Building more homes ‘won’t solve housing crisis’, says report

The UK’s housing crisis will not be solved simply by building more homes, according to a new report published by the UK Collaborative Centre for Housing Evidence, a consortium of 14 institutions which includes the RICS and is led by the University of Glasgow.

Efforts to boost supply are failing to address other key factors which are preventing many people getting suitable housing, according to the document.

Author of the report Ian Mulheirn, executive director and chief economist at the Tony Blair Institute for Global Change, said the government’s focus on boosting supply ignored the fact that growth in the country’s housing stock had been greater than the rise in the number of domestic households.

Official figures have suggested the number of homes in excess of households rose from 660,000 more dwellings in 1996 to 1.1 million last year.

The report also highlighted the role of lower interest rates, which have fallen from 8% in the late 1990s to around 2% today, in driving up house prices.

“Since mortgage interest rates tend to be the dominant element of the cost of capital for homeowners, this change can be expected to precipitate a substantial increase in house prices of a similar magnitude to the 160% increase seen since 1996,” it added.

There was little reason to believe that supplying an additional 300,000 houses per year would raise home ownership, “both because its impact on prices would be limited, and because ownership rates are much less sensitive to prices than they are to mortgage availability”.

The report said hitting the government target of 300,000 homes a year would only cut house prices by 10% over 20 years, “an order of magnitude smaller than the price increases of recent decades.”

Mulheirn also argued that tackling the issue of almost 700,000 more young people aged between 20 and 34 currently having to choose between paying market rents or living with their parents compared to 1996, “is likely to be a far more effective strategy to help young people than additional market supply”.

Higher rates of home ownership would require more fiscal intervention from government to either subsidise first-time buyers or reduce financial incentives for landlords.

“Either way, recent rapid growth in the number of families in the private rented sector suggests that policy should urgently address the security if offers and the quality of the service renters receive,” the report added.