Saturday, 25 March 2017

Hitting the target?

From: Inside Edge 2

On the basis of figures released today, the government is much more likely to achieve its ambition of a million new homes in this parliament than many people realise.

Total net additional housing supply was 189,950 homes in 2015/16. That means that in the first year of the five covered by the target, output was just 10,000 short of the 200,000 a year required.

As the graph shows, that total is the highest achieved since the peak of 2007/08, the last year before the impact of the financial crisis was felt. It’s also the fourth-largest annual output since this series was first published for 1991/92.

Net

This level of output will come as a surprise to those relying on quarterly housebuilding statistics that show 139,880 new homes completed in 2015/16, well short of what’s needed.

So where do the 50,000 extra new homes come from? Part of the reason is that the two sets of statistics collect data on new completions in different ways: the housebuilding figures rely on building control departments whereas the net supply figures come from more comprehensive annual returns by local authorities. John Perry explained more in a piece for Inside Housing last week.

However, net supply also includes conversions and change of use and takes account of demolition. This second graph shows the individual components:

Components

So on this basis, there were 163,940 new build completions in 2015/16, which is 24,000 more than in the housebuilding statistics and an increase of 6% on the previous year.

The other main component of net supply is change of use, which surged by 50% in 2015/16 to 30,600. Of those, 13,879 homes were delivered under the new permitted development rights regime, most of them in office buildings converted to residential use. Add 4,760 conversions and take off 10,420 demolitions and you’re left with net supply of 189,650.

The Home Builders Federation (HBF) says the figures show the industry is responding to the government’s target, with total net supply up by more than 50% in the past three years. Stewart Baseley, executive chairman of the HBF, said: “These figures provide the best evidence to date as to how much house builders have ramped up housing supply. The government’s ambitious target to build one million homes over the course of this parliament is now within reach.”

The HBF says its members will continue to increase delivery if the government continues its support. Around a third of the output of major house builders relies on Help to Buy.

However, although the million homes ambition is within reach, some caveats are needed. First, a sustained increase in output relies on there being no recession, something that cannot be taken for granted in a post-Brexit, post-Trump world. While the increase in new build completions in 2015/16 is welcome, it was actually significantly lower than in the previous four years.

Second, the supply of offices and other buildings ripe for conversion to residential use is limited. Regardless of wider considerations about the impact of change of use on jobs, the 50% increase last year may not be sustained.

But third, and most importantly, the ambition is not very ambitious if it relies on these figures. It’s almost as though special advisors and ministers looked at the net supply figures, realised a million homes was possible and then announced it as a target.

A million homes in this parliament will be very welcome compared with the 704,000 delivered under the coalition but it is only 30,000 more than the 2005/2010 Labour government achieved.

It is still far less than the 245,000 a year the Barker Report said were needed just to hold down house price inflation to European levels. Given the deficit in housebuilding since then, the real requirement is more like the 300,000 new homes a year called for by an influential House of Lords committee in the summer. Even a million homes will just mean that things get worse more slowly.

And there are good reasons to think that new supply alone will not be enough to tackle the crisis in housing affordability. See my blog yesterday on the impact of financialisation on housing for more on that.

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