Scale of housing supply problem

In the Autumn Statement - the last ever - Philip Hammond, chancellor of the Exchequer, pledged £2.3bn towards building 100,000 new homes in areas of high demand.

He said the money would be spent on upgrading infrastructure so more homes could be built. Meanwhile £1.4bn would be invested to deliver another 40,000 additional affordable homes.

In his Autumn Statement speech, he commented: "This commitment to housing delivery represents a step-change in our ambition to increase the supply of homes for sale and for rent, to deliver a housing market that works for everyone."

In order to get on the ladder, first-time buyers need to access higher loan-to-value products, which are now more limited than before.Peter Williams

However, while many of these homes will be available to rent, this does not go far enough to help providing homes to buy.

The 66-page Refern Review into the decline of homeownership, written by Pete Redfern, chief executive of housebuilder Taylor Wimpey, explored the fall in levels of home owners in the UK, particularly among the young.

Key findings:

• Homeownership peaked in the early 2000s.
• In England, the rate of homeownership has fallen from 70.9 per cent in 2003 to 63.6 per cent in 2014 to 2015.
• The decline was steepest among those aged 25 to 34, falling from 58.6 per cent to 36.7 per cent over the same period.

Meanwhile, the report found, real house prices rose 151 per cent from the end of 1996 to the end of 2006, while real earnings have only risen about 39 per cent over the same time frame.

Couple this with tighter regulation that demands higher deposits and greater affordability checks, as well as a lack of available housing, and it is clear there needs to be a long-term solution to this problem.

There are, currently, 28 million houses in the UK - but the report stated: "A combination of planning restrictions, industry capacity, ability to flex production quickly and the cyclical nature of the housing market has meant that new UK supply has not been sufficiently high or flexible over a sustained period to ensure the right amount of housing is available."

Although the new chancellor has pledged money to build 100,000 new homes and 40,000 affordable homes over the coming years, this will go nowhere near enough to meet the estimates outlined in the Redfern Review.

According to the document: "If the number of households in the UK were to grow at 200,000 a year, a new supply of 300,000 dwellings a year over a decade would be expected to cut house price inflation by approximately 5 percentage points a year."

It also advocated more financial options to help first-time buyers get into the property market, such as making more flexible and higher loan-to-value products.

It also called for a standing independent housing commission.

Andrew McPhillips, chief economist at Yorkshire Building Society, says: "This report echoes our views on the difficulties facing younger people who want to buy a home.

"Addressing the supply of housing is a key factor over the long-term."

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (Imla), concurs.

He says: "For some time, Imla has cautioned that, post-financial crisis restrictions on mortgage lending have hampered first-time buyers’ prospects.

“In order to get on the ladder, first-time buyers need to access higher loan-to-value products, which are now more limited than before.”

Government policy

The Autumn Statement gave positive soundings but there may be concerns over where the government’s priorities will lie in 2017 as Brexit negotiations step up a pace, and over the future funding that can be committed after Article 50 is triggered.

Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, says: “The Autumn Statement will be crucial in framing the likely supply of new homes under this government.

“It is to be hoped an ambitious programme will begin to make inroads into the stock shortage that has escalated over the last decade.”

Indeed, in 2015, the Building Societies Association released an eight-page document, Housing at the Heart of Government: A Manifesto for Change, in which it warned there had only been 109,000 completions in England in 2013 – one of the lowest house building rates since 1923.

It will be a surprise if the supply of new property does not stay high on the agenda.David Hollingworth

This point is echoed by John Phillips, group operations director at Spicerhaart and Just Mortgages, who says: “Several governments have pledges to build more homes and have come up short.

“For decades, housebuilding in the UK has fallen short of the 250,000 new homes needed each year to meet the natural growth of population.

“This year, we are looking at just 136,000 new homes, highlighting how the housing shortage is still a serious problem and needs to be tackled.”

A continued shortage and lack of cohesive policy – we have had six housing ministers since 2016, for example – has been blamed by some advisers as a significant contributing factor to low take-up among first-time buyers in recent years.

Donna Hopton, founder of broker forum Cherry, says advisers do not believe there are anywhere enough new homes to buy and they do not believe the government can create enough over the next five to 10 years.

She explains: “Unless there is a concerted effort to build new homes, there will not be enough to fill this gap.

“Brokers do not think it likely the government will build enough homes. Members think it is in the interests of the private sector to keep supply limited as this keeps prices and housebuilding more profitable.

“With this in mind, perhaps the government will need to commit to building more homes themselves to remove the influences of commercial interests.”

While there have been some measures – such as the announcement of an £18m fund to help councils tackle planning issues – Jeremy Duncombe, director of Legal & General Mortgage Club, believes the government will still come up short.

He says: “This is to be welcomed but there remains a fundamental shortage of affordable homes in our housing market across all tenures, for first-time and last-time buyers.

“Not only must there be supply-side support for homeownership, but there must also be continued support for both our public and private rental sectors that provide homes for millions of people in the UK.”

Agenda

Brexit talk may not kick property off the agenda but it could cause some slowdown in new measures to build more homes.

According to David Hollingworth, associate director of communications for London & Country Mortgages: “This is the million-dollar question and not only for first-time buyers.

“It will be a surprise if the supply of new property does not stay high on the agenda. The need to address the lack of affordable housing is only heightened by the measures to dampen the buy-to-let market.

“If there is shrinkage in the rental sector, which is not balanced by more first-time buyers getting on the ladder, then they might only end up facing stiffer rents, which will not help them save towards a bigger deposit.”

Brexit talk or not, for now, continued verbal commitment from the government to build new homes and affordable accommodation, is a step in the right direction, according to Roland McCormack, mortgage distribution director for TSB.

He comments: “While this is a new government, and we will have to wait and see the full effects of their policies, we generally welcome new initiatives that increase the supply of housing and prospective homeowners.”

simoney.kyriakou@ft.com