The wider UK economy is threatened unless the housing market is taken by the scruff of the neck and improvements to government policies and supply are implemented says Kate Barker in her review just published by the Treasury.
More than 120,000 additional houses are required annually if the UK is to bring long-term house price inflation in line with the European average – a must if the UK and eurozone economies are to converge successfully Barker says.
By comparison there were and estimated 125,000 gross completions in 2002-3, Barker notes.
At least 70,000 additional houses are required annually if the current 2.4% long-term inflation rate is to fall to 1.8% - or roughly in line with the government’s consumer price inflation target used by the Bank of England to set interest rates.
The current state of the market also risks damaging social cohesion, with a rapidly increasing number of people who are either homeless or are finding aspirations of home ownership dashed.
The economy meanwhile suffers because the skewed market hampers the deliver of public services and increases the costs of doing business in the UK, the report says.
Besides instituting badly needed policy changes in the area of planning, the government also faces the prospect of boosting its commitment to social housing.
Between £1.2bn to £1.6bn in additional spending will be required in future to meet demand, Barker says.
Building firms are lashed for their inability to provide "sustainability, design and innovation" to the market, which "have been secondary to the desire to secure land".
However, adding supply alone will not solve the problem, Barker warns.
New supply only adds about 1% to the housing stock annually at present, thus house price inflation would not change substantially even if the flow of new stock is increased, unless expectations about the future are also changed. This can only happen if the right policy recommendations are implemented, she says.
"It also matters where houses are located and how much space they have. The nature of cities, towns and villagers is also important, and the role of planning in shaping these as sustainable communities is recognised and valued."
"A one-size-fits-all approach is not always possible or desirable".
Much has been stated about the affordability of housing by lenders in the past few months, with most saying interest rates are still low by historical standards, thus maintaining a high level of affordability despite house price rises.
Barker quashes this notion by stating affordability has plummeted between economic cycles: "In 2002 only 37% of new households could afford to buy a property compared to 46% in the late 1980s."
And while those already on the ladder may be surviving, the outlook is becoming less and less favourable for those that are not.
"Higher house prices result in a transfer of resources from those outside the housing market such as would-be first time buyers to those inside the market, such as existing home owners. This also tends to favour older generations at the expense of younger. The wealth gap between home owners and others is widening."IFAonline
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Reporting to Steve Hill
Appointed on 19 September