Why aren’t we building more houses? The latest official figures reveal a worrying decline in the construction industry, with just 21,540 new home building starts in England in the second quarter of 2012. We are now building the lowest number of houses in nearly a century, running at less than a third of the level to meet demand, according to the Royal Institution of Chartered Surveyors. “Something bold is desperately needed,” it says.
What we are seeing is catastrophic market failure. The population of England and Wales is rising rapidly, up by 3.7 million in the past decade alone according to the latest census figures, the biggest rise since national records began in 1801.
Rents are rising inexorably. Figures from one of the UK’s biggest lettings agents showed private rents up again in July to an average of £725 a month, and the pace of rent inflation is picking up. Meanwhile, house prices, while flat in many parts of the country, remain at extraordinarily elevated levels. Groups such as the Walthamstow co-op we feature here have had to go to extreme lengths to create an affordable living space.
Evidently, demand is there, but the supply is not forthcoming. The obvious reason is finance. Prospective buyers, especially the young, cannot get mortgages without stumping up huge deposits, and few can do so. Various initiatives by the government, such as the New Homes Bonus, are clearly having no impact. Every round of “quantitative easing” (printing money) goes into the vaults of the cash-strapped banks rather than into financing new housing development.
Neither is it just about the green belt rules, though they must be relaxed. In my urbanised patch of south-east London sizeable sites have lain empty for years while property prices have escalated by 25%. When the shortage of housing is so intense, when construction workers are losing their jobs, and when the price you can sell the product is so high, it beggars belief that development is not taking place.
One solution, barely tried yet in the UK, is build-to-let. Regular readers will know of my concerns over buy-to-let, largely a zero-sum game where landlords have displaced young buyers and pushed up prices. Build-to-let is different, about increasing supply, which should cap rents and soften house price increases.
This week I met one company, Hearthstone, which aims to raise £500m to invest in residential property, much of it new-build for letting. Aviva is rumoured to be putting together a £1bn fund to invest in new-build for let. If so, it will take us back to when insurance companies, not banks, were the major financiers and developers of private housing.
In the 1930s a housebuilding boom led Britain out of the slump. We’ve shown with the Olympics that we can build magnificent facilities on time. Can we now do that with housing?
• Our condolences to the family of Robin Stoddart, who for many years was a regular contributor to Jobs & Money. He died on 3 August aged 77. A service of thanksgiving will be held at St Dunstan’s church, Monks Risborough, at 2pm on Tuesday, 28 August.
guardian.co.uk © Guardian News & Media Limited 2010