Shortages push up prices and this could mean that house prices continue to increase above the rate of inflation. The Barker Report on housing showed that long-term real (after inflation) increases in housing value over the last 30 years was 2.4%. The reality of shortfall in this magnitude if it were to materialise would mean that real house prices could easily exceed this. Shortfalls in housing supply would also put upward pressures on rents which have rebounded sharply this year.
How do we get to the figure of 2.7m shortfall?
Government projections indicate the population will top 70 million by 2031, as a result of increased fertility, life expectancy, and net migration. The number of households is projected to grow by 252,000 every year up to 27.8 million by 2031 (an increase of 6.3 million or 29%). This is not solely the result of increases in population – even without those, the number of households could be projected to grow by 36,000 households per annum due to changes in marital status and household formation. For instance, one-person households are projected to increase by 163,000 per year, equating to two-thirds of the increase in households. By 2031, 18 per cent of the total population of England is projected to live alone (compared with 13 per cent in 2006).
But over the last two years, there has been a sharp decline in the number of homes being built and demand for new properties has plunged. On an annual basis, an estimated 87,190 new homes were started in the 12 months to June 2009 - down 41 per cent compared with the 12 months to June 2008. The figure is also little more than a third of the government's target of 240,000 new homes a year.
If house building continues at current pace (87,190 a year), in a worst-case scenario the UK will be short 4.2m homes by 2031. Even anticipating a recovery in house building to 149,200 a year, (the average number of new homes started since 1990) the country will be short of a staggering 2.7m homes.
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