UK Housing Shortage Strategies

What Can the Government Do to Solve the Housing Shortage in the UK?

Abstract

The price of homes in the United Kingdom has doubled over the past ten years and house building is at the lowest level since 1924. It has been estimated that Britain is likely to be heading for a shortage of about a million homes by the year 2022. In a nation in which as many as 70 % of adult citizens have been accustomed to owning their own home, with amongst the highest rates of home ownership in Europe, the shortage of affordable homes is causing bitterness and frustration as wages and salary earners grapple with the dilemma of reconciling their earnings with their capacity for taking out a mortgage for a home. The record values that have been set in the property market have also had an influence on those who are renting or are otherwise disadvantaged. Although it has been predicted that the property market is likely to bust in a few years, the government has been blamed for having a cumbersome planning permission process, not releasing sufficient land for new housing and for doing precious little to intervene in the market for affordable homes. Although attitudes have changed in Europe and the state is now considered to be the enabler rather then a provider, perhaps it is possible for the government, which must also protect the broader national interest, to do more to assist during such hard times. This dissertation presents a discussion about what the government in the United Kingdom can do to solve the housing shortage in the country.

Contents (Jump to)

Chapter 1 – Introduction

Chapter 2 – Literature Review

Chapter 3 – Methodology

Chapter 4 – Results, Analysis and Discussion

Chapter 5 – Conclusion and Recommendations

Bibliography/References

Chapter 1 – Introduction

Although Britain has experienced housing shortages before, e.g. at the end of the Second Great War, the reasons for such shortages were rather obvious and easy to understand as compared to the reasons for the housing shortage today which is causing serious inconvenience to citizens (Bond, 1996, Pp. 49), (Parliamentary Office of Science and Technology, 2003, Pp. 1) and (The Sunday Times, 2003, “Why aren’t our builders building?”). In a nation in which citizens are accustomed to owning their own homes, with home ownership rates of about 70 %, working people are baffled and frustrated with the hefty mortgages that make it impossible for them to even make a deposit for a modest flat (Stephens, 2006, Pp. 4) and (The Sunday Times, 2003, “Why aren’t our builders building?”). The government has been accused of slow planning and the prices of abodes have been soaring by as much as 68 % in one year alone. The housing shortage is not only making life very difficult for the disadvantaged in the community, but it is also becoming a problem for employers who cannot recruit key personnel because those who are found to be suitable find it difficult to relocate, as a result of the widening gaps between house prices and disposable incomes (Local Government Association, 2006, Pp. 1 – 5). Not only is the housing situation causing alarm today, but forecasts for the future indicate that the situation is unlikely to improve, with Britain heading for a shortage of a million homes by 2022 (Joseph Rowntree Foundation, 2006, “Shortage of homes over next 20 years threatens deepening housing crisis”). Even rural areas are facing a housing crisis (Best, 2006, Pp. 6 – 27). Figure 1, which is presented below illustrates the problem.

Surveys indicate that citizens believe that affordability is the major problem and not the shortage of housing (Platt, 2004, Chapter 5). Although land has been considered to be a scarce and valuable resource which needs to be judiciously allocated for a variety of uses, it appears that the government has preferred to take a path that permits private investors, real estate agents and property developers to play with the market and create shortages, while making huge profits (The Sunday Times, 2003, “Why aren’t our builders building?”). It is possible that a zeal for the dismantling of the welfare state and let the market decide attitude may have permitted developers and investors to place themselves in a position to control the market. The role of the state in the housing markets of Europe has changed from one of being a provider to that of being an enabler and all governments in Western Europe now have a distinctly more “support the market” attitude with surrender of housing to the market (Doherty, 2005, Pp. 6). However, the real estate market of today is one in which information is readily and rapidly available to developers and real estate agents through the internet, making it possible for them to present a united front on home prices and buyers are being asked for huge amounts no matter where they look. Although it is not possible for a government to dictate to anyone what they should ask for a property that they own, it is possible that a desire to deregulate everything may have resulted in the government loosing control and disadvantaging the ordinary people, while those who are associated with the property and housing market enjoy record profits (Dixon, 1998, Pp. 1 – 10), (Dixon, 2005, Section 3) and (Bond, 1996, Chapter 2). The property market and the selling of real estate or homes is certainly not what it used to be and property websites now display property prices for the global market. Investment in the UK property originating from outside UK has certainly been greater then similar investment in any other European country as is evidenced from the statistics presented in figure 2 below and overseas investors do enjoy some preferential treatment over local investors (Callender, 2004, Pp. 75 – 83). However, it has been stated that investment from overseas is not the main threat facing the UK property market and problems lie within the domestic property market (Dixon, 2000, Pp. 119). The previous assertion obviously implies that the foreign investment that is made in the UK property market is also something which is needed for the benefit of the UK and its citizens. It is, therefore, likely to be easy for property developers as well as real estate agents to develop loose cartels to seek profits from the domestic buyer and to present a united front in regard to prices for homes. Keeping these prices high will certainly benefit property agents and developers, while playing havoc with the common man.

