London (Parliament Politics Magazine) – House costs in London are £21,000 higher over five years than they would have been if the money had kept speed with the rest of England’s new home building speed, according to a new report.
How Have London House Prices Been Affected by Housing Supply?
The analysis by the Institute for Fiscal Studies demonstrated the housing situation in the city.
It stressed that since house prices started to twist in the mid-1990s, growth in the total number of homes has mostly kept up with the growth in England’s population as a whole. The report highlighted that between 1996 and 2021 the total number of properties increased by 21 per cent, compared to the increase in the adult population (aged 16 and over) of 20 per cent.
Why Has London’s Housing Stock Lagged Behind Population Growth?
However, it also highlighted that there was significant regional variation. “London is the only region where population growth significantly outpaced growth in housing supply,” it described.
“Over the 25 years since 1996, the adult residents of London increased by 29 per cent while the number of homes extended by only 23 per cent. “Northern regions, in contrast, underwent much higher growth in housing stock than population.”
It contended: “We discover that had the housing stock in London been as responsive as in the rest of England, real house prices would have increased by 21 percentage points (£21,000) less in the capital between 1996 and 2021.” High house costs also push up rents as landlords charge more due to bigger mortgages.
What Regional Differences Exist in Housing Supply Across England?
The study indicated that rising overcrowding in London, as well as in the South East, offered housebuilding not responding “appropriately” to differences in England’s economic geography.
“In a fluid market, new housebuilding would happen in areas experiencing rising employment,” it summarised. This would keep local house prices downward and ensure workers in the other parts of the nation can move there to take advantage of growing opportunities.”
How Do Housebuilding Rates in England Compare to Other Nations?
However, the economists discovered that in England this was not occurring quickly enough, particularly compared to other nations. “For an expansion in demand to live in a local authority that raises local house costs by 10 per cent, housing supply only grows by an additional 1.4 per cent,” they stated. This housing supply reaction is low compared with that in other nations such as the US, France and Germany.
Why Is the Housing Supply More Responsive in the East of England?
“Comparable assessments from the US imply rates of housebuilding that are at least twice as sensitive to local differences in housing demand as they are in England.” Responsiveness of housing supply to the local market was highest in the East of England, they said, and lowest in and around London and in the North-West.
This deficiency could be put down to some conditions and other factors, but by far the biggest one was the “lack of available land that it is permitted to build on” However, the report added: “One positive lesson from our investigation is that some areas appear to have created more homes than would be predicted given their constraints.
“Boroughs in East London, which were positively constrained ‘on paper’ in terms of their population density and lack of unpracticed land, saw much more extensive growth in housing supply between 1996 and 2021 than other locations with constraints and improved demand for housing.