Council of Mortgage Lenders
Inadequate housing supply remains the most critical unresolved issue in UK housing. Without a substantial increase in supply, the current problems of lack of flexibility, lack of responsiveness and failure to absorb increases in demand will remain significant causes of volatility in the UK market.
Despite continuing house price rises, the supply of new homes has remained broadly static for a decade. There would need to be a huge increase in housing supply to make a real difference to the number of transactions and the stability of house prices.
Even a dramatic increase in supply would not completely prevent house price surges ‘ a major reduction in interest rates, or a new tax relief could also stimulate demand. But although an increase in supply would not solve all housing problems, it is the single most important ‘ and complex ‘ factor to be addressed. Lenders look forward to helping to find new solutions for this old problem as the Barker Review progresses.
Many intermediaries have overlooked the Barker Review, but it examines areas that could bring them significant opportunities.
Access to finance for affordable homeownership is becoming an increasing problem and one the Government has started to address through its Starter Home and Key Worker initiatives.
The Government needs to develop initiatives to help first-time buyers get onto the housing ladder. There also needs to be greater consumer awareness of what is available ‘ how many potential buyers know about shared equity schemes?
The Review is also looking at the availability of private rented housing and although the buy-to-let market has boomed in recent years, it is not without problems, not least the risk of rental voids, but also the Capital Gains Tax (CGT) treatment of landlords.
A more favourable tax regime would undoubtedly help. We will have to wait until Spring 2004 to see the recommendations Kate Barker makes, and even longer to see how the Government responds.
The size and complexity of the housing market and its importance in the wider economic context means solving the lack of supply will need a careful, co-ordinated, wide-ranging policy response. This is a tall order.
FPDSavills believes housing associations with the correct skills and expertise should be encouraged to develop private housing. However, funding, risk and regulation issues are likely to delay their involvement. Commercial developers can also play a role. Policymakers need to look at ways participation can be encouraged. Commercial developers are likely to come under the same ‘stick’ approach as residential developers. In order to achieve planning consent developers will need to deliver onsite and affordable housing, or an in lieu financial consideration, which actually occurs in some inner London boroughs.
The growth of the number of bodies with direct influence on housing output is a concern. It is imperative they work together in a co-ordinated manner; if this does not happen we are likely to see even lower levels of housing output.
This review was set up by the Chancellor, working with the Deputy Prime Minister. Its objective is: ‘to undertake a review of the underlying causes for the lack of supply and responsiveness of housing in the UK.’
The Review has set about considering four issues, but also asked for submissions to cover areas outside these, if they were relevant. AMI’s response focused on issue four, which was buy to let, and also covered five others: sustainable home ownership, remortgaging, sub-prime, changing work patterns and first-time buyers.
Although AMI is not directly involved in the supply problems in the UK market, it felt it was essential for the Review to consider the market holistically, bearing in mind forthcoming mortgage regulation and not to make any recommendations which would adversely affect intermediaries. Indeed, any recommendations that imposed extra cost burdens or more bureaucracy on the market would be disproportionately negative at the moment.
Housing supply is a key issue for the UK property market, because there continues to be a chronic imbalance in the supply of new homes. New house building has generally averaged 180,000 each year over the past 20 years, peaking at over 240,000 in 1998. In 2002 just over 170,000 new homes were built in Britain.
Growth in the number of households has been in excess of 200,000 per annum. If current levels of house building are not increased in London and the South East, and the decline established over the past 15 years is not reversed, Halifax calculates there will be a cumulative shortage of dwellings in those regions of around 500,000 by 2021.
This shortage has contributed to the housing boom over the past three years, particularly in London and the South East, and is one of the reasons why house prices continue to increase at rates above the long-term average.