of building on open space, which is common to many Britons. "I like green space more than bricks," he said. " We should refurbish the estates here, rather than build on new land."