Supply and demand

There is good news, bad news and really bad news in figures out today on housing supply in England.

The good news first: net additional housing supply rose 11 per cent in 2011/12 to 134,900 in 2011. That follows three consecutive annual falls in the wake of the credit crunch and represents a return to the level seen in the early 2000s. Net additional supply is the government’s preferred measure since it includes not just new build homes but gains and losses from demolitions and conversions of buildings from one use to another too.

Net additional housing supply in England (source: DCLG)

Separate figures for gross (that is, new build only) affordable housing supply show a 4 per cent fall in 2011/12 to 57,950. On the surface even that almost seems like good news given the fact that the 2010 spending review cut investment by 60 per cent.

Affordable housing supply in England (source: DCLG)

Now for the bad news: that net additional supply figure is the one the government uses to measure its progress against meeting demand for homes from new households. The target under the last government was 240,000 net additional homes a year by 2016, so last year’s total is more than 100,000 short of the level we need just to stop the housing shortage getting worse.

A return to the level of the early 2000s sounds good until you realise that that was the period before Labour realised there was a problem with housing supply and John Prescott introduced policies designed to produce a step change. The requirement is almost certainly higher now since the effect of the credit crunch has been a shortfall of more than 400,000 homes over the last four years.

Those figures on affordable homes are worse than they look too. First, the total of 57,950 homes for social rent, intermediate rent and low cost home ownership represents the first fall in gross affordable housing supply in seven years.

Second, it still reflects the results of the last government’s National Affordable Housing programme. Some 65 per cent of the total (37,540) was for social rent, for which funding has more or less ceased since the 2010 spending review.

From next year, the figures will start to reflect the cuts made in 2010 and the switch to affordable rent (which accounted for only 930 homes in 2011/12). Figures from the Homes and Communities Agency show that while there may have been 59,000 completions of affordable homes in 2011/12, there were only 20,000 starts.

Third, things will almost certainly get even worse in future. Moves by the government to boost the supply of homes for sale by cutting section 106 planning requirements on housebuilders will reduce the number of affordable homes. And affordable housing providers are already preparing for the ‘2015 cliff’, the bleak prospects after the next spending review (see an interesting discussion on this from the recent Pellings affordable housing seminar).

And now for really bad news: just as the supply of new affordable homes starts to fall, the need for them is about to become more acute than ever.

The number of families who are homeless or in temporary accommodation is escalating rapidly. From next week, local authorities will be able to force them to accept tenancies in the private rented sector as a discharge of their duty under the homelessness legislation.

But supply is about the number of homes available, not just new build, and what will be available even in the private rented sector? A report out today from the National Audit Office forecasts that the cumulative impact of cuts in the local housing allowance (LHA) will be a severe shortfall of accommodation in almost half of the country. This confirms earlier work by the Chartered Institute of Housing and a detailed study for Shelter on how an increasing proportion of areas will become completely unaffordable to anyone on benefits.

The NAO forecasts that 48 per cent of local authority areas will face a ‘shortfall’ of accommodation available to people on LHA by 2017. The definition of an area with a shortfall is one where there will be twice as many LHA claimants as there are two-bed homes affordable within LHA rates.

If that sounds a conservative definition then the assumptions behind it are too. One of them is that housing supply will increase at the same rate between now and 2017 as it has over the last 11 years. As today’s housing supply figures show that is a very big assumption indeed.