What You Need to Know About the UK Housing Shortage

The long-awaited housing recovery is here and everywhere you turn it seems people are becoming almost giddy at the...

The long-awaited housing recovery is here and everywhere you turn it seems people are becoming almost giddy at the sight of prices rising higher and higher. Those previously locked in negative equity can now see light on the horizon, while investors are counting their cash and celebrating their good sense to back property during the slump.

However, look a little closer and you'll soon see that it's not all sunshine and rainbows. The UK is suffering a severe housing shortage, which is inflating prices as demand rises. Add into the mix the fact that government schemes are propping up the lending system - leading to some saying price rises are artificial and vulnerable to collapse - and you seemingly have a rather volatile environment on your hands.

Analysis of Census 2011 results have added fuel to the fire, highlighting the true scale of the gap between supply and demand in the country. The Town and Country Planning Association's (TCPA) 'New estimates of housing demand and need in England, 2011 to 2031' report shows housing requirements stand between 240,000 to 245,000 per year on average. Sixty per cent of this demand is concentrated in the four southern regions. Yet the UK is under the assumption that demand stands at just 235,000 - meaning there could be a housing gap of up to a 10,000 if the country was even capable of creating properties to meet their initial demand estimates.

Currently, house-building levels stand at around 100,000 per year and while this figure is on an upwards trajectory, it remains insufficient. Kate Henderson, TCPA chief executive, said: "We have a hopelessly inadequate supply of housing and a serious backlog, as well as chronic affordability problems. The research also shows that nearly one third of newly arising housing need requires some subsidy; without this investment affordability, overcrowding and ultimately homelessness will worsen."

So what does this all mean for investors? Is it cash-in time or should people be worried? To help you make a decision, here are a few things you need to know about the UK housing shortage.

Nothing will hold back demand

TCPA claims that even if the economy remains depressed and household formation stays low between now and 2031, there will still be almost a 20 per cent increase in the number of households during the period. The growing UK population is the main driver behind demand and to prevent disaster, 240,000 additional homes will need to be created each year.

The environment is changing

The housing market is never static and the supply shortage is changing the way people live. Census 2011 recorded a decline in the number of one-person households, down one million than 2008 projections. Instead, there was rise in homes with couple-plus-other-adult compositions. TCPA claims this is partly the result of younger people staying at home or sharing accommodation for longer, but with changes noted in all age groups, this isn't the whole story. There has also been a change in the tenure of demand and need, with 68 per cent of new households either in owner occupation or private market renting without benefits.

Unsurprisingly, the housing shortage has been felt the hardest in London. Chris Tinker, board director at Crest Nicholson, who supported the research, said: "With developer’s consented land banks amounting to less than two year’s housing demand there is therefore an urgent need for Local Authorities and developers to work together, especially in key demand areas, to identify and plan for a significant increase in new communities within which well-designed homes can be delivered. A failure to meet housing demand will continue to undermine affordability and put the future prosperity and success of our communities at risk."

Affordability issues mean pay-day for landlords

The housing shortage has meant this decade is the age of the landlord. Not only have repressed prices over recent years meant it's easier than ever to obtain property, the housing shortage has locked many out of the market and driven them to the rental sector. The current inability of many to afford the deposits needed to get on the property ladder means landlords can have their choice of tenants and charge considerable premiums. Even if a greater number of homes are created, high prices will mean many will be forced to rent in the near future.

- Thursday 19 September 2013

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