The Undersupply of New Homes in the UK: Repercussions for the Private Rental Sector
Over the past decade, a quiet crisis has been brewing in the UK – a housing shortage, particularly of new builds, It is a problem that has profound implications for the private rental sector. As the demand for housing consistently outweighs supply, the scenario paints a sombre picture of rising rental costs, declining housing standards...
By Annie Cope - Operations Director Professional Properties
According to a report by the specialist research facility, Heriot-Watt University in Edinburgh, the UK needs to build 340,000 homes every year until 2031 to meet housing demand. However, we're consistently falling short of this target.
The crux of the matter lies in the complexities of the housing market and, more specifically, the limitations in constructing new homes. These range from restrictive planning policies, a lack of affordable land, insufficient investment in social housing, to the cap on borrowing against council housing revenue accounts.
These factors, coupled with a robust demand driven by population growth and changing demographics, have skewed the balance, leading to a chronic undersupply of new homes. As supply remains constrained, the pressure gets deflected to the private rental sector, significantly affecting rental prices, quality, and tenant security.
Here is a broad overview based on data from the UK Government's official statistics:
1920s and 1930s: In the period after World War I, there was a drive to construct 'homes fit for heroes', leading to a significant increase in the house-building rate. On average, over 200,000 homes were built each year during this period. The number spiked to approximately 350,000 annually in the late 1930s.
1940s: House building was limited during World War II due to resource constraints. However, in the immediate post-war period, the UK government initiated mass construction of council houses, leading to high house-building rates.
1950s and 1960s: This period saw a peak in house building in the UK, with over 300,000 homes built annually due to both private enterprise and significant local authority construction.
1970s: The rate of house building started to decline from the early 1970s, averaging at around 250,000 new homes per year.
1980s and 1990s: These decades saw further decline in house-building rates, with averages dropping to about 150,000-200,000 new homes per year, largely due to reduced local authority construction.
2000s and 2010s: The rate of new build properties remained relatively stagnant during this period, often falling below the 150,000 mark, despite increasing demand.
As you can see from the most recent figures, increasing new build numbers to where they need to be, according to the research, seems to be a very difficult task.
Rental Price Surge
The most immediate and evident impact is the surge in rental prices. As the law of supply and demand dictates, when demand overshadows supply, prices rise. Over the past decade, average rental prices have risen faster than wages, causing the 'rental affordability gap' to widen significantly. This has exacerbated the financial pressure on low- and middle-income renters, pushing many into 'rental poverty', where a significant portion of their income goes towards rent.
Furthermore, this undersupply indirectly impacts the quality of rental homes. With a saturated rental market, landlords have little incentive to maintain or improve properties. Consequently, many tenants, particularly those in the lower-income bracket, find themselves in substandard living conditions, with their hands tied due to the scarcity of alternatives.
Tenant Security
Additionally, the UK's undersupply of new homes also undermines the security of tenure. The power dynamics skewed in the landlords' favour can lead to an unstable living situation for renters. A 2019 report from the English Housing Survey indicated that private renters had the shortest length of residence, with almost 80% of tenancies lasting less than five years.
There is also the ripple effect on the wider economy and society. The imbalance in the housing market exacerbates wealth inequality and hinders social mobility. Those unable to get on the property ladder or afford high rents are increasingly marginalised, leading to spatial segregation and further deepening social inequalities.
The Way forward?
Increasing the supply of new homes, particularly affordable ones, is the first step in the right direction. The government needs to streamline planning permissions, incentivise construction companies to build more homes and increase funding for social housing. Public-private partnerships can also be harnessed to meet the increasing demand.
In the interim, protecting renters from the impact of this shortage is crucial.
Implementing rental caps has been discussed, although history suggests that this will have a long term detrimental effect on the sector. Enforcing minimum standards for rental properties, and giving tenants greater security could help alleviate some of the pressures created by the undersupply. We await the introduction of the Renters (Reform) Bill to see how that will tackle many of these issues.
The UK's undersupply of new homes is more than a statistical data point; it’s a crisis affecting the everyday lives of millions of renters. Addressing this shortage is not merely about bricks and mortar; it's about building a more equitable society where everyone has a place they can call home.