Much of the debate on the UK’s housing crisis has focussed on the lack of new homes. Little is said about how we use existing homes.

Our analysis shows that almost five million existing homes across England and Wales are not occupied efficiently.

The wealth generated by the housing boom has led to substantial changes in how we use our housing stock. Since 2000, the combination of constrained supply and high property prices has resulted in higher density living.

Substantial numbers of houses have been turned into flats, vacant properties have been brought back into use and the number of house sharers has expanded. This means that England’s housing stock has increased by more than the rate of housebuilding.

However, rising property prices have also allowed homeowners and investors to amass considerable levels of equity which, in turn, they have used to fund further property purchases.

Since the collapse in mortgage availability following the credit crunch, the market has become increasingly dependent on cash buyers; 34% of the 4.4 million transactions since 2009 have been cash only purchases.

Ownership of bigger or multiple homes has increased, with holiday homes, city centre crash pads and buy-to-let portfolios becoming increasingly popular.

Meanwhile, a feature of our ageing population is the significant growth in the number of older people living alone in their family homes.

Between 2001 and 2011 the number of dwellings increased by 1.77 million but the number of households only increased by 1.58 million, according to the department for Communities and Local Government. This resulted in almost 900,000 more dwellings than households in 2011.

Those with equity have formed households while those without, remain at home with their parents or living in shared houses in the private rented sector.

This trend has important lessons for those looking towards increasing private housing supply as a panacea for the housing crisis. While new supply remains low and house prices remain high, new housing will continue to be purchased by those with equity rather than those who may be in greatest need.

The importance of equity in the current housing market and inefficiently occupied housing does offer an opportunity. By delivering the right type of homes, in the right places at the right price, it should be possible to appeal to new customers and unlock some inefficiently-used stock.

Hence constructing more purpose-built student accommodation and homes targeted at downsizers and second homeowners, could release existing family homes back into the market.

Inefficient markets

We have constructed a measure to identify those markets where the use of housing stock is most inefficient and could therefore be improved.

We estimate that there are 4.7 million inefficiently occupied properties across England and Wales. This is 24% of existing privately held housing stock.

The map above shows the results of this analysis and the dark red areas are those with the highest proportion of stock that is inefficiently occupied.

While the most inefficient markets tend to be found in rural and coastal locations, these markets tend to be lower density. Therefore it is useful to look at the total amount of housing stock when assessing opportunities.

With more than 760,000 properties identified in the South East, 520,000 in the East of England and 420,000 in London, the opportunity to use our existing housing stock more efficiently could play a substantial part in solving the housing supply crisis.

Encouraging downsizers

The housing market inefficiency measure is constructed from a number of indicators but the single largest factor is the underoccupation of larger homes. We have identified 3.9 million one and two-person households living in properties that may be larger than they require. The majority of these, 2.2 million, own their homes outright and have an estimated £536 billion of housing equity.

The immediate difficulty when dealing with this market is that older households tend to move far less frequently than the average. Politically, socially and ethically it would be wrong to seek to force these people from their homes. However, unlike previous generations, today’s retirees are more accustomed to moving up the housing ladder multiple times rather than living in just one home.

This suggests that, over time, older people ought to be less uneasy about moving home. A report produced by Demos in 2013 found that 58% of the over 60s were interested in moving and one in four would be interested in buying a retirement property.

If we can deliver appropriate new build stock that is attractive enough, then we may be able to encourage even a fraction of these equity rich under-occupying older households to downsize. If an additional 2% were to downsize each year then this could increase housebuilding by 40,000 as well as releasing an equal number of family homes back into the market. This shift would make a significant difference to the market.

Taken from
Residential Property Focus Q1 2014