Future Housing Needs and How Best to Meet Them? Measuring housing requirements in England to 2037 Christine Whitehead LSE Future Housing Needs and How Best to Meet Them? TWRI Conference November 4th 2016

The latest projections The latest 2014-based projections suggest that the number of households will increase from 22.1 million in 2011 to 27.7 million in 2037. This implies that there will be roughly one additional household for every four that existed in 2011. Within this total some 43% are projected to live in London and the South East (as compared to 31% of all households in 2011) and some 65% in the South (as compared to 52% of the total in 2011). These figures are very little different from the earlier 2012 based figures. Those projections imply a housing requirement of around 222,000 per annum at the national level and around 55,000 per annum in London. This requirement is below earlier estimates, reflecting the fact that household formation has been less than projected. The projections raise three important issues: What do these lower projections imply for households? What happens if the economy grows more rapidly than assumed in the projections (or indeed that international migration declines)? Can we actually achieve even 222,000 per annum for more than a quarter of a century?

Regional Implications Housing markets across England have behaved very differently from one another – with some regions hardly seeing any recovery from pre-2008 levels; Others, notably in London, South East and Eastern regions, have seen increasing housing pressure; In the projections, these regions are also the only ones with requirements above 20% up to 2031 and above the national average national average projected increases in the number of households.

Projected increase in households by region (2011 – 31)

Housing projections and the housing stock Until the turn of the century the housing stock increased more rapidly than the number of households. However in this century household numbers have grown faster than the number of dwellings. Equally up to the 2006-based estimates, most updates showed household projections to have underestimated actual household numbers. But since then the numbers of households actually forming have fallen well below the projected numbers. These two indicators are clearly related – reflecting economic, social and policy change as well as demographic factors and housing supply. The market has of course adjusted, not by producing more housing but rather by increasing occupancy rates, generating higher house prices and further harming economic competitiveness. These factors are reflected in the new projections because they project past trends with varying emphasis on the immediate past..

Implications for households Housing conditions have been worsening for younger couple households and indeed for younger single males for over two decades. In 1991, 96% of 20-24 year old couples lived separately, as did 98% of couples aged between 25 and 29. By 2011 around 13% of couple households in their twenties were living in someone else’s household. Thus it was the economic crisis at the end of the 1980s, not that of 2008, which was the start of the downward trend in household formation among younger people – and this was not reversed as the economy improved from the mid-1990s.

Implications: looking to the future Overall, more households are expected to be able to live separately in the 2030s – but the groups whose circumstances improve are older working-age single people and retired households – not the young . Indeed almost one-in-five couples aged between 25 and 29 are expected to be living in someone else’s home in 2031 with the problem extending up to those in their thirties. In London the situation is even more extreme – with young single men living alone almost disappearing. We thus have a situation where the housing requirement is PLANNED to lead to continuing declines in the capacity of younger households to live separately. And where the affordability model suggests that to stabilise real house prices would require output levels of well over 400,000 per annum over many years.

Comparison of headship rates for young couples

What happens if there is significant economic growth? If the economy grows more rapidly, many of the households which have not be able to form can be expected to try to find a home of their own. Unless supply can adjust very quickly – not a likely scenario – the effect will be that house prices will rise to choke off that demand. Thus, while growth would be good for the economy it would come at the expense of an even more dysfunctional housing market. The only potential offset in demographic terms would be if net international in-migration were to be significantly constrained (in the projections it is anyway assumed at around 150,000 people per annum, way below current levels). So at the present time the only answer to the affordable crisis seems to be to have a lengthy recession – hardly what we should be planning for.

Can we even meet the current housing requirement? Since 2011 levels of housing output have been running far below projected requirements. If we wanted to get back on track it would need something over 300,000 per annum for the next five years – including a tripling of output levels in London. Achieving that of course would ensure that the government’s aspiration of 1 million units by the end of 2020 would be significantly exceeded. But is there any possibility that this can be achieved year-by-year?

Needed/year 2015-20 to catch up Homes built and needed   Built 2011-15/ Per year Needed 2011-15/ % built of needed Needed/year 2015-20 to catch up North East 5000 6000 85% 8000 North West 11000 20000 53% 29000 Y & H 9000 16000 57% 23000 East Midlands 65% 22000 West Midlands 10000 18000 27000 East 15000 26000 38000 London 19000 55000 34% 87000 South East 37000 56% 53000 South West 21000 77% ENGLAND 116000 216000 54% 312000

Can output levels be increased? One core issue is the levels of actual demand – as opposed to requirements without financial backing; Potential new entrants to owner-occupation have less secure incomes than in the past and find it harder to meet credit conditions; Established households face high transaction costs when moving so the overall market is unhealthy; The buy-to-let market is being hit with additional tax burdens and institutional investors are still only dipping their feet into the market; Significant proportions of current output have only occurred because of government support (Help-to-Buy equity loans; shared ownership etc); It is not surprising therefore that risk-averse developers are not prepared to expand rapidly.

Too many policies? The government has more than 150 initiatives currently in place – and a white paper due with the Autumn Statement. But pepper-potting initiatives can be counter-productive and often slows the pace of change; Britain has tried almost every possible policy but often in only a small way; we need to identify a limited number of initiatives that are having some success and plug away at them. Build-to-rent is the best example of this sort of approach so far; Incentives can be more effective than regulation – eg LAs need less incentive to identify a small number of large sites to meet their five-year land supply – and far more to bring forward medium sized sites that can be built out more quickly by a wider range of builders; But there seems to be very little understanding of timescales for interventions to work.

Finally, returning to household projections For all their faults, household projections are core to the current system – which is a legally based on providing a 5 year land supply for Objectively Assessed Need! The fact that projections depend on past trends rather than taking account of economic reality means that they need to be used more flexibly within the core strategy; Simply reducing land availability because of past trends lead to lower household projections is not the answer. First, as part of the core strategy it could be required that not just median scenarios but also upper and lower bounds are provided; Second there could, and should, be a requirement to monitor progress and to maintain the five-year supply in the face of increased demand within the period of the plan – including identifying in the core strategy how the authority would respond; The objective is to give confidence to stakeholders that land will always be available.