A new research report by real estate advisor, CBRE, entitled ‘Twenty
years on from the Barker Review: Is the housing market still broken?’ has
revealed that the UK has failed to deliver between 1.5 and 2.5 million homes,
relative to the targets recommended in the initial review.
The Barker
Review of Housing Supply, which was published in March 2004,
recommended increasing the delivery of new homes in England by between 70,000
and 120,000 each year to help lower the rate of house price growth and mitigate
issues of market volatility, reduced affordability, and macroeconomic
instability.
However, since the review, CBRE’s analysis found the UK has undelivered
between 1.5 and 2.5 million homes, and while real average annual house
price growth has lowered, affordability has worsened. The average house
price-to-earnings ratio across England has increased from 5.12 in 2002, to 8.28
in 2022, according to the Office for National Statistics – prompting a fall in
the number of owner-occupiers in the housing market.
Since 2003, the UK’s average house price has grown from £139,000 to
£302,000. The average mortgage payment has increased from £637 per calendar
month to £1,327, with mortgage rates as a percentage of income rising from 35%
to 44%. In addition, the average deposit required has increased from £45,800 to
£107,800.
Jennet Siebrits, Head of UK Research at CBRE, said: “The reality is, in the
20 years since Kate Barker’s report, a perfect storm has materialised whereby
delivery and affordability of housing has worsened considerably. The UK has
failed to meet housing targets, earnings have failed to keep up with house price
growth, and mortgage loan-to-value ratios are more stringent.”
“Many interventions to tackle housing supply and affordability are regularly
debated in the public realm. So, in our latest report and the series of papers
that accompany it, we consider several of these possible solutions and evaluate
whether they are worth pursuing and how we might fix our broken housing
market.”
Siebrits noted many of the recommendations from Kate Barker’s report were
centred around making it easier and faster to gain planning permission to boost
development activity.
However, CBRE’s report reveals planning decision speed has continuously
slowed in the last decade. Overall, almost 60% of major planning
applications were decided within 13 weeks in 2012, but this has fallen to just
20% in 2023.
Overview of Housing Market Interventions
CBRE has considered a range of interventions, which are often suggested as
solutions to improve housing supply and affordability, and whether these are
worth pursuing. These include:
Introduction of Rent Controls
CBRE cautions the introduction of rent controls as the short-term benefits
would likely not outweigh the long-term cost of supply shortages and
poor-quality stock.
Scott Cabot, Head of UK Residential Research, said: “Implementing rent
controls would risk reversing the positive increase in supply of the PRS over
recent years, and halt the development of the emerging BtR sector, which has
now delivered 267,000 homes in the UK. Imposing rent controls on a market with
a severe lack of supply would only exacerbate the problem by deterring private
landlords, as we’ve seen in European and other international markets.”
CBRE’s paper highlights that following the announcement of a five-year rent
freeze in 2020 in Berlin, there was a 35% drop in rental supply within a year.
And, as seen in other markets, once controls are introduced, they are difficult
to reverse.
Tightening Regulation of Short-Term Lets
CBRE cites that caution should be taken about introducing measures on
short-term and holiday lets, to avoid having a detrimental effect on UK
tourism. However, greater returns and lower fees from short-term lettings are
persuading landlords to move away from traditional private renting. Around
250,000 properties were available for short-term let in England in 2022, of
which 70% of these lettings were for “entire” properties. This suggests that
175,000 flats and houses that could be used as permanent homes are being used
as short-term holiday lets.
Siebrits said: “The number of short-term lets in the UK [175,000] is
equivalent to an area the size of Dorset and is taking housing stock out of the
mainstream rental market. Furthermore, despite the growth in the build-to-rent
sector since 2013, which stands at approximately 100,300 completions - BTR
hasn’t yet been able to replace this stock.”
“Introducing legislation that allows a differentiation between short and
longer-term lets would be beneficial. A clearer and uniform approach to
legislation across the UK would better capture change of use stock and allow
decision-makers to better understand how short-term lets are impacting housing
supply.”
Restricting Overseas Buyers
CBRE believes that restricting overseas buyers could hinder residential
development activity. Overseas buyers in the mainstream market tend to favour
new-build stock and are comfortable buying properties off-plan. Most developers
of large-scale urban apartment schemes need off-plan sales to enable
construction activity to start, with a certain percentage of off-plan sales
required by the debt funders to de-risk the investment in the scheme. In
tandem, overseas buyers contribute around 60,000-70,000 rental homes in London
alone.
Siebrits added: “Many of London’s very large residential development sites
have used overseas investment to kick start and speed up development. The
funding required for much-needed housing would be in jeopardy if overseas
investment was restricted.”
