UK housing market in “crisis”

| August 30, 2011
”UK

According to a new report by the National Housing Federation (NHF), the UK housing market is in “crisis” as private rents continue to surge and owner-occupier rates fall.

The study suggests that home ownership will decline to around 64% by 2021 – the lowest level since the mid-1980s – as an entire generation is unable to get a foot on the property ladder.

According to the Federation, the demand for higher deposits, together with rising house prices and the tightening of lending criteria, has sent home-ownership into decline over recent times and the downward trend is expected to continue for the foreseeable future.

The National Housing Federation, which represents housing associations in England, said the Government needs to tackle the “chronic under-supply of homes”.

The NHF said: “More government investment in affordable housing would stimulate a wider, faster economic recovery and help fix our broken housing markets.”

In response, the Government said it has made thousands of acres of public land available for building and is investing £4.5 billion in affordable homes over the next four years.

However, the Federation warns that the housing market will be plunged into an “unprecedented crisis” as private rents soar and social housing waiting lists are at record levels – all fuelled by the chronic shortage of homes.

In 2010/11 just 105,000 homes were built in England – this represented the lowest level since the 1920s.

Chief executive of the NHF, David Orr, comments: “It’s time to face up to the fact that we have a totally dysfunctional housing market.”

Meanwhile, average rents in the private sector are expected to rise significantly by 19.8% over the next five years – due to high demand and a shortage of properties.

A study by Oxford Economics suggests rents will increase on average in England from £486 a month in 2011 to £582 a month in 2016.

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  1. Here’s an idea to get house building going and solve the decline in home ownership. Is it time for the Government to seriously consider providing mortgage guarantee insurance, as the Canadian Government do? House building rates will only increase if there is buyer demand, which is currently curtailed by the need for a deposit of 25% or more. Mortgage repayments are more affordable now than in the past 12 years and are cheaper than renting. But, the average loan to value on new lending in 2011 by state owned Lloyds and RBS is 61.3% and 54.9% respectively meaning deposits of 48.7% and 65.1%. The Government could provide mortage guarantee insurance to fund this deposit gap so that more buyers can afford to buy which will drive builders to build more to fulfill the demand. As well as the home ownership issue, a shortage of homes is a drag on economic growth as employers with job vacancies cannot fill them because would be employees cannot afford to move to where the jobs are. The cost and risk of the Government providing mortgage insurance is low since, as it effectively controls house prices via the monopoly it has on the supply of permissioned land, it can hedge its exposure. Furthermore, many economists would argue that the collapse in housebuilding over the past three years has already sealed our fate for rapid house price inflation in the next decade, meaning that the likelihood of mortgage guarantee insurance needing to payout in the future is very low. Seems simple to me….
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