The ongoing housing shortage in the United Kingdom is a multifaceted issue that doesn’t yield easy answers. Various factors are at play, ranging from the dividends paid out by big housebuilders to shareholders, alleged inefficiencies in the planning system, and an overarching economic environment that’s proving challenging for both builders and potential homeowners alike.
Dividends vs. Development: A Balancing Act?
Recent research from Sheffield Hallam University has shone a spotlight on an unsettling trend: over the past 18 years, the eight largest UK housebuilders have reportedly paid out £16 billion in dividends. This amount is substantial, especially when you consider that in 2022, these dividends equated to a staggering £22,000 per new home built.
In a period where affordable housing is desperately needed, these figures have raised eyebrows and prompted concerns. Could this money have been better used to bolster housing development, instead of shareholder pockets?
Between 2016 and 2021, these dividends actually surpassed the £8.8 billion that the Government allocated to its major affordable housing program. The researchers suggest that redirecting this money could have significantly increased the number of homes built, offering direct relief to the millions grappling with the housing market’s current state.
However, housebuilders present a different perspective. They claim that it’s not the dividends that are impeding their ability to construct more or better-quality homes. Instead, they point fingers at the UK’s cumbersome planning system, economic pressures, and dampened demand from home buyers as the real culprits.
The Complexities of Planning and Economic Pressure
Housebuilders are vocal about their frustrations with the planning system. They assert that their slowed building activity isn’t a tactic to protect profits but a response to external economic pressures and a convoluted planning system.
While it’s true that private companies are building more homes than the public sector, the industry is currently facing a squeeze. High mortgage rates and cost of living are dissolving demand for new properties, causing many builders to cut back on their forecasts for future developments. For instance, predictions indicate a 21.1% decrease in residential new-build activity in 2023.
This situation is compounded by the impact of 14 consecutive interest rate hikes, which have notably affected mortgage affordability and availability. Despite longstanding planning bottlenecks, the number of homes slated for construction in the coming years is still falling short of targets.
Adding to the complexity is the fact that new builds often demand a price premium compared to existing housing stock. Potential buyers are already struggling with high house prices, mortgage rates, and rent, especially in regions experiencing rapid growth, like the South East.
Affordability: A Growing Concern
The growing gap between house prices and income is stark. Recent data from Halifax shows that the typical home now costs 6.7 times the average salary, a significant jump from around 4 times just two decades ago. Separate figures from the Office for National Statistics (ONS) reveal that in 2021, the average home cost up to 9 times the typical income.
Worryingly, the ONS’ 2022 report highlights that only the top 10% of households can afford an average-priced home with fewer than five years of income. This affordability crisis is contributing to the ‘unmet’ housing needs of approximately 8.5 million people in the UK.
The Housing Backlog: A Historical Perspective
The UK’s housing supply has been historically low compared to its European counterparts. Data from the Centre for Cities indicates that between 1955 and 2015, European peers built 15.4% more homes. This disparity suggests a staggering backlog of 4.3 million homes “missing” from the UK market.
Addressing this shortfall won’t be quick or easy. It would require the construction of 654,000 new homes per year for the next decade — an ambitious target considering the Government’s current goal is to build 300,000 homes a year.
The scale of this challenge becomes more apparent with the recent data showing that there were only 210,320 dwellings completed in the year to March 2023, with a significant reduction in new properties underway compared to the post-lockdown surge in 2022.
Despite these daunting numbers, it’s important to note that the private sector is still leading in home construction, far outpacing housing associations and local authorities.
The Legacy of Right to Buy and Planning Stagnation
The Right to Buy policies of the 1980s, while helping many achieve homeownership, have had long-term consequences on housing availability. Critics argue that the scheme eventually led to speculators snapping up large volumes of former council property, further straining the housing supply.
Moreover, the foundational laws of modern planning in the UK, established by the Town and Country Planning Act (TCPA) of 1947, have seen little substantial reform since their inception. This stagnation is seen by many as a contributing factor to the current housing crisis.
Economic Realities and Planning Challenges
Housebuilders have seen soaring profits in recent years, thanks in part to a pandemic-induced boom. However, the balance of maintaining these profits while also committing to affordable housing and development has proven difficult to strike. Critics argue that housebuilders could be investing more in construction rather than rewarding shareholders.
The UK Government, recognizing the need for a radical shakeup, introduced reforms to the planning system in 2021. The goal was to simplify and accelerate the process, cutting red tape, and allowing for more homes to be built more quickly. Yet, these changes have received a mixed reception, with critics worrying that they could lead to lower-quality homes and a disregard for local communities’ voices.
Amid these challenges, there’s a dire need for more affordable housing. This is particularly pressing for the ‘hidden homeless’ and lower-income households who are often overlooked in housing strategies. The resolution of these issues requires a delicate balance: ensuring that housebuilders remain incentivized to build while also meeting the nation’s housing needs.
Addressing the UK’s housing crisis is no small task. It requires a multifaceted approach, with concerted efforts from both the public and private sectors. The dividends debate, while important, is just one piece of a much larger puzzle. Solving this crisis will require a deep understanding of the economic pressures, planning system complexities, and societal needs, as well as a willingness from all stakeholders to think beyond immediate profits and consider the long-term health and stability of the housing market.