A Perfect Storm: Supply and Demand in Housing
Dr Steve Iafrati
There are currently record numbers of people in the UK homeless or living in temporary accommodation such as hostels and bed and breakfasts. Shelter, the housing charity, estimates that approximately 320,000 are currently homeless in the UK; equivalent to one and a third the population of Wolverhampton. The costs of homelessness includes over £1bn being spent on temporary accommodation for people who are homeless as well as up to £20,000 per year per person on support and interventions in some cases. The personal costs affect mental health, education, employment and put pressures on family life.
However, it is important to not only recognise the extent of homelessness and its impacts, but also to understand the causes of homelessness and the factors that have led to one of the richest countries in the world not being able to supply enough homes for everyone. Currently, we face a perfect storm within housing of (i) under-supply, (ii) unaffordability, and (iii) welfare reform that curtail any optimism for the future.
It is estimated that the UK needs to build between 240,000 and 340,000 dwellings per year to match demand. In 2017 and 2018, there were just over 160,000 completed. Part (though not all) of the problem has been an increasing reliance on the private sector to deliver to a key area of public welfare. Problematically, in terms of the delivery of welfare, the private sector has a history of ‘market failure’ whereby it delivers to the market optimum but does not ‘pay’ for the delivery of the social optimum. Essentially, this means that the private sector will supply enough houses for those able to buy them at the market price but will not build houses that might have a social value but no financial benefit to the company. Furthermore, the ‘inelasticity of supply’ in housing means that increases in house prices and subsidies to first time buyers will not lead to a proportionate increase in housing supply.
It is for this reason that we have a mixed economy of welfare in housing whereby there is government support for the voluntary sector (housing associations) and the public sector (council houses). However, since the Housing Act 1980 there has been a significant decline in council housing and, more recently, there has a been a government loss of faith in housing associations. The result is a growing reliance on the private sector to deliver our housing needs. This is fine for those in a position to buy their own houses, but it is bad news for those with more limited financial means. The market is, fundamentally, a site of inequality, with the role of government being to mitigate such inequalities. The reduced role of government over the last decade has signalled an increased role for the private sector and less mitigation of inequalities that accompany the sector.
Previously, social housing through housing associations and council housing were the key ways of mitigating the inequalities of the market within housing. However, between 2010 and 2018, affordable housing options reduced as social rented housing completions and affordable rented housing completions declined significantly. Alongside the changes in housing provision has come the spectre of unaffordability. Increasing numbers of people can no longer afford to buy their own home and, as a result, are left looking to the private rented sector as a solution. In the last decade, the private rented sector has grown from 10.1% to 19.9% (2.1m properties to 4.8m) of housing stock as housing unaffordability presents new economic opportunities for those able to buy to rent. This has become the home of the growing number of people in low paid work, the gig economy, zero hour contracts and insecure work.
And this brings us to the final part of the perfect storm in housing. For those in low paid and insecure employment, there is a reliance on welfare to help make ends meet. However, in the shadow of austerity, welfare reforms have been a cornerstone of government approaches to reduce the role of the state. In relation to housing, Local Housing Allowance (LHA), which is welfare support to cover rent, has not increased since 2016. At the same time, rents have increased, currently by 3.5% in the last year. At the same time, a cap on the maximum payable LHA means that out of 152 LHA areas in England, only four would provide sufficient LHA to cover the rent of a property at the 30th percentile property. In Birmingham and the Black Country, for example, the 30th percentile rent of a 2 bedroom house (the minimum for a family with children) is approximately £127.62 per week and £113.92 respectively. With LHA capped in these two areas at £127.62 and £104.89, this means a monthly shortfall of £55.97 and £31.15 per month. For London, the shortfall ranges from approximately £100 to £700 per month. This has led to a ‘social cleansing’ of low income households from many areas, the growth in the number of houses in multiple occupation (HMOs) and a large number of households to whom there is a statutory duty to house being placed out of area.
Looking ahead, there appears to be little cause for optimism and no sign that the ‘housing crisis’ is likely to improve in the near future. With the absence of an effective national housing strategy, there is no way to ensure that the mixture of housing supply in the UK matches the mixture of housing demand. Behind this, there is no apparent political will to intervene in the housing market from a government that fears such intervention will ‘skew the market’ and perpetuate what they see as ‘welfare dependency’. For the foreseeable future, homelessness looks set to rise, as will the personal and social costs of such a position.
