How many new homes do we REALLY need?
Ritchie Clapson CEng MIStructE is a veteran property developer of 40+ years, an author, industry commentator, and co-founder of the leading property development training company propertyCEO
According to The Hitchhiker’s Guide To The Galaxy, the ultimate answer to Life, The Universe and Everything is forty-two. As answers go, it has a reassuring simplicity, yet as the book later points out, to make sense of the ultimate answer it helps quite a bit if you know the ultimate question. I won’t spoil the ending for you in case you’ve not yet indulged, but I wouldn’t be giving too much away if I told you that the book’s ultimate question didn’t turn out to be, ‘How many new homes does the government think we need to build in England and Wales every year?’. This figure, in case you’re interested, is 300,000.
Yet, surprisingly, there are some similarities between the two answers. Firstly, no one knows where author Douglas Adams came up with the number forty-two as his ultimate answer. Similarly, no one can quite put their finger on who it was that came up with the government’s 300,000 new homes target either. It’s very much a political target rather than a scientific one, which means that it was either exaggerated to scare people into allowing more houses to be built or understated to make it easier to hit. A third option, namely that it’s probably just about right, seems unlikely given that it’s a government target (but I’m almost certainly being overly cynical). But the point is, no one knows for sure where the number came from. Another connection between the two answers is that, despite having such a beefy target to aim at, on more than one occasion over the last twenty years, we actually contrived to build a total number of new homes that was closer to Douglas Adams’ figure than the government’s one.
Living by numbers
The main problem with the question, ‘How many new homes do we need each year?’ is that it’s rather abstract. It’s much easier to contextualise things like money, for example. £300,000 is a lot of cash, and you can easily relate it to stuff you could buy with it or what life would be like if you suddenly found it sloshing around in your current account. But when it comes to new homes, 300,000 is just a big number with no real reference points. So, let me give you some examples. Wales has around 1.3m households, so we’re looking to add the equivalent of another Wales every four years or so. The city of Leeds has about 350k households, so we’d be building a new Leeds (give or take) every year. Given that Leeds is the UK’s seventh most populous city, you can see that delivering 300,000 new homes a year is no small feat. It’s like adding a small county’s worth of homes annually.
But if 300,000 is effectively a made-up number, how do we know whether it’s accurate? There are several ways in which we could measure the demand for new homes, and to make life confusing, they all return a different number. Strategic Land Group issued a report in 2023 which considered several different data points. One often-cited source is the Office of National Statistics, whose most recent survey projected that 160,000 new households would form annually until 2028. Does this mean we only need to build 160,000 new homes each year? Unfortunately, not, since the ONS’s figure is based on the actual availability of new homes. If we built more new homes, the ONS’s projection would be higher, so using their number as a basis for the new homes requirement doesn’t work because it’s a circular argument.
Why do we need more houses?
It prompts an interesting question though: how many people want to rent or own their own home, but can’t? According to the government’s English Housing Survey of 2018/9, the numbers are significant. Over 540,000 households reported having someone living with them who would otherwise be homeless, and 1.6m households reported having a concealed household, i.e. an adult who wants to buy or rent on their own but who can’t afford to do so. The planning consultancy Lichfields made some further projections to determine how many new homes would need to be built each year to house both concealed households and new organically formed households, and they arrived at 389,000, significantly higher than the government’s target. The housing charity Crisis conducted a similar study and estimated that we needed to build 340,000 new homes yearly to make good a 4million home shortfall within 15 years.
Another reference point comes from Centre for Cities, which produced a report in early 2023 which calculated that the UK had a residential housing shortfall of 4.3m homes. Interestingly, they maintain that the decline in housebuilding can be traced back to 1947. Housebuilding rates in England and Wales have dropped by more than a third after the introduction of the Town and Country Planning Act 1947, from 2 per cent growth per year between 1856 and 1939 to 1.2 per cent between 1947 and 2019. They report that we would need to build at a rate of 654,000 new homes per year to make up the deficit within the next decade.
Whichever way you look at it, the government’s 300,000 new homes target is starting to look rather light. So, exactly how many houses have we been building? Over the last twenty years, we’ve averaged less than 190,000 new homes per year, and the largest number we managed was 243,000 in 2019/20. So even a step up to 300,000 would mean building over 20% more than in our best recent year’s production. Interestingly, Lichfields decided to tot up the number of new homes included in every council’s Local Plan across the country, which turned out to be 216,000. Shockingly, we would need to up production by 40% to get from the number of new homes that local councils think should be built to where the government wants us to be – a telling gap.
Not just about ability to build
A key issue, of course, is that building new homes per se isn’t the problem. Plenty of scale home builders would be delighted to build new housing estates and towns up and down the country. No, the biggest problem is that most people don’t want any new houses built anywhere close to where they live. According to Statista, England’s population density is a whopping 434 people per square kilometre. There simply aren’t any large tracts of land going spare in England where you could build a new county or two without anyone noticing. No, you will have to build next to where there are already many people living, which will be massively unpopular. It would be handy for the government if the general public accepted that new houses just have to be built, but realistically, that’s just not going to happen. There may have been a recent uptick in YIMBYism (Yes In My Back Yard), but frankly, the chances of that translating into a wholesale acceptance of more relaxed planning laws at the ballot box is, in my opinion, hopelessly optimistic. Remember when the government lost the Chesham and Amersham safe seat in a 2021 by-election, and proposed planning reforms were cited as a key reason for the defeat.
Some good news
So, it looks like we probably need to build more than 300,000 new homes a year, and there’s little prospect of the voting public embracing a local build, build, build policy anytime soon. Yet there’s one area where the government has found a glimmer of hope: the conversion or redevelopment of unused commercial buildings (a.k.a. brownfield land). Countryside charity CPRE’s State of Brownfield 2022 report suggests that brownfield land for up to 1.2m new homes is currently lying dormant in England. They also cited research that suggests that housing developments on brownfield sites are completed six months more quickly than those on greenfield land.
The significant advantage of these projects is that they will be connected to existing infrastructure. And from a political perspective, brownfield development isn’t a vote loser like greenfield is. As the economy has evolved, so have our requirements for retail and business premises. We no longer need much of our current commercial space, and the number of unused brownfield sites increased by 30% between 2018 and 2022. And recycling empty buildings is usually a vote-winner – after all, who wants a derelict factory on their doorstep, or a dead high street filled with empty shops?
But if you thought brownfield redevelopment was a slam dunk that automatically gets us four years of new housing, think again. Because most brownfield land is in the form of relatively small buildings and plots that don’t appeal to the larger home builders. The likes of Persimmon and co build lots of new houses on large empty fields using existing designs. A one-off, smaller conversion project simply isn’t in their repertoire. Instead, it falls to the smaller SME developers to take on these projects, and luckily, small-scale property development is currently enjoying something of a resurgence, with many first-time developers entering the market. Many are existing landlords who have woken up to the fact that the buy-to-let market is a shadow of its former self and that even doing something as simple as putting flats above a shop can unlock six-figure profits. The government has helped by creating increased permitted development rights that make it easier than ever to convert these buildings. But SME developers still only account for just 12% of the country’s housebuilding, down from 30% in their heyday.
Local and national government now need to do even more to ensure that first-time property developers can take advantage of the low-hanging fruit that brownfield represents, and collectively play a meaningful part in solving what is almost certainly the country’s biggest crisis.