Everybody’s talking about housing and the need for more of it. Rhetorical consensus has emerged across all three political parties, local government (most of it), the media and non-home-owning sections of the public. However in most of the recent national debates about the need for more housing there has been too little discussion about how housing needs and issues differ across the country. So it was timely that this year’s Cities Outlook launched this week looked precisely at this issue.
And the message from Outlook 2013 is clear: the UK needs more houses, but this need is far more acute in some cities than others.
The UK needs more houses for two reasons. Firstly the average price of a home now stands at just under nine times the average yearly salary. Given that conservative estimates suggest that we are currently building around 90,000 fewer homes per year than required, the affordability issue around housing is likely only to get worse. Secondly, building houses would likely act as an immediate pick-me-up for the national economy – the building of 100,000 homes is estimated to add an extra one per cent to GDP and support around 150,000 jobs.
These arguments have been rehearsed before. But much less attention has been given to where these houses should be built. The affordability issue is much more acute in some places in others. While the average house costs around five times more than the average yearly pay packet in Burnley, it costs almost 15 times as much in Oxford.
As we show in Outlook, this means that the ability to get on the housing ladder varies hugely across cities too. Assuming that a person on the average salary in Burnley could put down a deposit of 20 per cent and borrow at four times annual earnings then the average house would be within his or her grasp. But in Oxford the average earner would have to earn £50,000 more to be able to secure a mortgage on an average priced home.
For existing home-owners and volume house-builders high and increasing house prices are good. But high house prices are bad for the future economic success of cities such as Oxford, Brighton and Reading because they price people out of the job opportunities that are available within them. This is bad for the individual, bad for businesses in such cities and, as a result, is bad for the local and national economy. Vodafone recently reported that it was struggling to attract middle managers to London because of high housing costs, while the CBI’s recent London Business Survey found that businesses perceived high house prices to be one of London’s biggest weaknesses.
So what needs to be done? In the short-term any policies designed to kick-start house building, such as Get Britain Building, would get the fastest results if it targeted cities where housing is least affordable. For example, in the ten cities where housing is least affordable, such as Cambridge, Brighton and Bournemouth, there are more than 100,000 homes with planning permission that have stalled as a result of the downturn. Not only would unlocking these homes provide a much needed boost to national economic growth, it would help to address issues of affordability in some of our most expensive cities.
What about housing in more affordable cities such as Burnley, Wigan and Blackburn? Whilst clearly housing is an issue in these cities the problem is not primarily a lack of housing, it’s about the quality of the existing housing stock. In Blackburn and Burnley only around 2.5 percent of houses are in the higher council tax bands of F, G and H, while 4.5 and 7.5 percent of houses respectively are vacant. And more than one in five houses are classed as ‘category 1’, which are the most serious hazards within dwellings rated by the Housing Health and Safety Hazard Rating System.
The response to these issues is not simply to build new homes. Building more houses could simply push down prices even further, hurting current home owners and doing little to contribute to the city’s long term economic performance. Too many current policies incentivise building new homes, regardless of local circumstances; housing policies and funding for more affordable cities should empower them to deal with issues of housing quality through retrofitting, refurbishment and removal.
The rather obvious, but often over-looked message, from Cities Outlook 2013 is that the importance of housing to the local economy varies from place to place. This means national housing policy needs to be much more flexible and cities need to be given much more freedom to respond to their particular circumstances if they are to make the most of housing’s potential to deliver a much needed economic boost to the country.
If the rhetoric of ‘we need more homes’ is to become the reality of ‘we’ve built more homes’ then ultimately the vested interests of volume house-builders, existing home-owners and vote seeking politicians (local and national) will need to be tackled. Only through tackling these will we be able to effectively deal with the UK’s housing problems.
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