Is it supply and demand that’s keeping house prices high?
You know our view – if people won’t buy houses, housebuilders won’t build them. Commercial suicide for which we are berated by the government and urged to ‘build baby build’.
We all know that rates of new housebuilding are at record lows – certainly nowhere near the Government’s pie-in-the-sky 1.5 million over their (five year) tenure. We’d all prefer to be building more houses (or in our case supplying builders) if only consumers had the confidence to buy and housing associations had the readies.
But an interesting article by Neil Record at the Daily Telegraph last week, questions the very basis of the Government’s 1.5m new homes target, i.e. that high demand and short supply is the driver of (un)affordability – implying the ‘market’ is profiteering.
However, according to Mr Record (and the ONS), the statistics don’t appear to back this up.
Between 1981 and 2024, the number of dwellings in the UK has risen by over 40%, whereas both population growth and the rise in the number of households in the same time frame (driven largely by the decrease in average household size) are significantly smaller at 23% and 37% respectively.
So what has driven house prices to inflate to current affordability levels (between 4% and 11% price:income ratio depending what region you look at)?
So is it really supply and demand that’s keeping house prices high? Neil Record doesn’t think so, and honestly, neither do we. And nor, it seems, does the Home Builders Federation, who last week pointed out the £76K increase in the costs of building a house over the last 5 years.
It’s simple really. Housebuilding is a private sector affair, so the combination of land + building + compliance costs + tax must allow for a reasonable profit if houses are to be built.
Inflation in raw materials costs is rife, but some of the biggest increase facing housebuilders are the costs of meeting ever increasing compliance and regulation, as well as the hefty tax rises Labour have thrown at businesses. Businesses that are already struggling in the face of weakened consumer demand caused by higher inflation, interest rates and tax plus uncertainty a lower wages growth.
So once again, we ask the Government, whoever is in charge of it, to reconsider the tax and compliance regime – soon to be extended to include compulsory heat pumps and solar panels. And to reduce the punitive taxes.
Forget the ridiculous targets, and stop beating up housebuilders and the supply chain. But for goodness sake, let housebuilders build – everyone benefits, even the Exchequer.
James Scott
MD
Data sources:
https://www.telegraph.co.uk/money/property/house-prices/why-britain-cant-build-houses/
ONS
