Is Supply Meeting Demand?

Posted by Mesa Financial on 24th August 2022 -

The Government's stated target is for the delivery of 300,000 new homes per year. However, when looking at the data, it’s pretty clear that there is still quite a large under-supply. Some stats below of housing delivery:

• 2020/21: 216,490 (covid-19 disruptions)
• 2019/20: 243,000

Prior to 2020/21, new housing supply had been increasing year-on-year since 2013. Relaxed planning rules around converting non-residential premises to residential use contributed to some of this increase. The last time housebuilding exceeded more than 300,000 (352,540) homes being delivered was in 1968 with over 40% being delivered by local authorities.

It’s a complex task and very clear that radical reform is required as the current system just is not delivering required targets. The current Government has diagnosed the planning system as central to the failure to build enough homes, particularly where housing need is at its most severe. There’s a continued focus on supporting private sector delivery. 

There are a number of factors which have driven up the demand for housing, and in particular for home ownership, in recent years:

• Record low interest rates (BoEBR is currently 1.75%)
• High rents which can influence a purchase
• Transfer of wealth ('bank of Mum and Dad')
• Higher incomes
• Increased credit availability  
• Increase in population 
• Money from overseas (fair tax system, a solid legal system and a safe country to store wealth)

Supply and demand tend to differ in different parts of the U.K. so it’s difficult to apply the same methodology to every large city. However, Sky News data and forensics team recently collated an interesting tool to analyse % of population increase compared to % of new housing supply.

House building has not kept up with population growth in almost half of the local authorities in England. The most acute shortages are in London and its surrounding local authorities, such as Barking and Dagenham and Havering. The population has increased by 17.7% in a decade, while the number of houses has only risen by 9.2% in the same period. It came as no real surprise, but Croydon’s population increased by 7.5% in a decade and the number of houses has risen by 11.2%. 

The delivery of new homes is a complex process from inception to the end user either purchasing or renting, finding a profitable scheme, navigating the planning process which is an article in its own right, financing the project, construction risk and the current inflationary period which is driving material costs to record highs.