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In view of the fact that the housing shortage is having a profound impact on the manner in which ordinary people live out their lives in the United Kingdom and elsewhere, it is worth investigating what, if anything, can the government do to alleviate the shortage of affordable housing in the United Kingdom. This dissertation presents a discussion about what the government in the United Kingdom can do to help resolve the housing crisis in the country.

The next chapter presents a literature review for the topic of discussion.

Chapter 2 – Literature Review

Although it is possible for a government to encourage home buyers by trying to provide financial instruments that will provide special assistance with savings that are to be used for the purchase of a home, the rates at which home prices have increased will tend to indicate that it is important to release more land for housing and to do this in a manner that will make it impossible for property developers or estate agents not to exploit the situation for generating huge profits by market manipulation (Song, 2005, Pp. 2 – 18) and (Friends of the Earth, 2004, Pp. 4). A certain level of evidence exists about property developers and estate agents having tried to profit from housing markets in the United Kingdom as should be obvious from figure 2, which is presented below (Callender, 2004, Pp. 75 – 83). Although offering those who are saving to build a home special savings schemes that are tax free and which offer high interest rates or government contributions along with different types of mortgage, home equity or rental insurance programs can assist, all these schemes are likely to be useless if market manipulation continues to increase home prices rapidly. However, the task of controlling real – estate markets in a country that accepts free markets and the right to trade in order to gain is not an easy one. Coupled with the release of more land for housing, it is important that better and cheaper designs based on rapid – build technologies or high rise construction should be developed and a coherent national housing policy be implemented (Parliamentary Office of Science and Technology, 2003, Pp. 1 – 4). However, this will mean that the government has to be willing to intervene in the name of social welfare in an era when the Barker Report has been urging deregulation (Friends of the Earth, 2004, Pp. 1 – 10). Even if land is released to developers and the public at relatively low prices, it is entirely possible that the price of this newly released land will increase dramatically as a result of market forces which are being manipulated by developers and investors, unless special care is taken to ensure that the land and the homes on the land are released to those who are in genuine need of an abode.

In addition to asking the government to release more land, it has also been proposed that government be lobbied for additional funds for social housing, improved delivery through quick decision making and planning as well as for working closely with the construction sector (Tempany, 2004, Pp. 1 – 5). Quick decisions on planning permissions with government private partnership in developments, better licensing requirements for those associated with the real – estate markets and a more through scrutiny of those who are to be granted permission to develop land are measures that can have an impact (Mayor of London, 2006, Pp. 15 – 34). However, it has to be understood that the land which is released by the government for housing is a natural asset of the United Kingdom which may also be useful for feeding the nation, maintaining its environment and for many other useful purposes. Thus, it is also important that decisions about the release of more land for housing be carefully considered.

Researchers have suggested that the British Town and Country Planning System excludes every price signal or economic indicator in land – use planning and decision making (Cheshire, 2003, Pp. 1 – 5). It has been proposed that premium on land prices at zone borders should be taken into consideration when granting development permissions and if the land prices exceeded a certain threshold, then investors should be sure that planning permission will be granted. However, this approach alone will not prevent any market manipulation aimed at profiteering or increasing land prices and additional regulation is likely to be needed to encourage individuals or families to own homes for personal or family use only with an aim towards discouraging the use of residential property for speculation aimed at generating profits. Although the management pundits are calling for deregulation, it is likely to be appropriate for the government to take a more direct approach towards housing, as it did for employment, by having government owned real – estate dealers and property developers who compete with licensed private sector operators to try an maintain some standards and ethics in the property market. Encouraging high – rise developments and limiting the housing land area which can be owned by a single owner with details of land and owner statistics being maintained in a database will ensure that more judicious allocation of land and housing is possible (Kristensen, 2004, Pp. 5 – 10). Tax interventions can be designed to make the ownership of a large number of residential properties by a single legal entity unattractive and it is desirable to ensure that a market is created in which home ownership is recognised as a human need, but profiteering is discouraged. Although, the previously mentioned assertions go against the British character and appear to be more communist in nature, they serve to illustrate the difficulties associated with land markets and land – market regulation. It is desirable that the government encourage further research on the regulation of land and property markets in the United Kingdom (Cheshire, 2004, Pp. 2 – 22). Land for housing is a national resource which should be used for the benefit of a maximum number of citizens, with the government being responsible for its judicious distribution and utilisation. However, this will mean that a change in thinking may well be required.

