Why aren’t we building more houses?

According to the Economist last month, house prices increased by 10% in Britain – and by 19% in London. Much of this is down to government policy – the base rate set at 0.5% for the last five years and the Funding for Lending scheme introduced back in 2012. Mortgage rates have fallen steadily since then and loan-to-income ratios for first time buyers are at their highest recorded levels. In London, cash buyers have played a big part in the boom, from foreigners to many well off locals using their savings to buy homes as investments.

We act for a number of developers – both large and small – who are desperately looking for sites to develop. Competition for good sites is enormous. We help them through the purchase transaction, which is usually subject to planning permission. Following the build, we act for both developers selling off the houses and flats, and also for the buyers of new properties. We therefore know the local market very well. Our expert planning team is also on hand to give advice.

The easing on regulations preventing commercial buildings from being developed into residential has certainly had an effect on the market. St Albans is a prime example of this. There is a proposed new development next door to us – 103/105 St Peters Street, involving a change of use from offices to residential houses and flats. One of our competitor law firms recently moved out of their building on London Road, which is subject to residential redevelopment. Whilst this relaxation is certainly generating more residential units within the city, it is having the opposite effect on prime commercial sites – the number of decent investment opportunities for commercial buildings is dwindling. This is serving to maintain an increase in rent for commercial buildings locally.

This approach however is not going to solve the chronic shortage in supply of new homes and the consequent boost in prices. Population growth suggests as many as 250,000 new homes are needed in England to keep up with demand. However, construction has undershot that for years – just 112,630 homes were completed in the year to April 2014 – a third less than 2007. Some experts believe that building is unlikely to get much past its pre-recession highs before at least 2020. According to the Economist, the deeper problem which is difficult to fix is that houses will remain the least affordable in the places where most jobs are being created. So for example in St Albans, the price of greenfield land with planning permission has already eclipsed its heavy pre-recession levels. Yet, where there is actually plenty of land with permission to build, for example in the Thames Estuary, house prices remain too slow to entice builders.

According to a recent Local Government Association survey, 71% of people say they were not confident about the prospect of buying a home and 65% of parents believe that they will have to provide their children with financial help to enable them to buy a home. As a result, 30% of parents are concerned with the financial support they give their children could affect their financial position in retirement.

I am hoping that some of our developer clients continue to succeed with their planning applications at site purchases, so that more local development can continue.