Will Brown's Extra Homes Knock House Prices?

by Neil Faulkner on 15 May 2007  |  0 comments
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Gordon Brown's plan to increase the number of houses being built each year to 200,000 appears to be woefully inadequate.

Talking on the BBC's Sunday AM show at the weekend, Gordon Brown said he wanted to increase the number of homes being built per year to 200,000, up from 160,000-170,000 right now.

However, a report at the end of last year from social justice charity the Town & Country Planning Association said that 213,000 new households would emerge each year in the near future. It also said that to address these new households, plus the existing backlog, we'll need to make 220,000 to 240,000 new homes a year. So Brown's plan to build 200,000 appears to be inadequate.

If the TCPA's figures are correct then hopefully Brown will decide to quickly move beyond 200,000. What will be on Brown's mind, though, is pressure from environmental groups. Even worse for him are the consequences for those who are already on the housing ladder. Rapidly building homes to accommodate demand would likely knock house prices.

If it had not been left so late then the extra housing could have been introduced steadily, which would have meant a smoother ride for property owners. We shouldn't have got in this sticky position in the first place and wouldn't have done had we built more homes sooner. Instead, what we've had are tactics that have attempted to keep house prices rising and increase affordability, which is a dangerous goal that can't possibly work in the long-term. Just some of the tricks are:

• Allowing buyers to base their mortgage application on their projected salary (perhaps in a year or two), rather than current salary.
• Allowing buyers to base their mortgages on four, five or even six times salary!
• Creating more group mortgage products, where friends can share the cost.
• Letting first-timers partly rent and partly own their homes.

It may be tempting to blame immigrants. If you want to blame immigrants, the TCPA believes that just 20%, or thereabouts, of the required housing is caused by this group. The bulk of the need is caused by increasing longevity, shrinking household sizes (as more people choose to live alone) and rising divorce rates.

The Office of the Deputy Prime Minsiter wouldn't have you blaming buy-to-let landlords either, as, according to it, this represents only 2% of the total UK housing market.

Returning to the heart of the matter, even if Brown's plans aren't ambitious enough, will these extra houses impact on property prices? Probably, but probably not enough for many prospective buyers. So perhaps no one will be happy.

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