The UK’s affordable housing crisis is characterised by a significant lack of available homes that are affordable for various income levels.
Currently, there is an estimated shortfall of 4.3 million homes across the UK, a figure that continues to grow annually due to increasing demand and unmet building targets.
What’s more, the average house price in England has surged by 56% in the last ten years, while wages have only increased by 20%, making homeownership increasingly unattainable for many.
As the gap between supply and demand widens, homelessness is increasing and the economic strain on households continues, with private rents increasing, and the goal of homeownership becoming viable for fewer people.
This article looks at the primary causes of the situation and explores potential solutions.
The UK’s affordable housing crisis is not a recent phenomenon; it started long ago, with various factors compounding over time.
The complexity of planning processes has long hindered new developments. The UK’s planning system, with its bureaucratic nature, often delays or prevents the construction of much-needed homes – while simplifying these processes could significantly accelerate their construction.
One may argue that this began with the Town and Country Planning Act of 1947 which made planning more restrictive than it was before. More recent legislation that has introduced further complexity includes the Housing and Planning Act of 2016, and various EU directives.
As well as the legal obstacles, there is a shortage of staff available to review planning applications, which has been causing further delays.
Housebuilding peaked in the 1960s and tapered off after that, never fully recovering. In the 1980s-1990s, mortgage lending became significantly less controlled and more people started to buy homes as a result. However, due to the ongoing lack of supply, prices were driven up.
A critical factor contributing to the crisis is the failure of successive governments to meet housing construction targets. The previous government aimed to build 300,000 new homes per year, yet consistently fell short for various reasons.
The UK’s population has seen significant growth over the past few decades. It has now surpassed 67 million, up from 57.2 million in 1990.
In addition, there has been a marked increase in single-person households, which now account for over 30% of all households in England. This change necessitates a broader range of housing options to accommodate diverse living situations.
In addition to the historical causes addressed above, several more recent factors have exacerbated the situation.
Wage Stagnation and the Cost of Living Crisis
Wage growth for many workers has stagnated since 2010, placing immense pressure on households trying to meet basic housing needs. With inflation affecting various sectors, including food and energy, many households have seen their budgets stretched even thinner.
In many regions, rent levels have escalated, consuming a larger proportion of household income, thus making it harder to save towards a deposit.
Regional Disparities
The impact of the housing crisis is not uniform across the UK. Urban areas experience higher demand and a more limited supply, leading to skyrocketing property prices and rents. On the other hand, rural areas may have excess supply but lack essential infrastructure or job opportunities.
As mentioned, simplifying planning regulations would help accelerate the development of new homes and encourage more developers to invest in affordable housing projects. Labour intends to make changes to the National Policy Planning Framework (NPPF) for this purpose.
As we recently discussed, they intend to develop grey belt areas and ensure at least 50% of those developments are affordable, amongst other changes. There has also been talk of a task force that will look to speed up stalled applications.
Another suggestion has been to implement a European style rule based planning system where applications that conform are automatically accepted.
There are numerous empty buildings across the country that could be repurposed into affordable housing units. Local authorities could explore strategies to bring these properties back into use.
UK Finance has suggested making temporary measures like the nil-rate band for first-time buyers up to £450,000 permanent, which may help first time buyers get on the property ladder. However, stamp duty only applies in England and Northern Ireland – the equivalent in Wales is the Land Transaction Tax and in Scotland, the Land and Buildings Transaction Tax.
Research by the Intermediary Mortgage Lenders Association has revealed that it’s more expensive to buy than rent in every part of the UK except the North West of England, Scotland, and Northern Ireland. This is a dramatic change as, going back to September 2021, it was cheaper to rent than to buy in all regions.
The Financial Times also reports that customers are being stress tested at rates they may never actually incur.
UK finance suggested that mortgage rules introduced after the global financial crisis be reviewed, as they may be too restrictive. The Intermediary Mortgage Lenders Association has also called upon the government to review regulatory barriers to first-time home ownership.
Some believe that building is not the only solution and that rearranging the ownership of housing may help. By encouraging older homeowners to downsize, their homes would be available for larger families, helping to ease the pressure on the market.
Does increase building mean that housing will be genuinely affordable? Some experts don’t think so, stating that the current targets aren’t enough to keep up with demand and that at least 400,000 new homes per year are required to keep up with population growth. As such, some believe that prices won’t change, and the shortage of construction workers will lead to double digit wage inflation.
Of course, for housing to be truly affordable, prices cannot continue to outpace wage growth, and maintaining accessible mortgage rates is crucial for first-time buyers.
To improve overall affordability, it may be necessary to target regional disparities and focus development efforts on high-demand urban areas to alleviate some of the pressure on housing markets there. Encouraging relocation may also help, with policies promoting economic development in less populated areas helping to balance demand across regions.
After going through the lengthy planning application process, nobody needs to face more operational delays or uncertainty. That’s why it’s important to use robust housing development software that keeps projects ticking over efficiently.
Property development management software, for example, provides a range of tools to ensure projects are executed effectively – from the moment viable land is identified through to the scheme’s completion. It enables you to manage everything from cashflow to personnel within one platform.
Likewise, scheme viability software and land valuation software are both essential for getting things of the ground with accuracy.
The affordable housing crisis in the UK has been a long time in the making. It’s a complex issue driven by planning laws, policy failures, and economic pressures, among other factors.
Planning reforms may help speed up development, while stamp duty reforms and a review of mortgage rules may help with the affordability aspect. Labour’s propositions sound promising, while sceptics don’t expect that affordability will be truly impacted unless issues such as worker shortages and raising building targets are addressed.
As always, time will reveal if there’s a light at the end of the tunnel.
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