Data Talks: Housing supply vs. demand

By Matthew Okeefe

In this weekly update we look in to the disparity created in the Housing market, a prime reason for the remorseful upward trend in the house prices.

Latest index figures show that the “average asking price of a home in England  and Wales has surpassed £300,000 for the first time as demand soared and supply remains tight” (http://www.propertywire.com/news/europe/england-wales-asking-prices-2016032111698.html) . Research  by the housing charity Shelter revealed the shortage of suitable housing in the UK has led to 74% of people in the younger generation thinking it is more difficult to own  a home than it was for their parents generation (http://www.xperedon.com/news/3678/housing-charity-homes-debate.html).

Figure 1: Structural Demand/Supply Equilibrium https://www.gov.uk/government/statistical-data-sets/live-tables-on-household-projections (table 401)/ https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building(Table 208)

The estimated demand represents the number of household’s projection by respective local authorities (source: as mentioned above). We observe an expansion in the ‘gap’ between demand and supply of 30% annually over the last 5 years suggesting a shortfall in 2014 of around 120,000. The projection of household growth has been at an average of 5% per annum.   In general terms, the average supply yearly has been limited to 150,000 houses, whereas there has been a need of 300,000 houses to account for the household demand. Looking at it another way, if population growth runs at the ten-year average of 0.7%, the implied demand is around 420,000 per annum.

Figure 2: Latent effect of the financial crisis https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building (Table 211)

We note that the starts and completions in the number of dwellings in the UK fell over 15% in 2007 and have yet to recover to pre-financial crisis levels. An immediate widening of credit spreads in 07/08 has been followed by an easing in the credit environment, with the positive results evident in major house-builders results in recent years.

That said, the environment for the private developer/house-builder remains tough. In terms of supply, it is estimated that private SME developers contributed >60% pre-financial crisis supply of housing stock, yet the events of recent years have led to a substantial contraction in the number of SME developers (as can be noted in the chart below):

 

Figure 3: Decline in Private House Builds https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building (Table 209)

Access to development funding remains tight for the smaller housebuilders and developers as traditional lenders maintain a relatively closed book on development capital for all but the largest projects. At ShareProperty, we look to provide a solution to this.

Developers can submit their projects to the platform, and subject to our assessment criteria, can seek to raise funds through Shareproperty, allowing them to create the innovative urban space they are capable of.

**Please note that investing in early stage businesses involves risks, including loss of capital, illiquidity (the inability to sell assets quickly or without substantial loss in value) and lack of dividends and should only be done as part of a diversified portfolio. Your capital is at risk if you invest.

 

Shareproperty Limited (FRN: 740242) is an Appointed Representative of Kession Capital Limited (FRN: 582160) which is authorised and regulated by the Financial Conduct Authority in the UK.

 

 

 

 

 

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Investing in early stage businesses involves risks, including loss of capital, illiquidity (the inability to sell assets quickly or without substantial loss in value) and lack of dividends and should only be done as part of a diversified portfolio. Your capital is at risk if you invest. Please note that past performance and forecasts are not relaible indicators of future results.

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