Falling shortPosted: February 19, 2015
What do the final housebuilding figures for England before the election have to say about the deficit and the debt – in new homes?
Needless to say, ministers have greeted them with their usual mix of spin and agility in finding the measure that looks best in PR terms. So housing minister Brandon Lewis says ‘housebuilding continues to climb’ on the basis that housing starts in 2014 were 10 per cent up on a year ago. That may be but starts have been falling for the last two quarters: October to December 2014 was down 10 per cent on the previous quarter and 8 per cent on a year ago, suggesting perhaps that the recovery sparked by Help to Buy is petering out.
Lewis also claims that ‘overall 700,000 new homes have been delivered since the end of 2009’ without any acknowledgment that he is talking about completely different figures – additions to the council tax register – or that he has to borrow six months of the last Labour government to come up with the number.
Starts may indicate current activity but you can’t live in a start and completions are a more reliable measure of housebuilding progress. Curiously, Lewis does not mention these even though the news is actually not bad for the government: October to December completions were up 1 per cent on the previous quarter and 8 per cent on a year ago; and the 118,830 new homes built in 2014 represented an 8 per cent increase on 2013.
Instead he argues that:
‘Today’s figures show we’re on track and turning this around. Now, housebuilding levels are at their highest annual total since 2007, and first-time buyers are getting on the property ladder in record numbers.
‘This is thanks to our long-term economic plan and efforts to tackle the deficit we inherited, which are keeping interest rates at their record low and mean now is the best time on record to take out a mortgage.’
In terms of completions, this is a wildly inaccurate claim. True, the 118,830 built in 2014 is the highest under the coalition but it is lower than in every year of the last Labour government and compares with 177,290 homes completed in 2007.
However, his mention of the deficit got me thinking. He was of course talking about the public finances but there is also a deficit and a debt in new homes.
Today’s figures mark 10 complete years since the Barker report was published in 2004 and a good time to measure progress. The report said that 245,000 new homes a year were needed. Any annual shortfall against that can therefore be seen as the new homes deficit with the accumulated shortfall as the debt.
The first graph shows the deficit: annual completions from 2005 to 2014 together with the shortfall against the 245,000 target. It’s important to realise that this was a minimum requirement. It was not the number the report said would make homes more affordable but the level needed to stop things getting worse (to bring house price inflation down to the European average):
Despite the welcome upturn in 2014, the general pattern is sharp decline in the wake of the credit crunch and output flatlining at less than half the new homes needed since 2010. When he was housing minister Grant Shapps set a ‘gold standard’ of building more new homes than Labour. In fact, the coalition has overseen 510,000 completions in the four and a half years since the third quarter of 2010. The first four and a half years of the 2005 Labour government saw 695,000 completions.
The second graph shows the debt or accumulated shortfall:
The record is poor under both governments but the debt has grown faster since 2010. In 2014, the debt passed one million new homes for the first time. There is more to the housing crisis than just the supply of new homes but here are 1,113,220 pretty compelling reasons why housing is so unaffordable.
A quick look at the two graphs also reveals just how much of an opportunity has been missed over the last five years. The government could have invested proactively and counter-cyclically in new homes, generating new jobs in the construction industry and tax receipts for the Treasury. This need not have been about social housing (though that would be a good idea too): the homes could have been rented out at first and sold later when the market improved. The Treasury would have got its money back and probably made a healthy profit on top of that.
Instead, despite some signs of improvement, it will be bequeathing a housing deficit and debt to its successor together with a housing crisis that continues to go from bad to worse.