Analysts are already predicting that housing prices in the UK will fall in the next few years and the real – estate as well as the housing markets have exhibited a cyclical behaviour in response to economic activity (Money Week, 2007, “Are UK house prices about to fall?”) and (Baum, 1999, Pp. 1 – 11). Thus, it is possible for the government to adjust monitory policy in order to influence the housing market, but the problem with such adjustments is that the impact tends to be broader then that on housing. It has been said that a fall in the UK interest rates of 1.5 % has the capacity to turn the booming property market into a bust (Leach, 2000, Pp. 25). However, it has to be realised that the high prices that are being asked for property and housing in prime locations, such as those in the city of London will not be influenced much by what the government does, because it is not possible to construct more homes on real estate that is owned by the wealthy classes who reside in prime locations. The only way to expand in such prime locations is to go vertically upwards and this is what is being done in London and other cities (Baxter, 2005, Pp. 3 – 9). Everyone wants to live in a prime location, but those who are the new rich only end up making those who own property in prime locations to pay more for owning such property by increasing property values which are then taxed at higher rates. Thus, it is unlikely that the housing shortage in the UK will be solved by just releasing more land, because most people will still like to own an abode in a decent or preferably prime location. The decision to own a home at a place is not just influenced by the fact that a shelter is needed, but the amenities, facilities and the economic activity in the neighbourhood are also important considerations that influence the decision. Thus, it is important that government try to influence development in areas that have been neglected so that they become attractive and efforts should be made to provide for economic activity in such areas so that individuals will want to move into these areas. Hence, the development of new housing estates is something that cannot be considered in isolation and a complete development package is often required. Local authorities and government are willing to make more efforts to try and rejuvenate city areas that have been neglected and which offer some potential for housing development, but a lot of funds are often required. This means that innovative arrangements for financing such developments will have to be made (Tuffrey, 2004, Pp. 11 – 17).

A discussion about market – oriented land – use planning has been presented in (Lind, 2002, Pp. 2 – 11). It has been found that the social dimensions associated with land – use planning is now increasingly being enforced by the global market. However, it is possible for the government to encourage increased financial innovation in the property markets and to empower the local governments. Britain has been lagging behind North America in financial innovation associated with property and the traditional model is still preferred (Lizieri, 2002, Pp. 1 – 10). It is possible that some relaxation in the rules which have been imposed by the United Kingdom Treasury can have an impact on the ability of the local governments to arrive at better arrangements with the developers. The nature of the planning permission process in the United Kingdom is encouraging the relatively large developers, with a better ability to manipulate the market, to remain in the market, while driving out the smaller operators (Coiacetto, 2006, Pp. 20). The larger developers are more able to control the supply of housing and thus home prices. Some problems also appear to present themselves with the methods that are being used for property valuation and brokers as well as borrowers do try to influence property valuation (Crosby, 2000, Pp. 5) and (McAllister, 2006, Pp. 5 – 6). Unfortunately, buyers, sellers and lenders as well as borrowers try to influence valuations, but the price of property is influenced by supply and demand along with the ability of a buyer to pay and the ability of a seller to hold on to the property. However, more thought needs to be given about how government can assist in the development of a truly efficient market and reduce the ability of cartels to squeeze supply and to manipulate the market. Thus better regulation and standards associated with the buying and selling of housing can be attempted to be developed along with more efficient markets.

It has been recognised that the current UK system of controlling development does give rise to some problems and the government has been deliberating and consulting in order to try and improve the processes (Allmendinger, 2006, Pp. 5 – 8). Table 1, which has been presented below provides a summary of the status quo about the current UK system. However, although the issue of rapidly improving the supply of land for new housing development is an important one, other approaches to improve the housing market and for the control of greed are also worthy of consideration when thinking about solutions to a complex situation. Thus, a multifaceted approach will have to be taken, with the forces in the market interacting in order to find a balance.

