Every decade the census provides information on housing and population which is used by government to develop policies and to plan and run public services. The first headlines from the 2011 census told us about the changing profile of the population – which in England and Wales has now topped 56.1 million. More detail is expected later this year, when the volume of analysis on both the population and housing market will be unprecedented. At a macro strategic level there are three key trends we expect the census to reveal.
The first relates to the growth in the number of households with no mortgage and the sheer value of housing owned by this group. The second will show the speed of growth and concentration of housing in the private rented sector (PRS). While the third will provide us with a better insight into the supply of housing by number of bedrooms – the first time this data has been collected by a census.
Although not covered by this paper there is a fourth strategic area – namely the changing face of the affordable and social housing markets where supply is failing to keep pace with demand. This is particularly important at a time when the private housing sector is becoming increasingly costly and difficult to access.
The census findings will – as always – prove vital in shaping our housing policy of the future.
While owner occupation rates have started to fall over the last seven years, clear trends have begun to emerge between house owners with a mortgage and the growing number of 1960’s baby boomers who, having paid off their debt, now own their home outright.
Owner-occupied households with no mortgage have property worth an estimated £2,000bn, which represents 38% of the value of the housing market (see figure 1).
Taking the recent growth rates for mortgagees and non-mortgagees over the last 10 years and using this as a basis of forward projections, we calculate that by 2014 there will be more people owning their home without a mortgage than with. This is a trend set to continue, re-enforced by lack of mortgage availability and households taking advantage of low interest rates to re-pay debt.
To put the numbers into context – there are eight million households who own their property outright. Those with mortgages can be split (according to Hometrack calculations) by loan-tovalues (LTV). The largest percentage of mortgagees own more than 50% of the value of their home.
A significant trend of the last 30 years has been the decline of the social rented sector, helped along by right-to-buy policies – recently re-ignited by government. Although currently the largest group by (rental) tenure it seems inevitable that it will not be long before there are more private rented homes than social rented.
In the early 1990s, private rented housing represented just 9% of all stock but over the last 20 years the sector has grown to 16% today. In 2010 private rented homes in London accounted for one in four properties – almost double the level of 20 years ago.
In the 1990s the impetus for growth was sparked by the de-regulation of private renting and the removal (from 1988 onwards) of rent controls. The introduction of buy-to-let finance in 1996 together with a boom in house prices (1996-2007), supported a rapid expansion in supply.
More recently the downturn has created a new stream of rental supply from so-called accidental landlords –would-be sellers unable to find buyers – while the last three years have seen an increase in buy-to-let lending.
It is important not to overstate the impact of buy-to-let mortgages on the rental market. We estimate that 60% of all private rented homes are owned by landlords without a buy-to-let loan. The majority of these landlords will be a mix of cash buyers and corporate landlords.
The census will also show that private rented stock is not uniformly spread across the country. Rented stock is highly concentrated, focused in urban areas close to amenities and access to employment and/or higher education.
An analysis of the lettings market shows that 50% of all lettings in 2011 were concentrated in just 6% of the country.
The largest rental markets recorded in the 2001 census were in London. In the City of Westminster and Kensington & Chelsea rented properties accounted for 30% and 25% (respectively) of all housing stock. Outside London, Brighton’s rental market was the largest at 21%, followed by Oxford and Cambridge both at 17%. Based on an 88% growth in the private rental market over the last decade, we expect the 2011 census to show that the concentration of rental supply has only increased further.
The growth of private rental supply has to an extent been driven by the new build market. But we believe that the conversion from owner-occupied property to rented homes is likely to be responsible for the bulk of the growth in the rental market. The census will reveal how the rise of renting and conversion of homes between tenures will have changed the profile of housing in some local housing markets, especially the many lower value parts of inner London.
These trends in housing tenure, together with the pressure on the social rented sector, pose challenges for local politicians and policymakers. The growth of rental supply and the impact on the sustainability of local housing markets is an area of particular concern. High levels of outright home ownership are linked to low levels of housing turnover, which in turn limit housing availability. The 2011 census will be the first to capture information on the stock of housing in terms of bedrooms as opposed to number of rooms in a property.
The stock of housing in the private sector is heavily skewed towards three and four bed homes which we estimate account for nearly two thirds (63%) of all supply. Despite the expansion in the supply of apartments over the last decade, smaller sized properties are relatively under-represented. Two-bed houses, for example, account for just 18% of supply. Stripping out the homes that are rented reveals a lack of smallsized housing to buy, particularly in southern England.
Better information on the supply of housing in local markets should lead to better policies to address affordability problems. Targeting the right supply into the pinch points of a market will be far more effective than building homes that simply mirror what exists on the ground today.
The 2011 census will provide a better understanding of how the housing market is adjusting to sustained pressures bought about by a lack of new housing delivery. UK housing stock has grown by an average of just 0.6% per annum, well below the level required to keep pace with projected demand. This is putting pressure on existing supply which means that both national and local policymakers need to consider how best to ensure their housing markets are fit for purpose. Meanwhile for those developing and investing in housing, the focus needs to be on targeting the many gaps in the market.
Hometrack has developed products to help housing associations and local authorities to better understand and plan their housing markets. Click here to find out more about Hometrack’s Housing Intelligence System (HIS)| and Local Housing Analytics System (LHAS)|