The problems with housing supply – when building more homes isn’t enough

3rd September 2015


Council of Mortgage Lenders chief economist Bob Pannell sets out his thoughts on one of the key issues of the day: housing supply…

When we published our revised market forecasts earlier this summer, we nudged upwards our prediction for the number of property transactions this year. But this does not presage any significant increase in mortgage-funded purchases, with lending set to grow this year by only a modest 3%. Recently, we have seen a large number of cash purchases, which have accounted for as many as 37% of all transactions. They will help boost the overall number of purchases this year to a little over 1.2 million.

Looking back at the aftermath of the financial crisis – when transactions were languishing below 900,000 a year – that looks like a healthy recovery. But is it really? Go back further, and we can see that current transaction numbers are no higher than they were in the mid-1990s – a period when activity was depressed by a large number of home-owners caught in negative equity.

Given that, since then, the size of the UK’s housing stock has increased by a third, it makes current levels of market activity look decidedly sluggish.

Credit crunch ‘only part of the problem’

It’s tempting to say that we are still recovering from the effects of the credit crunch. And while that’s true, a range of deep-seated and inter-related problems in the housing market is holding back a recovery in transactions. They present fundamental and long-term challenges, and will not easily be solved.

As a result of these factors, we now have a dysfunctional housing market, beset by long-term structural problems that are difficult to address.


Source: Office for National Statistics, CML Regulated Mortgage Survey, Survey of Mortgage Lenders

Even though deposit constraints have eased since the crash, and the availability of mortgage credit has partially recovered, the volume of property transactions remains stubbornly low by pre-crash standards – despite growth in the stock of homes.

An incomplete strategy

Over and above this, regulated house purchase activity has shrunk relative to the market overall, with movers showing only a limited recovery. Regulatory reforms are reinforcing a conservative trajectory for mortgage lending, so that recovery in the wider economy looks set to prompt only a weak pick-up in housing market activity.

While new and re-invigorated government policies may stimulate housing market activity to some extent, the almost exclusive focus on boosting new construction seems an incomplete strategy for delivering a sustainable and healthy housing market.

Even if government policy helps to deliver the 250,000 or so homes needed in England (and 300,000 in the UK as a whole) over the next decade, 90% or more of the housing stock that will exist in 2025 has already been built, and is being lived in by somebody. Government measures that nudge towards better use of the current stock could contribute materially to the supply-demand picture.


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