Why Buy to Let Has a Future; Gap in Supply and Demand Will Increase Housing Prices

Daily Post (Liverpool, England), December 28, 2005 | Go to article overview

Why Buy to Let Has a Future; Gap in Supply and Demand Will Increase Housing Prices


Byline: BY JOHN HEFFERNAN Business Correspondent

The ratio of property prices to income has risen, meaning fewer prospective buyers can afford a home

THE population of England is forecast to rise by 5.7m over the next 20 years. True, much of this increase is due to longer life expectancy. But it also means that four generations already have to fit into a housing stock that originally accommodated only three generations.

It is why buy to let has a future. The size of the gap between demand and supply was last documented by the 2001 Census.

This estimated that new household formation in that year was 179,000 in England. Yet the next year (2002) saw only 134,000 extra homes built.

Currently the "gap" is estimated as being between 190,000 new households being formed but only 150,000 new homes being built. Stretch that deficit over a decade and you have a major shortfall on your hands.

On top of which there are still 1m homes that are substandard. So even though the Government's ambition now is to see 200,000 houses a year being built on the flood plains of Essex it is unlikely that this additional supply will come close to matching the demand. In any case it does nothing to address housing shortages outside the South East.

Also there is the question of whether combining this target with an ambition to see home ownership raised "towards" 75% (from the present level of 70%) is feasible or even wise.

Looking back 50 years, rented homes (6m) outnumbered owned homes (4m) by a factor of 3 to 2 with local authority housing (2m) providing what is now called social housing.

There are 12m owned homes but only 2m privately rented today, plus 2.3m local authority-owned.

The decline in the availability of rented homes has clearly been a factor in pushing up house prices and so reducing home ownership "affordability" (the ratio of house prices to income. This is now 4 to 1 against 2.4 to 1 in the 80s). Hence the recommendation from economist Kate Barker in her study on housing supply that both owned and rented sectors need to be increased.

One of the problems the Government faces in increasing ownership is that projections suggest "affordability" will continue to decline. By 2026 it is expected that only a third (35%) of those aged 30-34 will be able to buy their own home. That compares with a current figure of half (54%).

And at the end of the 1980s the figure was much higher at two-thirds (63%).

To help counter this the Government has launched a HomeBuy scheme. This is based on shared ownership (as low as 25% for the householder). Three of the biggest lenders and four of the biggest house builders are co-operating. But this and other forms of assistance are only expected to benefit 100,000 households by 2010.

(Newly-arising demand for social housing is estimated at 48,000 a year).

A key factor increasing the demand for homes is our reluctance to share with other family members. The increase in the numbers choosing to live alone plus the trend for later marriages is said to account for 3.4m out of the 5m rise (30%) in the number of households formed over the 30 years between 1971-2001.

By contrast the increase in new housing (about 150,000 net additions a year) has been inadequate for the entire nation.

A further problem is that often not enough houses are in places where new jobs are being created.

These new jobs as well as the new homes needed are frequently in areas where either flooding or drainage problems, a problem likely to get worse as flash floods are becoming more frequent. …

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