Small House Builders Struggling for Land
An article published yesterday in the Telegraph states that small to medium sized house builders are struggling to locate land for new developments. For the second year in a row now, surveys conducted within the industry show that 67% of SME house builders say finding land for new developments is their biggest issue. The UK housing market has come under much unwanted attention this year after statistics revealed it would fall short the 1 million new homes by 2020 target set by the government. Various schemes are aimed at tackling this issue such as government plans to sell off more public land than ever before to help the development of homes but it’s still not enough.
SME house builders only account for a quarter of all new housing, down from 44% in 2008. The recession hit the UK housing market harder than most and the industry is only now trying to pick itself up through this rather ambitious government target. Current predictions show that the 1 million target will be missed by between 200 and 250 thousand homes. Even if SME house builders had unlimited access to land, their 25% impact would only reduce that housing deficit by about 55 thousand homes – meaning the target would still be missed by 150,000.
UK Housing Market – Good for owners, bad for buyers
For those familiar with the basic concepts of supply and demand, news of SMEs struggles and the supply deficit can be interpreted two ways.
House owners should be happy as industry experts expect a rise in prices of around 3.3% year on year. If a person purchased a home for £200,000 last year then by 2020 it would be worth £235,251. On the other hand, first time buyers who were hoping to take advantage of the post-brexit uncertainty now face an increased struggle to get on the housing ladder due to the rising house prices.
The Bigger Picture
First of all, the basic economic concept of supply and demand states that if supply decreases, availability of that resource (in this case, houses) decreases and so prices tend to increase – Much like how the volume of diamonds entering the market could be limited to keep them exclusive and therefore, expensive.
What does the government want to happen?
Their target (as ambitious as it is) was originally aimed at supplying new housing for a growing population, with a percentage of that 1 million being lower priced, “affordable homes”. There was, most likely, a second and underlying motive of stabilising the UK housing market in the wake of the recession.
To do this, they would increase the supply of housing, which would slow the increase of house prices and keep housing affordable for new buyers.
What is actually happening?
Due to the fact the government will fall short of their 1 million mark by around 250,000, they are not keeping the level of supply high enough in comparison to demand and so we are seeing these house prices rise – by 3.3% year on year at the moment. As mentioned, this is great for home owners as the valuation of their house rises and rather bad news for first time buyers.
Inflating house prices are bad news for everyone in a way. Increased housing prices mean people need to borrow more to afford new houses, which puts strain the on bank system. Business Insider recently revealed mortgages make up 60% of overall lending. These rising house prices could lead to many missing their mortgage repayments which would subsequently force banks to lose their money. The inflating housing market is such a large part of the UK economy as a whole, a crashing housing market would be devastating.
Well the government need to help SMEs house builders as that would at least dent the increasing house prices – and the only way to help them is release more public land or introduce ‘help to build’ schemes. We revealed that to meet the 1 million target, the UK housing market needs an extra 1,200 per week. This is an unrealistic and impossible objective, its become damage limitation in some aspects.
If the industry studies are anything to go by, land acquisition is a key factor in not only the government-set target but the housing economy as a whole.