The number of new homes built in England has picked up, but is still not sufficient to keep up with the expected increase in the population, according to Naitonwide House Price Index. In the four quarters to Q2 2016, 139,000 new houses were completed, 30% higher than the low point seen in 2010.
However, this is still around 15% below the average rate of building in the five years before the financial crisis and 38% below the 225,000 new households projected to form each year over the coming decade.
“With interest rates expected to remain low and schemes, such as Help to Buy, helping to provide those with smaller deposits access to finance, housebuilders should have confidence that there will be sufficient demand from buyers if more homes are built,” said Robert Gardner, Nationwide’s Chief Economist. “The major housebuilders appear to have capacity to expand output, with most reporting land banks that could support around five years’ worth of construction at current rates of building activity. However, there is a risk that the uncertain economic outlook may weigh on activity in the period ahead.”
While construction has not kept pace with household formation at the UK level, there are signs that more houses are being built in regions where affordability is more stretched (and where it is likely to be needed the most).
“Regions that are more affordable, such as the North West and Yorkshire & Humberside, have seen the smallest increases in housing stock (with a rise of 1.6% over the 2013 to 2016 period, below the increase of 2.2% recorded in England and Wales as a whole),” said Gardner. “By contrast, areas such as the Outer South East and the South West, where house prices were relatively expensive, have seen the housing stock rise much more quickly – by 2.4% and 2.6% respectively, over the same period.
“There is a fairly close linear relationship between increasing affordability pressures and increases in housing stock, at least when London and the Outer Metropolitan regions are excluded. This suggests that supply has been less responsive to rising affordability pressures than we might have expected in the capital and the surrounding area.
“Even though London saw the largest percentage increase in its housing stock over the period (2.9%), we would have expected a rise of 4.3% given the elevated house price to earnings ratio and the experience of other regions.
“Similarly, given the elevated house price to income ratio in the Outer Metropolitan region, we would have expected the housing stock to rise by 3.2% rather than the 2.1% recorded over the same period.”