INDUSTRY ANALYSIS
HOUSING TARGET PRACTICE
What is needed to jolt the housing market out of its malaise? asks Tom Hall, Chief Economist at Aqua Consultants
T he Labour
performing marginally better than expected, we’re unlikely to see further reductions in interest rates this year – so mortgage affordability is not going to improve quickly. It’s hard to see where large amounts of public money will come from with tight fiscal headroom constraining investment. What should be done? A government subsidy to boost demand may be back on the table. The help-to-buy scheme, which heavily subsidised first-time buyers, was the primary reason for the boost in housebuilding in the 2010s and pulled the industry out of its post-2008 financial crisis slump. The scheme papered over the cracks of the lack of household income growth, allowing people to borrow to afford houses as an alternative to building up large deposits. Could we see a new or adapted version? Regardless, economic news is not all bad. The economy has been performing more strongly than expected, plus over the last 18 months households have been saving at record levels, repairing their run- down finances. At some point higher levels of consumption will resume, with indicators suggesting this is starting to happen already. Nonetheless, all eyes will be on the budget to see what can be done to stimulate housing demand – otherwise coming close to the one and half million homes target, even as an aspiration, will be impossible.
do supply issues always get all the blame? Maybe that is starting to change. The housing market is suffering from a lack of demand. The cost-of- living crisis over 2021-24 created the longest ever squeeze in real incomes. Over recent years, inflation has remained high, particularly on essentials, which sucks up disposable income from people’s paychecks. Interest rates hikes to combat inflation has made credit more expensive. People are moving less. Homeowners are getting older as houses become less affordable. Older people move house less frequently. It now takes longer to build equity (due to the above constraints). In the past, large increases in house prices and periods of high inflation boosted equity and shrunk mortgages in real terms. All this has created an affordability crisis that has sucked demand out of the housing market. With the confirmation of higher inflation over the last few months and the economy
Tom Hall
Party made the building of one and a half million
homes over the course of this parliament one of its key manifesto pledges. While this looked highly optimistic a year ago, it now looks impossible. There have been several positive developments that shouldn’t be forgotten: ● £39bn is to be spent over the next decade on affordable and social housing, which exceeds previous funding levels; ● planning reform should alleviate some bottlenecks; ● removing environmental regulations will reduce restrictions to getting projects underway; and ● initiatives are underway to attract labour to the industry and improve productivity. While forward-looking metrics have risen from low levels, the increase will be nowhere near enough to come close to achieving the government’s housebuilding target. In fact, housing starts in England saw a significant fall in 2024 (see graph) – a drop comparable to the period of the financial crisis. What about demand? Some will blame the increases in business taxes, such as rising employer contributions. Higher materials and labour costs are potentially squeezing margins. But why
Housing starts and completions in England, 2002-2025
200,000
160,000
120,000
80,000
Completions Starts
40,000
Source: MHCLG
0
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Master Builder
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