The long-term failure to build sufficient homes to keep up with newly arising demand is at the heart of the housing crisis. This demand is generated by rising life expectancy, immigration and the growing number of one-person households. The most visible manifestation of the crisis is the 134% increase in rough sleeping in England since 2010.

The economic and human costs of housing under-supply spread far and wide. Labour mobility is impeded. Families living in overcrowded, substandard and insecure homes are more likely to experience health problems. The 119,000 children in temporary accommodation in England at the end of December 2016 were at risk of impaired educational attainment.

Repeated surveys demonstrate the public’s clear preference for home ownership, but buying a home is becoming increasingly difficult for those without access to the ‘bank of mum and dad’. Consequently, a higher proportion of families with children now live in the private rented sector and are spending a significantly greater proportion of their income on housing costs than social renters or those buying with a mortgage.

Trends in UK housing tenure

Mind the gap: supply vs demand

Two things determine the amount of new housing needed: the amount of new households forming and the backlog of existing need created by those who are homeless or in unsuitable accommodation.

The government has estimated that England requires an additional 225,000 to 275,000 units per year to meet housing need. Some commentators suggest at least 300,000 would be needed to tackle the backlog and prevent rising unaffordability. As the chart shows, new supply in England has remained consistently below this level.

The housing supply gap is less of an issue in Wales, Scotland and Northern Ireland, where recent new supply has been higher than the projected number of new households.

upply vs need house building

Gaps in the policy response?

The February 2017 Housing White Paper, ‘Fixing our broken housing market’, identified a threefold problem in England of “not enough local authorities planning for the homes they need; housebuilding that is simply too slow; and a construction industry that is too reliant on a small number of big players.” Commentators welcomed many of the White Paper’s measures and the upfront acknowledgement that the housing market is ‘broken’, but were quick to point out that, even if the ambition of 1 million net additions by the end of the Parliament in 2020 was achieved, development at this level would not close the housing supply gap.

There is agreement that closing the supply gap will require a multi-pronged policy approach – some areas identified for future attention include:

  • Who should build? Since 1939, the delivery of more than 200,000 homes per year in England has only happened in years when there have been major public sector house building programmes. But in 2015-16, local authority house building made up just 2% of the UK total. The 2017 General Election manifestos saw most parties signing up to a significant increase in public sector house building.
  • How can sufficient affordable housing be provided for the 20-25%
    of people who cannot afford market rents or home ownership?
  • Is there an opportunity to release the potential of councils and housing associations through increased grant funding; lifting local authority borrowing caps; and rent flexibility for housing associations? Labour
    and the Liberal Democrats have both committed to removing restrictions on local authorities.
  • Is it time to re-evaluate green belt principles?
  • Could a comprehensive review of property taxation deliver additional revenue and promote economic and housing market stability?
  • Could the £21 billion per year spent on Housing Benefit (£8 billion of which is paid to private landlords) be used more effectively to contribute to housing supply?

Austerity vs affordability

Housing Benefit has traditionally helped low-income households access and retain rented housing. The welfare reforms started by the Coalition Government in 2010 and continued after 2015 have increased the likelihood of households experiencing a gap between their rent and Housing Benefit entitlement. There is evidence of private landlords refusing to let to Housing Benefit claimants, many of whom are working. A significant proportion of social landlords’ income is reliant on Housing Benefit, which in turn finances investment in new and existing stock. Annual 1% rent reductions have been imposed on social landlords since 2016 to reduce Housing Benefit expenditure. This led the National Housing Federation to estimate that 27,000 new affordable homes would not be built as a direct result of this measure, an outcome which conflicts with the aim of reducing the housing supply gap.

A consistent plea within the sector is for certainty in order to aid long-term planning, and for joined-up policy making between the Treasury, Department for Work and Pensions, Department for Communities and Local Government and the Bank of England.

This article is part of Key Issues 2017 – a series of briefings on the topics that will take centre stage in UK and international politics in the new Parliament.

Read more Commons Library research and analysis on housing.

Image: Victorian Houses, Nottingham by Natesh Ramasamy. Creative Commons Attribution 2.0 Generic (CC by 2.0)