Real Estate Investor Magazine South Africa October 2014 | Page 62

UK PROPERTY

BY MIKE SMUTS

London’s Housing

Shortage
Opportunities abound

“Through decades of boom and bust, across economic
cycles and under every shade of government, it was
the same story. We just did not build enough homes,”
commented the Mayor of London, Boris Johnson, as he
lobbied the UK Government to tackle Britain’s severe
housing shortage and pledged to increase development
volumes in London to 42,000 new homes a year.
Meanwhile Mark Carney, governor of the Bank of
England, warned of “deep structural problems” in the
British housing market stemming from a shortage of
fresh stock.
These warnings come 10 years after economist Kate
Barker estimated that 260,000 homes would have to be
built annually to reduce the long-term trend in house
price increases – currently at a rate of more than 9%
a year - to 1.1% a year. Since then, an average of just
115,000 homes was built in the private sector each year.
In March this year, the Home Builders Federation said
that the shortfall, combined with new forecasts for
demand, meant 320,000 homes a year were needed to
hit the 1.1% inflation target.
In London and many parts of Southeast England,
price growth is underpinned by the fundamental
imbalance between the supply and demand of homes
in the capital.
Demand for housing
London’s population has risen by around one million
over the last 10 years, the fastest rate of growth in the
city’s history. This growth is set to continue, with new
official forecasts showing that London’s population
will hit 9.4 million in 2022 and over 10 million by
2029. This is driven by higher birth rates and inward
migration, as London’s economy grows more quickly
than other UK regions.
The creation of another 850,000 jobs in London is
forecasted for the next two decades, taking the total
number of jobs to 5.75 million by 2036 and equating
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October 2014 SA Real Estate Investor

to around 35,000 additional jobs every year, attracting
more workers to London from the UK and from across
the globe.
London’ brighter economic outlook has had a
notable impact on the housing market. Following
the financial crisis, the prime central London market
recovered more quickly than other markets, showing
the strongest price growth in the UK between 2009
and 2013.
With wages beginning to rise in real terms for the
first time since 2008, consumer confidence about largescale financial decisions, such as buying a home, is also
growing.
Supply constraints
Despite the overwhelming demand, construction of
new residential property has failed to keep pace, further
adding to the undersupply. Just 20,000 new homes
were built in the capital last year.
While construction activity has picked up markedly,
with new housing starts up 42% in 2013, only about
half of the estimated 200,000 homes with planning
consent in London are under construction. The
number of residential units on which work was
started last year was around 28,800. It would seem
that the key constraint may be the actual capacity of
the construction sector to deliver a higher number of
new homes. Since 1980, the annual average supply in
London has been a mere 16,000 units a year.
Therefore, what is required is not only a significant
rise in output, but also fundamental reform on the
issues of development finance, the types of housing
on offer, and the pressing issues concerning available
land. With such a tall order, the current data suggests
a continued shortfall of homes across London over the
next decade, underpinning further fuelling of house
prices.
RESOURCES
Smuts & Taylor Ltd
www.reimag.co.za