Housing need and demand

Q.2 In assessing current and future housing requirements how would you distinguish between the concepts of housing need and housing demand?

Housing need and demand are planning issues for many countries around the world, it’s important that “adequate shelter is available and accessible to meet the needs of an ever-increasing population in many urban settlements” (David, 2002:31). The operation of the UK housing market has seen problems over recent years and is the focus of much discussion (Jones and Watkins, 2009:11). UK policies aim to address three major issues of housing shortages, housing quality and housing affordability. Housing markets can be complex, “housing markets should supply the right kind of units and the right time in the right places” (Downs, 2004:73). Failure to achieve this raises several implications that have been felt in UK. Even though housing shortage is arguably a symbol of success, growth and competiveness all vital to creating a successful economy (Tallon, 2010:216), it has obvious problems. This essay aims to explore more closely the difference between housing need and demand as well as the factors they depend on for current and future housing requirements. By identifying the issues that housing need and demand depend upon, the essay will explain the effect this has particularly in the UK and some possible trends for the future. Finally the essay will critically explain several approaches to estimating housing requirements that take into account some of the issues raised.

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Housing need and housing demand can often be confused yet they have different meanings. Every household has a housing need irrespective of income or type of housing. Housing need is described as “the quantity of housing required to accommodation of the agreed minimum standard and above for a population given its size and household composition without taking into account the household `s ability to pay for the housing assigned to it” (Robinson, 1979:56-57). This is not be confused with housing demand which is defined as the relationship between “the price of housing and the quantity and quality of housing for which people are able and willing to pay” (Shucksmith, 2002:61). An individual or household has an unmet housing need when they fail to exercise effective demand for decent housing (Oxley, 2009:6). By satisfying housing need it enables the empowerment of people to be able to live in satisfactory housing despite their possible inability to afford it (Tighe and Mueller 2013:87). Most housing problems are essentially ”problems of a lack of effective demand for decent housing” (Oxley, 2000:2), It is therefore vital that the correct housing is built to meet the needs of the population; this will increase the demand for housing and play a significant role in improving the economy.

Housing need depends on various factors that will differ from country to country particularly in developing countries (Struyk, 1998:21). Firstly the population in the UK is growing; this creates greater numbers of households requiring more housing. “Household numbers for England are expected to grow by an average annual rate of 220,000 over the decade to 2021” (Wilcox and Perry, 2013:8) shown in Appendix A, as a result more housing must be built in order to accommodate this need. 122,590 new homes were started in 2013 which is a 23% increase from 2012 shown in appendix B (DCLG, 2014:4). Household numbers are rising due to population growth putting pressure on housing, infrastructure, schools and hospitals (Madden et al. 2010:3). Households are also changing, people are living longer meaning housing must cater for elderly people, building more retirement housing could consequently free up family homes for young people thus solving some housing need issues (Best and Porteus, 2012:3). Longer life expectancy means Households are staying together for longer, it’s now suggested that 60% of over 60`s own their home outright (DCLG, 2013:18). Households have different housing needs, not everyone demands a one bedroom house for example the most common household between 2011-12 was couples with no dependent children accounting for 35% of the population (DCLG, 2013:18). Household patterns are constantly changing over time, its vital therefore that the correct housing is supplied to meet current and future needs, the number of one-person households is expected to grow in the UK by 60% by 2025-30 and as a result this must be addressed (OECD, 2011:29).

The standard of living is increasing in the UK; this means that people now expect more from their homes. Some countries have now “shifted from increasing the number of units to increasing the quality of units” (Noguchi and Poterba, 1994:224), certain amenities such as double glazing windows used to be a luxury now it is almost expected in most properties. “Quality and affordability are key for housing in a western society” (Pacione, 2009:215), the minimum standard of housing is rising meaning there is a requirement for ‘decent, safe and secure housing both with new builds and renovations` (GLA, 2013),”Poor housing impacts directly on residents’ health and educational attainment” emphasising the need for quality housing (Wilson, 2010:76). This not only an issue of new homes but also of existing housing both with social housing and in the private rented sector, many existing social houses were built decades ago and therefore their condition may be lacking in standard. Vale (2013:114) explains another pressure on housing standards, the increasing pressure to build environmentally friendly and efficient housing. One of the main elements to assessing housing needs is to examine existing stock as “existing stock usually accounts for the majority of dwelling stocks” (Xue, 2013:65), of which in wales 83% is in the private sector (welsh Government, 2008:26). Current stock must be reviewed when considering calculating housing requirements for the present and future; this is explained later in the essay. This finally leads onto the type housing needed; “the biggest problem is that as a country we are simply not building enough affordable homes” (Shelter, 2013) and therefore the public needs are not met, the type of houses build should also reflect the population’s household structure.

