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22nd April 2015
Housing Market Note
Residential Research
HOUSING DELIVERY
Can Affordable Housing Break The 10 to 1 Ratio
Neal Hudson
Associate Director
07590 531150
nhudson@savills.com
@resi_analyst
The level of private house building is closely linked to credit availability and turnover in the
wider housing market. There has been a 10 to 1 ratio between overall market transactions
and private housebuilding starts for the last 25 years and it appears to have held firm despite
recent policy interventions. The reasons for this ratio are poorly understood but appears to
be linked to the price distribution of market demand versus the house price that private
developers need to sell at. That house price is in turn determined by the way the
development land market currently operates (which I’ll look at in a future note).
Fig 1 – Transactions & Private Housebuilding Starts, England
2,500,000
250,000
Annual
Transactions
(lhs)
2,000,000
200,000
150,000
1,500,000
1,000,000
100,000
Annual Private
Housebuilding
Starts (rhs)
500,000
50,000
0
1977
1978
1980
1981
1983
1984
1986
1987
1989
1990
1992
1993
1995
1996
1998
1999
2001
2002
2004
2005
2007
2008
2010
2011
2013
2014
0
Source: HMRC, DCLG
The 10 to 1 ratio has important consequences for future levels of housing delivery. It appears
that all major political parties are keen to increase housing delivery and they all appear to
recognise (to varying degrees) that private developers/housebuilders will play an important
role in that. However, unless we find a way to break the 10 to 1 ratio, to substantially
increase housing delivery we will either need to increase overall market turnover or increase
delivery of other tenures. With increased mortgage market regulation and current high house
price levels, it appears unlikely that transactions will significantly increase and therefore we
must look to other tenures. I’ll be exploring the purpose-built private rented (multi-family)
sector and other tenures in future notes but this issue looks at affordable housing delivery.
One of the most frequently used housing market charts for new build delivery is the long-run
series from DCLG showing completions split by ‘tenure’ as per Fig 2 below. It is quite often
combined with a nominal house price index and is popular for showing the decline of house
building over the last 45 years with a particular focus on Local Authorities. Although it is
useful (and I regularly use it), it does have some issues. An important one for those looking
at affordable housing delivery is that it doesn’t actually show the tenure of new homes but
instead shows the type of organisation building them. It also fails to show the net effect on
overall housing stock. This is important as previous periods of record housing delivery also
saw substantial demolition of poor quality homes. But perhaps most importantly, this data
also under-reports the actual number of new homes being built in recent years.
Please see my previous note “Measuring
Housing Need” for a chart showing the
gross & net effect of housebuilding on
dwelling stock http://sav.li/3r2
Fig 2 – Housing Completions by ‘Tenure’, England
Local Authorities
Housing Associations
Private Enterprise
400,000
350,000
Completions
300,000
250,000
200,000
150,000
100,000
50,000
Source: DCLG, Webber
2014
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1944/45
1941/42
1938/39
1935/36
1932/33
1929/30
1926/27
1923/24
1920/21
0
nd
22
April 2015
Housing Market Note
Reconciling The Numbers
Fortunately there are other data sources available that give more detail on affordable housing
delivery. The chart below shows the actual level of affordable housing completions and highlights
the disparity between them and the aggregate delivery of Housing Associations and Local
Authorities (black line) as indicated by the previous chart. The chart also highlights how the shift
from Social Rent to Affordable Rent has substantially affected the overall delivery of affordable
housing in the last couple of years.
Number of homes
Fig 3 – New Build Affordable Housing Delivery, England
60,000
Affordable Home Ownership
Intermediate Rent
50,000
Affordable Rent
Social Rent
40,000
30,000
20,000
HA & LA Total
(as per Fig2)
10,000
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
0
Source: DCLG
The disparity between actual affordable housing delivery and those homes built by Housing
Associations and Local Authorities highlights the role of private developers/housebuilders in
delivering affordable housing. The chart below (Fig 4) shows our rough estimate of the amount of
affordable housing delivered by the private sector (light blue). It is probably an over-simplification
as it makes no allowance for the level of private housing delivered by Housing Associations but it
does appear to indicate that the recovery in market housing delivery post recession has been
stronger than is indicated by the private enterprise series.
