an alternative view?
It’s a Function of …
“Look, I don’t think there’s a housing bubble. I think housing prices have gone up… It’s a function of population growth, it’s a function of, you know, state governments not engaging in enough land release…” ~Josh Frydenberg, Assistant Treasurer (7 June 2015, source The Guardian Australia)
The Myth of Housing Supply Shortages
In his recent blog, Steven Liaros, challenges the narrative of endless economic growth, arguing instead that we need to manage demand not increase supply. Does his critique and reasoning have any relevance to the UK housing situation?
It’s quite easy …
— and a very common strategy over the years — to dismiss housing affordability as a State issue caused by population growth and insufficient land release. The argument is that there is a shortage of supply for the growing population of Sydney and that this is forcing prices upwards. Simple economics. If supply can’t keep up with demand then the price increases. This is a very simplistic analysis of a complex issue that has been perpetuated for many years in NSW, Australia. A review of Census data shows the flaws in the argument, which has been perpetuated to justify increasing development in Sydney, despite obvious congestion issues — a discussion for another time.
7.24% Vacancy Rates
The first counter argument is that 118,801 of the 1,640,199 private houses in the Greater Sydney Statistical Area — which includes the Central Coast and the Blue Mountains — are vacant. That’s 7.24% of all our housing stock have no occupants. You certainly don’t need to build more of something when 7.24% of you current stock is not being used. This means that there is no shortage of supply but an inefficiency of use. We know that many of these houses are used as tax deductions, often rented for a few months each year to justify negative gearing tax offsets. In other words, Federal legislation is creating inefficiencies in the Sydney housing market that are then contributing to the price increases.
Single Person Homes
Secondly, even the occupied dwellings are being used less efficiently than in the past and the fastest growing household composition is single person homes, which now comprise 22.6% of all households. There are currently on average, only 2.5 people in every household. The ABS Census data (dwelling structure by number of bedrooms) shows that there are currently about 4.46million bedrooms in Sydney for a population of 4.1million people. I’m sure a reasonable proportion of those bedrooms have two occupants, so we also have a large number of empty bedrooms.
Real Cause of Shortage
The demand for housing is not caused by population growth but primarily by projections that the number of people in each household will continue to fall. The obvious and significant inefficiencies in the use of our existing housing stock arise from government policy or can be addressed by government policy. As I indicated at the outset, accepting this inefficiency and simply saying that we need more houses is too simplistic. Instead, incentives could be introduced to increase occupancy rates.
Target Vacant Dwellings
For example, if we retain negative gearing, we could target vacant dwellings by limiting access to the scheme to rental properties that have been occupied and received market rent for a minimum of say, 45 weeks. Tax incentives could be used to encourage the occupation of vacant bedrooms. Sharing economy apps like Airbnb could be embraced to facilitate this.
Given that the large and increasing number of single person households is not only an economic issue but also a social issue, incentives could be offered for the development of new housing models such as co-housing. Co-housing developments are common housing form in northern Europe and its adoption is escalating in the U.S. These are developments where a group of usually unrelated people have small private accommodation within a complex that includes a range of shared facilities.
Change Tax Rules
Ideally, we would remove negative gearing, perhaps allowing it to remain on existing negatively geared properties but not allowing it to apply to future purchases. If governments were serious about tackling housing affordability, then they would make the interest on owner-occupied home loans tax deductible, say up to a maximum loan amount of $300,000. You might also limit this in time, for example to ten years, so as to incentivise early repayment.
Increase Efficiency – Not Output
The problem with increasing the efficiency of housing use and reducing debt is that it reduces economic growth. I have previously blogged about productivity, to explain why increasing efficiency — and not increasing output — is the path to prosperity. If you are wedded to a world view that demands endless growth, then increasing housing supply is the only way of addressing perceived demand increases. This serves the interests of the development lobby but not the interests of the public. Increased efficiency in the use of existing resources — in this case housing resources — won’t give you economic growth but it will increase productivity and social connections, while also reducing the cost of housing and the impact on the environment.
New Frameworks Needed
Similarly, high levels of household debt serve the interests of the finance sector but not the interests of the public. If governments are to regain any credibility as advocates of the public interest, then they need to begin to implement policy frameworks that support the public rather than various private sector interests groups.
DfMA and 300,000 new homes a year
Whether or not the same arguments can be made for the UK’s present drive for 300,000 new homes a year, the shift in construction techniques and practice toward Off-Site Construction is well underway. As this matures into Design for Manufacture and Assembly (DfMA) this is clearly at the forefront as an enabler for such delivery. New homes will very soon be ‘Smart’ in numerous ways, including full incorporation of energy saving and TIoT (the internet of things) to deliver major components. This is something that ‘Off-Site’. DfMA (Design for Manufacture & Assembly) will need to seriously consider as the industry moves forward.
Greater collaborative ‘partnering’ between architects, builders and manufacturers is needed to accomplish this The greater speed, accuracy and quality that can result from manufacturing components in a dry, controlled factory environment, together with the ability tom incorporate (yet to be invented) ‘Smart Ware’ gives home builders perhaps the only way of achieving this, together with improved on-site build quality AND controlling costs.
While resistance to the change to DfMA has been the norm, the wish of most UK Builders to deliver excellent customer service and top notch homes is now driving an increasing number to choose Off-Site for their developments. Also, as ‘OffSite Hub” note, architects and designers are moving toward DfMA, something w have been encouraging for over 20 years. The emergence of LA Developers will only speed up this process.
Easy Timber Frame
To assist them in doing so our “Easy Timber Frame “ now offers standard size modular timber frame elements for them to use as a design base, cutting down on technical design and engineering to produce win-win results.