No-one can afford the 'affordable housing' that is supposed to solve Britain's house price crisis
In turn, this is ramping up prices.Government schemes to get low earners buying homes by giving them massive subsidised loans are only stoking demand and making the situation worse.Advertisement
So building more houses is the key to solving the problem, right? - Well, not exactly. It only works if house builders build a glut of homes that people can afford.
Over the last year, the government has delivered various tax relief schemes to get Britain's house builders building again. That is increasing supply, according to the latest data provided by property builder Taylor Wimpey.But there is one huge problem - house builders are mainly targeting the wealthy.
It's not too surprising when you think about it. After all, private companies are not building houses out of the kindness of their hearts. They are doing so to make a profit.For example, Taylor Wimpey said in the trading statement for its 2015 full year results that it had built "more homes than at any point in the last six years."
In 2015, total home completions increased by 7% to 13,341, including our share of joint venture completions (2014: 12,454).
During 2015, we delivered 2,509 affordable homes (2014: 2,178), equating to 19% of total completions (2014: 17%). Our net private reservation rate for 2015 was 0.73 homes per outlet per week (2014: 0.64). Cancellation rates remained low at 12% (2014: 14%).Average selling prices on private completions increased by 9% to £254k (2014: £234k), benefiting from our focus on better quality locations.Advertisement
In other words, profit jumped because the number of properties it sold in more affluent locations. Yes, it did build more affordable houses in the UK, but they only account for 19% of new homes. Eighty-one percent of the houses it built were in more pricey areas.
To be clear, this isn't just Taylor Wimpey. It is perfectly normal across the entire UK house building industry.For example, take a look at Barratts' chart that was published in November 2015. The number of affordable housing builds brings in a lot less cash than private builds, meaning it is in a company's interest to focus on more properties that carry the market value:Advertisement
As Barclays pointed out in its massive UK housing report, which has 180 charts, "there is a strong relationship between share prices of house builders and the RICS survey of house price expectations."So, it is predictable that selling houses that correspond more with general house prices, which show a soaring pace of growth, rather than for affordable housing levels, is more lucrative for a company and its shareholders.Advertisement
Here is a chart that shows the Royal Institution of Chartered Surveyors survey vs. change (%, y/y) in Barclays' house builder share price index:
The following rates are now applied to properties of certain selling prices:
- 0% - Up to £125,000.
- 2% - £125,001 to £250,000.
- 3% - £250,001 to £925,000.
- 10% - £925,001 to £1.5 million.
- 12% - Above £1.5 million.
So there you have it - Britain is indeed building houses again but are they the properties that the country needs or can afford right now?Meanwhile, Paul Bogle, head of policy and research at the National Federation of Builders said that the so-called affordable homes being built are going not "affordable" because government schemes to get people on the ladder with cheap funding is pushing up prices and making the situation worse.Advertisement
Couple this with the fact that house builders are barely making a dent in the affordable housing needed to sate demand and we have a severe property conundrum on our hands that won't be fixed any time soon.