The need to build affordable housing may be a barrier to some private delivery, particularly in
areas with lower house prices, where construction costs take up a larger proportion of gross
development value. However, as the chart below indicates, the steps taken by the Homes and
Communities Agency to fund affordable housing delivery across all sectors during the immediate
aftermath of the recession probably helped to dampen the full effects of the credit crunch on output
and capacity. It is too late now but perhaps if this had occurred at a larger scale, the housebuilding
sector wouldn’t now be facing labour and skills shortages.
The chart also highlights the under-count of total house building in the commonly used DCLG
quarterly data relative to the more comprehensive though less frequent DCLG housebuilding data
from their annual net housing supply series. The more comprehensive annual data suggests that
housing delivery in England during the financial year 2013/14 was 130k rather than the more
frequently citied 112k. Unfortunately we don’t know the tenure split of the 20k homes not initially
counted. Given the growing politics around housebuilding, there is a pressing need for accurate
statistics that can tell us exactly how many homes have actually been built along with what tenure
they are, where they are and what type/size of home they are.
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
More Comprehensive
New Build Data
(dashed=modelled)
Q4 2014
Q4 2013
Q4 2012
Q4 2011
Q4 2010
Q4 2009
Q4 2008
Q4 2007
Q4 2006
Q4 2005
Q4 2004
Q4 2003
Q4 2002
Q4 2001
Q4 2000
Q4 1999
Q4 1998
Q4 1997
Q4 1996
Q4 1995
Q4 1994
Q4 1993
Built By Local Authorities
Built by Housing Associations
Affordable Housing Built By Private Enterprise
Market Housing Built By Private Enterprise
Q4 1992
New housing completions
in England reached
200,000 homes during the
2007/08 financial year.
Adding in the impact of
conversions, changes of
use, vacant properties
returning to use, and
demolitions; and the
overall net change in
housing stock was 224k
Completions
Fig 4 – Housing Completions by Type of Organisation, England
Source: Savills using DCLG
2
nd
22
April 2015
Housing Market Note
Long Term Stability
As seen in Fig 3 on the previous page, the shift from Social Rent to Affordable Rent delivery has
had a substantial impact on the number of homes delivered. Fig 5 below shows the difficulties
faced by the sector in maintaining delivery when there are substantial changes to the Affordable
Homes Programme.
rogramme. The impact on completions was not as extreme as it was on starts because of
carry-over
over from the previous programme but completions have been around 10,000 homes lower
than levels prior to th
the change. On the positive side, the
he most recent data for London (Fig 6)
shows a substantial increas
increase in completions during 2014-15 (the last year of the programme) but it
remains to be seen whether that trend carries across to the wider country
country.
The uncertainty
ainty created by the political cycle can be a considerable barrier to delivery across all
tenures. The need for a cross
cross-party
party approach to housing delivery is increasingly recognised within
the industry but probably is a pipe dream. The affordable housing ssector’s capacity to plan for the
future is further compromised by the short
short-term
term nature of the funding provided by the Affordable
Homes Programme. If this sector is to play a large role in building the homes required, then it will
need both greater scale a
and
nd certainty of funding over longer timeframes. Whether through the
commitment of longer term central funding or increasing the capacity for Housing Associations and
Local Authorities to borrow more against existing stock (rather than selling it off), ther
there is the
potential for affordable housing to play a larger role in housing delivery.
delivery
50,000
40,000
Fig 6 – Gross Affordable Housing Completions, London
20,000
Other
Affordable Rent
Social Rent
15,000
Starts
30,000
20,000
Completions
10,000
0
Starts
10,000
Source: DCLG (data is for England only)
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
0
2008-09
2014/15 H1
2013/14 H2
2013/14 H1
2012/13 H2
2012/13 H1
2011/12 H2
2011/12 H1
2010/11 H2
2010/11 H1
5,000
2009/10 H2
Annual total
Fig 5 – Total Affordable Housing Starts & Completions
60,000
Source: GLA
Magnetic London
http://sav.li/3r3
Measuring Housing Need
http://sav.li/3r2
Local House Price Indices
http://sav.li/3r1
Rental Britains
http://sav.li/3qz
Housing Market Activity
http://sav.li/3rk
Pension Reform
http://sav.li/3ul
First Time Buyer Affordability
http://sav.li/3r0
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