Lessons to be learned as the UK lurches towards housing crisis

Interesting article in The Week magazine discussing Britain’s coming housing crisis.

Even thought his relates to the UK, it’s worth reading if you’re interested in our real estate markets and property investment because there are some lessons to be learned.

You see…the crisis has been known about for some time but very little seems to have been achieved to date, and Britain cruises towards it like a ship quietly approaching an iceberg. Let’s see what we can learn:

UK housing shortage

The Week reports a “chronic shortage of affordable, good quality homes” in Britain.

Over the next decade it is estimated that 270,000 new homes will be needed each year, yet on average only 147,000 are being built.

And last year house-building dropped to only 100,000, the lowest level since 1924.

The UK population is growing, although not as fast as that of Australia.

The 2011 Census showed that the British population increased by 3.7 million people over the decade since the previous Census in 2001 and is forecast to reach 70 million by 2027.

But the problem is really becoming exacerbated by a migration of the population towards the south-east of England.

For example, the population of East Anglia, as noted here, is forecast to increase by 500,000 people in the next two decades with some 24% more housing needed.

Counties such as Cambridgeshire, Suffolk and Essex will see strong population growth.

 

Brownfield land

To solve this problem politicians have become attracted to the idea of building on brownfield sites (land that has previously had a permanent structure on it) as these available sites have the potential to fit in some 1.5 million new homes.

However, there has been much political wrangling, largely due to the potential that greenfield land could also be released and vested interests are making progress towards new home construction painfully slow.

One problem with brownfield sites is that it they tend to be expensive to build homes on – there is on average some £200,000 per hectare of demolition work to be carried out before developers can build the much-needed homes on them.

These locations are often seen as less desirable being located in run-down parts of cities or former industrial sites.

This, combined with the fact that some sites are contaminated, makes brownfield sites a tricky proposal for developers.

 

The bungalow paradox

The fastest growing section of the population and as such the one which will be a major driver of the coming housing crisis, is the over 65s, the number of who is expected to increase by 50% in the next couple of decades, to 15.5 million by 2030.

There is a chronic shortage of appropriate housing stock for downsizing in old age. Reports The Week:

“Survey after survey has shown that the preferred home for pensioners would be a bungalow – indeed it would be the home of choice for around a third of the population. However, bungalows constitute just one in 50 British houses”.

It appears that developers are unwilling to build more single-storey homes due to the land space they take up which does not fit well with the developers’ preferred density of 35-50 dwellings per hectare.

 

Lessons to be learned

The housing shortage crisis in the UK is going to be caused by a combination of factors:

  • growing population
  • population migration towards one part of the country
  • population choosing to live in different property types
  • diabolical planning and endless political wrangling
  • widespread NIMBYism and environmental concerns about population spread
  •  expensive demolition and construction costs
  • difficulties obtaining construction finance

Will Australia’s planners and politicians take heed from any of this?

Well, one hopes so, but I’m doubtful.

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Pete Wargent

About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


'Lessons to be learned as the UK lurches towards housing crisis' have 2 comments

  1. June 6, 2013 @ 8:23 am Nigel McGuinness

    There is no profit to be had building bungalows. Developers are not benevolent societies.
    If people are sick of overcrowding and high density living then they should seek sensible sustainable population policies from their national government. Developers and town planners are not miracle workers!

    Reply

  2. Pete Wargent

    June 6, 2013 @ 9:35 am Pete Wargent

    Totally agree Nigel.

    There actually are a fair number of bungalows in East Anglia, but I find it hard to envisage there being many more built. Relatively speaking, they take up a large amount of space and, as you rightly say, that’s just not going to be viable for most developers in the south-east of England where land prices have remained high.

    Cheers
    Pete

    Reply


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