London must build more homes or face the economic consequences, report

London is at the heart of the UK’s economy but remains inhibited by a shortfall in housing supply, and sky high house rental and sales prices, a leading think tank has warned.

In its 2013 Cities Outlook, released yesterday, the Centre for Cities said that: “High house prices are not just a social issue or a challenge for individuals; they are also an economic problem.

“High house prices exclude people from moving into a city, which restricts both their access to jobs and the number of workers that businesses can choose from. They force up wages, as employers are forced to pay more to offset the cost of housing. And they push up the housing benefit bill, currently standing at £23.5bn per year.”  

London, as the UK’s most expensive city has been the hardest hit, despite high wage levels in the capital. To put down a deposit in 2013, an average single Londoner will have to earn £56,000 above the average wage for the city, the report said.

“Policy should focus on attempting to stimulate a greater amount of house building in those cities with high purchasing and rental affordability ratios… as this is where demand for buying and renting housing is highest,” Centre for Cities said in the report.

“This will support economic growth within these cities by limiting the extent to which people are priced out of the job opportunities that are within their economies. This is good for the businesses of these cities and good for the people who live there or want to do so.”

Since 2001, the Centre for Cities estimates that the price of the average London home has gone up by £206,000, almost doubling in just ten years. In neighbouring Swindon, house prices have risen by just £50,000 despite solid economic growth in the city pre and post-recession.

Part of the disparity has been caused by the population explosion in the capital, which has seen its population swell by just under one million (938,500) in the last decade.  

This growth was more than three times higher than the rest of the top 10 cities put together, or the equivalent of the combined growth of 55 cities, the report said.

London alone now accounts for 15% of the UK’s total population, while directly creating some 20% to national GDP in the third quarter of 2012.

The report said: “Current government forecasts suggest that we need to build 232,000 new homes per year in England alone to keep up with projected household growth, while a separate projection puts this number as high as 290,500.14

“But… house building in the UK as a whole has only exceeded 232,000 once in the last 30 years. By comparison, in the 30 years prior to 1981, the contribution of public sector building meant that it only fell below this level once.

“The reduction in the building of new homes since the post-war boom, combined with rising demand for homes, has contributed to a sharp rise in house prices; the sold price of a home has increased by around 300% (accounting for inflation) since 1959.”

If other goods appreciated at the same rate, a pint of milk would cost over £2 and a dozen eggs would cost almost £19.15.