The housing timebomb

As builders cut projects, what has happened to Government's ambitious housing targets, asks Alistair Dawber

An Englishman's home is his castle. Or at least it used to be. Recent trading updates from Britain's housebuilders, signalling that they are building fewer homes than in the past, and a reluctance on the part of banks to offer mortgages, means that despite the Government's target of three million new homes in England by 2020, home ownership is fast becoming an unattainable ambition for many people.

Taylor Wimpey published its 2009 trading statement yesterday, reaffirming the view of others that the sector has recovered from its nadir a year ago. The group's debt pile has been cut and the average selling price of its homes is £160,000. While shareholders may toast the improvement, the Government will not have failed to notice that the statement included the fact that the company is building fewer homes: the number of completed houses fell to 10,186 in 2009, down from 13,394 a year earlier. One of the group's major competitors, Barratt Developments, last week said it had put up 5,028 houses in the first half of last year, down from 6,905 in 2008.

This is a massive departure from the number of homes that some say are necessary if Britain is to avoid a housing shortfall. The National Housing and Planning Advice Unit (NHPAU), an independent body set up by the Government to advise on housing affordability, says that as many as 290,500 new homes need to be built each year until 2031.

In a letter to John Healey, the Housing minister, last July, Steve Nickell, the then chairman of the NHPAU, warned: "The recession will have little impact on the number of homes that we need to build over the next 20 years. Declining affordability is having increasingly severe impacts. Worsening overcrowding; lengthening social-housing waiting lists; first-time buyers finding it harder to get on the housing ladder; and adult children living with parents for longer, are direct effects.

"But there are also likely to be increasingly serious wider economic and social consequences if we do not manage to bring the supply and demand for housing back towards balance and start tackling the backlog of unmet demand."

With the number of new homes falling, the Government targets, which depend on the private sector, look increasingly unrealistic. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "We were just about getting close to meeting the Government's target in the boom years, but even then the target looked ambitious and assumed that everything would stay the same in terms of development in the private sector.

"The Government never had any real power to deliver the target, and would have always have had to rely on the private sector to build the bulk of the planned new houses. Now, realistically, there are serious challenges to getting anywhere near the target."

Britain needs new homes to help combat a growing population. The Office for National Statistics estimates that the population will have risen to nearly 65 million by 2020, of which almost 12 million will be below the age of 30. Many of these people, potentially first-time buyers, look set to be squeezed out of the market by a lack of supply and a lack of mortgage credit. Even housebuilders concede that the market faces a structural imbalance.

"Although they don't say it publicly, there is an acceptance in Government that the target will be missed," said Pete Redfern, the chief executive of Taylor Wimpey. "Government does genuinely desire more housing and is doing what it can to increase volumes, but there is a reasonable amount of realism that the targets were ambitious, even during the good times. A shortage will, however, lead to significant underlying structural problems, with the levels of supply outstripping demand."

The problems of insufficient housing supply are numerous. The homeless charity Shelter warned last week that housing costs are leading to as many as one in five couples putting off having children for up to six years, while there is also a danger of concentrated pockets of wealth developing among homeowners. More consumers are likely to save, especially as most banks require a 25 per cent deposit before approving mortgage applications, potentially inhibiting any short-term economic recovery.

The need for extra social housing is therefore also pressing. Last week, Mr Healey said that the Government was spending an extra £122.6m on a programme that will lead to 4,000 new council homes being built. The extra cash was in addition to the £2.4bn set aside for new council and housing association homes. The move was welcomed, but the minister and the Government know that the announcement is a drop in the ocean compared to what needs to be built if the target is to be hit.

In a statement yesterday, Mr Healey stressed that the Government was sticking by the target, saying: "The Government's ambition to build three million homes by 2020 is a clear demonstration of the scale of housing need across the country and the challenge that lies ahead."

He added: "Our focus is on keeping the construction industry going in the current climate: that's why we're increasing investment, kick-starting new housing projects and protecting jobs, and providing £7.5bn over this year and next [to] deliver more than 30,000 new homes. We know our long-term targets will be viewed by some as extremely challenging right now, but we're determined to take the action necessary to build for Britain's recovery."

Mr Redfern said Taylor Wimpey would carry on limiting the number of new houses it builds as it seeks higher-margin sales. If the pattern is copied, it will only exacerbate Britain's housing shortage.

"The question is, how are we going to provide accommodation for communities and for people's children?" asked the chairman of NHPAU, Peter Williams. "It's a debate that will affect a great many people."

House price growth: January's 4.1 per cent rise

Limited housing supply helped to push up property prices by 4.1 per cent in January, property website group Rightmove said yesterday.

A restricted number of sellers and increased demand had pushed up prices, the group added, with activity on its website reaching a record high in the first full week of the year.

On a non-seasonally adjusted month-on-month basis, prices jumped by 0.4 per cent, after falls of 2.2 per cent in December. The average cost of a house in Britain is now £222,261, the highest level since November, the group said.

While homeowners will welcome the surge in prices, the lack of supply will worry those who argue that the return to house price growth in recent months is distorting the real condition of the housing market.

"The rise in asking prices is an early indicator that new sellers in 2010 have the confidence to try for a higher price," said Miles Shipside, Rightmove's commercial director. However, several economists have warned that the housing market is set for a tough year as unemployment continues to track upwards, and public spending cuts take hold.

"The continued rebound in house prices is hard to reconcile with the weak economic backdrop, the still-tight mortgage-lending criteria and the fact that the market remains overvalued," analysts at Capital Economics said last month.

Rightmove said the improvement in house prices was even more pronounced in London, where monthly prices grew by 2.3 per cent.