A discussion about the evolution of land administration systems in Common Law countries has been presented in (Ting, 1999, Pp. 1 – 14). This paper suggests that the relationship between humankind and land has always been a dynamic one and the direction of such dynamism is dependant on the priorities that are established by a society. It has been asserted in the previously mentioned paper that the state has a duty to promote efficient land markets and the environmentally sustainable use of land through the development of legal framework that balances the need for construction with the needs for the environment, while minimizing risk and diversifying land use. It is also stated that state cannot abandon regulation and that regulation should be designed to fit the shifting demands of the economy as well as a nation’s institutional capacity. It is the parliament in the United Kingdom and the Sovereign who are more responsible then anyone else for “establishing the priorities of a society”. While Britons are accustomed to living in relatively palatial homes, the Japanese or the Singaporeans have to make do with living in compact high rise flats because of a shortage of land. Plenty of land is available in the United Kingdom, but this does not mean that the government can continue to release land for housing without any regard for future generations, environment and the utility of land as well as the dangers of market manipulation once land has been released into the hands of self interested business people. Perhaps one of the reasons why the government is acting rather slowly is to give free markets a chance to work along with the property cycles so that optimal solutions do present themselves. After all, if excessively high prices are being asked for, then individuals will not be able to pay and market adjustments will be forced to occur. Alternatively, perhaps individuals can start to live in compact high rise buildings or other novel designs. Decisions that are ultimately made by the parliament will determine the nature of land market in the UK, the type of housing that UK citizens will live in and type of property portfolio that can be afforded. However, when markets are in transition as a result of greed, it takes time for a balance to be achieved and it is necessary to consider a complex set of regulatory measures to maintain harmony. Thus, it is likely that the government will act in the most appropriate manner when those who are in a position to establish societal priorities have decided that the nation, as distinct from the profiteers, is likely to gain the most.

The next chapter of this dissertation presents a discussion about the methodology of research for this dissertation.

Chapter 3 – Methodology

When researching a new topic or tackling a research problem, it is always necessary to benefit from the experiences of other scholars, researchers or investigators who may have pondered on similar issues, as their experience can certainly benefit the investigator in reaching appropriate conclusions and in gaining insights into the problem.

The basic technique for the research that was undertaken for this dissertation involved finding suitable published literature through library database searches and internet searches to access journal articles, research papers, published books, research reports and project reports that were related to the subject of the dissertation. This literature was then reviewed in order to extract relevant themes which could possibly assist in the investigation that was being conducted for the dissertation. Research as a whole is a complex and sophisticated field which contributes to knowledge as a whole. The research process results in the generation of a theory, the testing of a hypothesis or theory or both. Currently, there are two traditions of research which have developed along with their terminology, methods and techniques and these traditions have been referred to by different researchers with different names such as qualitative or quantitative traditions in research, humanistic and scientific traditions or the positivist and phenomenological traditions of research. The differing names refer to the same distinctions in the processes of conducting research. On the one hand, the qualitative tradition consists of case study methods, ethnography and historical as well as action research and on the other hand we have the quantitative tradition that consists of methodologies such as survey research, experimental and quasi-experimental research as well as research after the occurrence of a factual event (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4).

It is possible to express facts as objective reality which can be expressed as quantities. This forms the basis of the positivist tradition of research which is quantitative research and relies on numbers, measurements and experiments to derive numerical relationships under conditions of controlled behaviour that can be manipulated. The phenomenological tradition attempts to describe and understand reality which is set in perceptions with narratives and observations being used to focus on understanding and meaning to yield knowledge and understanding (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4).

Generalization of situations and settings, understanding of events and why they occur as well as predictions are some of the results of the research process. There is a difference between explanation and understanding that develops as a result of seeing things happen, after reasons have been fitted into patterns and deductions can be made from other known truths. There is a requirement for elements being investigated to be related to other elements and the overall picture forms into a unified model with the unification forming the explanation. Thus, there is an explanation for something when it can be understood. Understanding requires the use of rich descriptions and formation of relationships between different parts. This fitting together of things is what is known as the pattern model and the understanding of patterns is the result of research of a qualitative tradition. This form of research is aided by review of literature. In the quantitative method of research, the more basic facts or laws are used to determine what is to be explained and a deductive model is constructed (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4).