Housing demand is affected by several separate issues to housing need, understanding these issues is important for current and future demand to be met. Firstly and most importantly the supply of housing is not addressing the UK’s demand, “there are not enough affordable houses in the economy” (HCTC, 2013:75). The Government sets targets for the number of houses which need to be built yet these are rarely met and the demand keeps increasing, “almost half of London’s largest developments are not meeting the affordable housing targets being set by local authorities” (BBC, 2013). Despite its importance, “housing is yet to have the same political profile as health and education” (Wilson, 2010:76). One of the main issues with regards to housing demand not being met is that private developers will not build housing they won’t be able to sell and therefore another reason for more affordable housing (Empty Homes, 2014). Housing supply must be calculated for development, for example taking deaths and existing stock into consideration. House prices also affect housing demand, there are not enough houses being supplied at the right price to meet the demand therefore the price of housing rises as people who have money will pay to have a nice house resulting in “increasing numbers of people being priced out of the market” (Stephens, 2011:6). “Falling house prices due to the recession have not solved the problem of affordability as they have been accompanied by tighter lending criteria” (Wilson, 2010) especially with deposits, as a result the help to buy scheme was introduced.

Housing demand depends on several other factors such as income and wealth, these terms are very different to an economist; wealth represents the accumulation of economic resources valuable to a household where income is a flow measure of capital over a period of time (Pozdena, 1988:25). Wealth and income can give access to credit loans and mortgages, “credit access and mortgage availability go a long way to promoting higher quality and affordable housing” (Nothaft and Erbas, 2002:12). Due to the credit crisis many people’s income and wealth have been affected, this has had an effect on the housing market and people’s ability to demand housing. Secondly the availability of credit and obtaining mortgages is something that has resulted in households being unable to afford housing. Lenders look at current income and financial assets because they represent measurable indicators of a borrower’s means of repaying the loan (Pozdena, 1988:26). The supply of money in the economy will affect mortgage interest rates and availability. “People are getting second jobs when interest rates rise to cope with higher mortgage repayments” (Telegraph, 2013), as a result this has led to many people not being able to afford the housing supplied.

There are many factors contributing to housing need and demand however “different needs may warrant different solutions” (Bramley et al, 2010:17), not everyone needs to be provided with social accommodation perhaps the issue can be solved by enhancing or adapting an existing property. As a result there are several different models that can be used to assess housing requirements. The first approach to be discussed is the household and dwelling balance sheet, this is a simple way to reveal housing shortages or surpluses (DoE, 1980:56), it simply compares the number of households to the number of dwellings. This method may show a shortage or surplus however doesn’t take into account many other factors such as home ownership, the location, nature of dwellings or condition of housing. As a result the balance sheet can prove inaccurate and “tend to double count or overestimate requirements” (Monk and Whitehead, 2010:60). The second approach is the net-stock approach which is characterised by Holmans (1995)(Whitehead and kleinman, 1992), it consists of measuring different types of need and forecasting household growth, estimating housing need for the present and future. The model “exemplifies the important link between household growth, need and housing investment” (Kleinman et al, 1998:78).

Third is the affordability approach, the aim of this is to identify the relationship between house prices and household income to determine housing requirements (WMRA, 2014), it is calculated by taking the percentage of households unable to purchase plus household formation minus social sector relets which equals the additional housing requirements. The model however “does not purport to measure needs relating to house condition or unsuitability within the social sector” (Bramley 2010:38). The final method is the gross flows approach. Used to create current housing need, this is calculated by taking “Gross household formation by category, and adding the tenure propensity of each category to arrive at the demand for social housing from new households” (Pinto, 1995:75). This was used by the Greater London Authority for the London housing capacity study (Livingstone, 2005), it provided an ambitious growth plan where a regional housing growth target was set for 457,959 houses to be provided from 1997-2016 (Manzi, 2010:107).The concept is effective as it uses actual behaviour such as age and cohort effects rather than affordability norm (Boelhouwer et al., 2005:103).

Quantity, quality and affordability are at the heart of housing need and demand issues in the UK and must be addressed in order to meet current and future housing requirements. This essay has defined the difference between housing demand and housing need and provided insight into the factors in which they depend on. Changes in the population and households are guaranteed to change in the future and therefore must be taken into consideration. Housing demand is mainly affected by the price of housing and the factors surrounding it such as supply and income, addressing these factors has led to not only solving current needs and demands but also the importance of planning for the future. This has been shown through the explanation of several different models displaying ways of estimating future and present housing requirements such as the net-stock approach or affordability approach. In conclusion for current housing needs and demands to be met larger amounts of housing must be provided at a price that is affordable and of a good quality, by setting and reaching targets this will hopefully meet the needs and demands of the present and the future.

Appendices

Appendix A

(Wilcox and Perry, 2013:8)

Appendix B

(DCLG, 2014:4)

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