England Must Build More Large Homes To Ensure Future Stability Of Housing Supply

Growing trend for households to ‘under-occupy’ homes, boosting demand for larger properties 

700,000 families suffer from overcrowding at home, but can’t find affordable solutions to upsize

Planning focus on small homes for first time buyers could cause long term issues for nation’s housing stock

CALA Group. 01 March 2016

England HousingOne of the UK’s leading housebuilders today warned that the Government’s efforts to increase the English housing supply by focusing on smaller homes targeted at first time buyers and downsizers are misguided, as new research reveals that the provision of more large family homes holds the key to unlocking the nation’s stagnant housing ladder. 

According to new research by Nathaniel Lichfield & Partners (NLP), commissioned by CALA Group, the UK’s most upmarket major home builder, over the past ten years alone there has been a steady decline in the number of 4+ bed homes being built in England, with an average of 33,119 net completions of 4+ bed properties per year compared to 48,121 2-bed dwellings. 

Since 1991, 72% of England’s housing completions have been 1-3 bed dwellings, with only 28% of new homes having four beds or more – a trend which can be largely attributed to England’s planning policy for housing (Planning Policy Statement 3) in place until 2010, which set minimum densities and discouraged local authorities from approving larger home schemes.

However with the rise of the UK’s burgeoning middle classes and a growing trend among the nation’s ageing population for ‘empty nesting’, more home owners and aspirational younger buyers are now demanding larger houses over smaller properties, to avoid overcrowding at home – an issue which plagues more than 700,000 households in England. Demonstrating this trend, the research indicates a growing preference among families and older couples in particular to ‘under-occupy’ their properties (having more rooms than required), with 7 million households reported to have at least two spare bedrooms. 

The research also reveals that over the past 20 years, price inflation of large detached homes has significantly outpaced that of all other housing types, highlighting growing affordability issues for future generations of families and further indicating the scale of the supply-demand imbalance within the UK housing market.

Alan Brown, Chief Executive of CALA Group, said: “While economic theory suggests that the market should increase the supply of larger housing to cater for growing demand, prevailing Government policies in place before the National Planning Policy Framework, which restricted housebuilders to a minimum of 30 dwellings per hectare, may have inhibited the ability of the market to sufficiently respond to this demand.

“Unfortunately, while Local Authorities now have significantly more flexibility to set density ranges that suit the local needs in their areas, many planners are still too influenced by central Government priorities which favour smaller dwellings targeted at first time buyers and first movers, rather than meeting the real demands of growing families across the country. 

“Our research indicates that this preference is misguided and local planners should focus more resources than they currently are on the provision of larger family homes. By letting families move up the chain into new larger homes, this will naturally free up smaller properties that are already within the UK’s existing housing stock, which is by far the most effective way of opening up the UK housing ladder and ensuring the future stability of our nation’s housing supply.”

Boosting supply of smaller homes inefficient and only a short term solution

According to NLP’s analysis, current planning preferences towards building smaller homes targeted at first time buyers and the downsizer market are an inefficient use of scarce resources and fail to address the long term dynamics within the nation’s housing demand, in particular around addressing the problem of overcrowding.

As illustrated in Scenario A below, the provision of a new 2-bed home to the market can only meet the needs of a single small household or first time buyer, but will not result in any movement further up the housing ladder, as no upsizing can occur to address the demands of overcrowded or larger households. 

England HousingScenario A: Building a single 2-bed home
Alternatively, as illustrated in Scenario B, the provision of a new 4-bed home is far more efficient as it plays a two-fold role in meeting the wider needs of household growth across the whole market by;
1. Addressing the demands of current overcrowded households who are in need of larger housing, in turn meeting the needs of smaller, newly forming households by freeing up smaller housing further down the ladder; and
2. Meeting the demands of smaller households aspiring to buy or upsize within the market, while also freeing up smaller housing further down the ladder for newly forming/smaller households.

England HousingScenario B: Building a new 4-bed home
While the Government hopes that an increase in smaller dwellings will encourage older homeowners to downsize, CALA warns that the over 65s cannot be relied upon to release sufficient volumes of larger housing back into the market to address current levels of demand coming from further down the housing ladder.

The research shows that the over 65s are the most likely of all age groups to under-occupy housing, while being the least likely to move as they are overwhelmingly more satisfied with their housing compared with other groups. According to the data, just 2.5% of households aged 65-74 and 2% of households aged 75 and over have moved house in the past year, compared to 25.7% of households in the 25-34 age group, who are typically those who demand larger homes, as they are starting families or seeking to upsize. 

Furthermore, the Government’s latest projections of household growth in England (published in December 2015) suggest that, combined, growth in families and elderly households will make up around 80% of all growth in England over the next 25 years. It is therefore key that new housing developments meet the needs of current and future generations, by ensuring new and growing families are able to upsize, particularly given that downsizing among elderly households is unlikely to provide a sufficient volume of larger housing.

Alan Brown added: “In order to properly assess an appropriate housing mix for which to plan, it is important for local planners to consider how households currently occupy market housing as this can provide an indication of the current need within the population and estimates the future need and demand.

“Based on our evidence and given the lack of movement among older households, it would be unwise for the Government to assume that downsizing in older age will provide sufficient stock of larger dwellings to provide for future generations of families. 

“With UK households across all age groups increasingly in favour of under-occupying their homes, while overcrowding remains a key concern for growing families, the only viable long term solution to addressing the spiralling cost inflation of the UK’s largest homes and easing pressure both up and down the UK housing ladder, is for planners to be more supportive of large home development across the country.”