There is a distinction between prediction and generalization. It is possible to deduce an unknown part of a pattern from a known part and, therefore, the symmetry of prediction and deduction uses the deductive model. In some areas, generalizations tend to be complex with there being a great deal of conflict and scrutiny (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4).

Qualitative research is, therefore, more appropriate for the development of complex interrelationships in the more natural or real life situations with a possibility of using this methodology of research to test theories which have already been developed. The qualitative and quantitative methods of research often work together and quantitative research can be used to further test theories which have been developed using qualitative research and qualitative research can be used to further explain the results of quantitative investigations. Qualitative methods are, therefore, useful for rich descriptions of issues being studied with hopes of achieving better understandings with predictions not being the main aim and generalisations taking the form of natural generalisation (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4).

A case study may be described as an investigation of a singular nature emphasizing on the individual, group, event or culture. Case studies may involve both quantitative as well as qualitative elements but the studies result in a characteristic wholeness without any loose collection of facts and traits. Case studies build upon concepts, structures and promote understanding with the researchers looking for systematic connections, observable behaviours, causes and speculations. The case study deals with a full body of evidence and this methodology has been found to be of use when questions are being asked about situations or events over which the researchers do not have any control. Case studies are also guided by underlying theories, hypothesis and assumptions but construction of conceptual framework, theory building and conceptual structure are important aims of conducting case studies. Studies of specific issues in a number of settings are referred to as multi-site case studies and such studies can strengthen the ability to generalize while remaining on the more qualitative side and maintaining in-depth description and consideration (Collins, 1999, Chapters 1 – 3) and (Marshall, 1999, Chapters 1 – 4). In this dissertation, the challenges associated with the housing market in the United Kingdom in an era of free trade and globalisation are explored mostly through a process of literature review because this is the most appropriate approach for the subject matter that is being examined. Getting a feel for a market usually involves collecting data from the market, which can be very large, looking at statistics, government regulations, consumer opinion and also seeking the opinion of those who have already dealt with the market. However, because the market is so very large, it is difficult for a single researcher to try and attempt to gather raw data that can be processed to provide market information and thus, the task is likely to benefit from the information gathering efforts of large institutions or corporate research offices that do publish reports about markets and market related information.

It was felt that the qualitative research methodology is in fact the appropriate one for investigating the topic of dissertation because a reasonable amount of published research material is available on the topic of discussion. The qualitative research methodology consists of the literature review which has attempted to capture important themes from published literature related to the shortage of affordable housing in the United Kingdom. A quantitative approach involving collecting of new data about the housing situation in the UK is likely to be difficult because statistics related to housing, housing policy, land utilisation and allocation policy etc is likely to be difficult to collect for a single researcher. However, data and statistics that are available in published form can be of use in the research. Thus, the research methods that were used for this dissertation consisted of basically finding suitable literature related to the topic of research and then examining this literature through a process of literature review in order to present the salient points about the challenges involved with providing those who live in the UK with affordable housing. Suitable literature was selected through a process of library database search, internet search engine search and an examination of the articles as well as research papers which had been presented in journals related to housing, public policy and real estate management etc. Published material that was available from reputed universities and research institutes was also considered in an attempt to gather new ideas and insights related to the topic of discussion.

A literature review for the topic of discussion has already been presented along with all the important themes that are to be found and the next two chapters of the dissertation present a discussion about what could be gathered about the topic of discussion and the conclusions that were able to be reached.

Chapter 4 – Results, Analysis and Discussion

From what has been previously presented, it is obvious that the supply of new homes in the United Kingdom is stagnant and prices are at an all time high. Although the supply of new land and the quick processing of planning permissions are likely to be important in alleviating the situation, the housing market is complex, with large developers and investors being able to take advantage of the situation to manipulate prices by presenting a united front on home prices. In some prime property locations it is no longer possible to provide more land for construction of new homes and in such places the only way to go when constructing is vertically upwards. Because of the fact that better facilities and employment or business opportunities are available at prime locations and owning property at such locations is considered to be prestigious, those who own property that is located in prime locations do not want to let go and the newly rich only make it more expensive for them to live there by contributing to price increases, taxes and property values. Such price increases also encourage home price escalations at other locations. Thus, the government will not only be required to increase the supply of land for new homes, but also to have a bal