Monday, June 25, 2012

To buy or not to buy? - Is NOT the question!

Despite significant cut backs in public spending and other austerity measures, the UK Government seem incapable of stimulating the economy and consequently bringing the construction industry back into life.
Lord Freud's speech  at the Chartered Institute of Housing Conference emphasised the huge demands for rented accommodation in the housing sector:  'There are about 5 million people on the social housing waiting list in England and over a quarter of a million tenants living in overcrowded conditions'. This raises serious concerns with the amount of housing available to meet this demand.  The Government are more than aware of the shortage of housing in the UK, however the challenging economic conditions have impacted significantly on construction output, with the Office for National Statistics reporting that 'total output in the construction sector for April (2012) fell to £7.8bn, from a downward revised level of £9bn in March – a drop of 13.2 per cent month on month'.  It is therefore clear that due to reduced levels of construction output, construction of new houses will not even scratch the surface of what is needed in the rented private or social housing sectors, in fact the National Housing Federation (NHF) go onto to label the situation as "the country's burgeoning housing crisis". 

In 2007 The UK Government, (Labour, at the time) put affordable housing at the top of their agenda and set an ambitious target to build 3 million new homes by 2020 with other initiatives to bring vacant properties back into use.  Fast forward to 2012 and we now have a coalition Government who although they have inherited the problem, have little if any chance of achieving the target, and despite significant cut backs in public spending and other austerity measures, seem incapable of stimulating the economy and consequently bringing the construction industry back to life.

Not only are all of the ingredients for 'the burgeoning housing crisis' that the NHF suggest,  there is a high likelihood that things will get even worse.  Numbers of those who want to rent in the future are likely to continue to increase due to the high cost of purchasing a house.  On June 7th 2012 the Halifax reported that 'house prices prices rose by 0.5% month-on-month across the UK in May, following a 2.3% monthly fall in April, to reach £160,941 on average, the bank added. In the three months to May, house prices were 0.8% higher than between December 2011 and February this year, marking the biggest increase over three months since last August'. Even though these statistics demonstrate a housing market that is struggling in parallel with the economy, the average house price will frighten many, particularly first time buyers.  Lenders are now much more caution about borrowing and few are prepared to give the 100% or 95% mortgages that was commonplace in the 1980's and 1990's.  This results in first time buyers having to save a sizable deposit (a 80% mortgage based on the average house price above, would require a £32,000 deposit), before they can consider climbing the first rung of the property ladder.  In today's challenging economic conditions first time buyers could take many years to save this deposit, and in the meantime may look at rented accommodation as an interim solution. This is illustrated quite well in the video at the end of this article.

In the UK we now have a situation where we desperately need to build new houses, but are not, we have an increasing demand for rented accommodation with a limited supply available, and those who want to leave rented accommodation and purchase a property are faced with the reality of saving a large deposit before they are able to consider moving.  A recent article in the Guardian suggests that renting will be the new way of life, as ownership continues to decline. Interestingly the article suggests that the Government is doing little to make any impact 'despite the growing pressure on the rental market, the government's recent housing strategy virtually ignored the sector and did little to address the issues of affordability, stability and quality that so many renters face. It's time government woke up to the fact that 'rental Britain' is here to stay'.

The problems of the housing market in the UK are complex and something that needs to be addressed as a matter of urgency.  New homes, not only need to be built in large numbers (and quickly), but they also need to be affordable.  It is only when this starts to happen that first time buyers may again start to enter the market and consequently start to reduce the pressure on the rented sector.  The Government should think long and hard about their medium to long term strategy for dealing with this problem or face the consequences of increased hardship, overcrowding and even homelessness, particularly for those at the lower end of the social spectrum.

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