2 April 2009
The fall in house building must now be taken seriously
The increased likelihood that only 60,000 new homes will be started this year is very worrying. It is just 25% of the Government’s target of 240,000 new homes which is the level we need to meet if we are to keep pace with household formation.
Even before the current recession, we have not built anywhere near 240,000 new homes for many years, so we now have a serious backlog that is building up faster and faster. As David Pretty recently pointed out, by 2010 pent-up demand for homes to buy, to rent and for affordable housing could well be over 1 million, and that is dangerously high.
What does all this mean for housing supply in the years ahead? The Government has been trying to improve the situation recently, but it is not nearly enough. There are of course many calls on the Government, but I believe that a serious housing crisis is looming and for those people who are on ever lengthening housing waiting lists it is already here!
A good many commentators are now saying that the banks and building societies will never again offer 100% mortgages and that it is right that people have at least a 5% or 10% stake in their home. As a nation we overwhelming believe in home ownership, but we have got to get used to saving for a deposit and if people cannot afford to do that they will need to rent.
We are therefore likely to need an enlarged private rented sector in the years to come. This is because affordable housing will not be able to be delivered at a rate that is required to make up the shortfall in private housing, as at present its business model is inextricably linked to the strength or otherwise of the private housing market.
Government funding can only come from raising more taxes or borrowing more money and that just is not going to happen going forward, so we need to find other ways to meet our housing needs.
I’m pleased therefore that the Homes and Communities Agency is expected in the next few weeks to canvas support among potential investors for the construction of developments that could be privately rented out to meet housing demand. They are said to be exploring the idea of guaranteeing a minimum rental income to persuade the private sector to participate. Such delivery models, which include joint ventures with the private sector, should be designed to be flexible enough to adjust to different market conditions.
I do not believe that the house builders’ business model will ever be the same again. Investment in the private rented sector is one such new approach that the sector should look at seriously with open minds.
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