"There is certainly evidence that while targets have been missed, their presence has been enough to drive up construction activity"
Promising to fix the issue, the Conservative Party pledged in its 2019 manifesto that 300,000 new homes would be built each year by the mid-2020s. Of course, such promises have been made – and missed – by consecutive governments in recent years.
However, while missing targets is not new, Rishi Sunak did take things a bit further in December when he softened the commitment from ‘mandatory’ to ‘advisory’ in a bid to quell a backbench rebellion.
But what impact will the move have on the UK’s property market?
Supply has not kept up with demand
At first look, one could conclude that the targets were not making a significant impact in the first place. As noted, throughout the past two decades, multiple governments have set such targets and failed to meet them.
For instance, official government figures reveal that 9,000 fewer houses were constructed in 2016 than what the government had planned. Half a decade later, 2021’s figures show that the gap between the targets and actual construction had widened to 32,000 homes. As a result, a 2021 study found that just nearly half of England’s local authorities had not built enough homes to keep in line with population growth since 2011.
So, how has this affected the market?
In short, the housing shortage has made the market highly competitive for both renters and buyers. As demand rose and supply failed to keep up, prices have risen sharply in recent years. Between October 2012 and October 2022, for instance, the average price of a house in the UK has soared from £169,090 to £296,422. Meanwhile, tenants in the private rental sector (PRS) have seen their rents increase by just under 11% in the last year alone.
From these statistics, it is clear that housebuilding deliverance has not been at the level needed to stay in line with demand.
Will softening housebuilding targets exacerbate the problem?
Watering down targets to advisory could make matters worse. There is certainly evidence that while targets have been missed, their presence has been enough to drive up construction activity. For instance, data from the Centre for Policy Studies (CPS) shows that while just 150,000 homes were built in 2012, 100,000 more (250,000) were constructed in 2020. One could infer that the targets have made a difference to house building delivery, even if these figures still do not meet the 300,000 targets.
Indeed, the Home Builders Federation (HBF) suggests that 100,000 fewer houses will be finished per year as a result of the targets no longer being mandatory, while the CPS contends that completion levels could fall by as much as 30-40%.
According to these statistics, the impact is obvious and the decision to drop the targets will widen the gap between supply and demand to an even greater extent. In turn, this will lead to further price rises for buyers and renters, exacerbating the affordable housing crisis. In the current climate of rising interest rates and high inflation, these sorts of price rises would come at an inopportune moment.
Other factors at play
Of course, it is crucial that supply is expanded to meet demand and improve access to the property market. However, perhaps there are other factors at play that is limiting construction levels to a similar – if not greater – extent.
According to some real estate specialists, for instance, the planning system is ‘the largest single obstacle to residential development’. As such, whether it is because a block of land is in the "green belt" or because many residents just do not want additional homes erected in their neighbourhood, there are clearly barriers to home construction levels that setting national standards would not remove.
Therefore, perhaps the debate would be better directed at the significant amount of ‘red tape’ surrounding the planning permission process; indeed, removing some of these regulations could help to accelerate construction because it would simply be easier to build.
Thinking creatively
In a similar vein, perhaps there are other issues that the government needs to address before setting mandatory targets for housebuilding delivery. Inflation and rising interest rates, for instance, are doing far more damage to the economy and the property market than a lack of new homes are, making it harder for people to save and borrow to purchase a home. As such, perhaps the government’s focus should be on fixing these macroeconomic constraints on the market instead.
In place of housing targets, what solutions are there to fix the chronic undersupply of homes in this country? To answer this question, we in the property and specialist finance industries must think creatively.
For instance, there is a growing stock of commercial and semi-commercial properties in the UK that have seen demand decline as hybrid and remote working has become the norm. Often, these buildings are left unused and empty and could be converted into residential units instead.
Alternatively, it is estimated that 600,000 residential properties are currently sitting vacant in the UK, while 216,000 homes in England alone have been empty for half a year or longer. With the housing crisis in mind, renovating and making use of these empty buildings would not only help to alleviate the competitive nature of the market, but it would also be a more sustainable approach to the issue.
By renovating vacant or possibly abandoned homes and relisting them on the market for sale or to let, we can boost the supply of homes and lessen the burden on the government to construct new homes. However, such projects can be complicated to take on and will require a simplification of the planning permission to allow landlords and investors to build or adapt with ease. Indeed, certainty and flexibility on the part of specialist lenders could also encourage more landlords and investors to take on a renovation or conversion project. Thus, the supply of homes might once again keep up with demand.
