The tectonic plates of housing are shifting in the UK. The last time they shifted was after the Second World War, when the UK found itself with a post war economy, struggling to cope with the needs of a rapidly growing population and a massive housing shortage. Today, we call the post war population growth the Baby Boom and our response to the housing shortage was the invention of volume house building.
Entrepreneurs, like Lawrie Barrett, responded to the vacuum in housing by developing a private sector model of supply that met the demand. Government and local authorities worked together to build the biggest ever Council Housing programme. Combined, public and private housebuilding delivered 350,000 houses a year at its peak,.
By 1991 no one was delivering council housing and total UK housing production had dropped by over 200,000 houses. The market was instead dominated by commercial developers, the vast majority of which was delivered by just 6 volume house builders.
Today the UK needs to build 250,000 homes per year to simply meet demand. In 2013, only 115,000 were built. This shortfall has been a chronic issue for over 20 years, the financial crash of 2007 has only exacerbated this to create the biggest market failure in housing supply ever seen in the UK.
When supply and demand go out of balance, the price of housing rises. It has now risen to the point where access to the housing market is out of the reach of young people. And it's not just those on low wages, it has also put housing out of the reach of well paid university graduates.
Generation rent is not only a problem of housing affordability. In the UK, it is causing more significant and structural societal issues. The promise to the young, after the second world war, was a simple one. Work hard at school, get a good job, buy a home, save and pay into a pension. If you did this you would be able to retire, secure in the knowledge that a reasonably performing pension and the equity built up in your property would lead to a reasonably comfortable life in retirement.
Things change. Over the last hundred years the population of the UK has increased by 21.1 million. In 1911, the population of the UK aged 65 and over was 2.2 million, just 5% of the total. Today it is 10.4 million or 16% of the UK population. This will rise to 19 million people over the age of 65 by 2050, making up 25% of the total. While this is nothing other than a triumph for development and improved life expectancy through innovative health care, it does present an emerging issue.
Today, there are less young people paying into the national pension scheme than ever before. Almost 40% of the UK population under the age of 35 have no pension provision. For those that do, the average 35-year-old has to save £660,000 into a pension plan if they have any hope of matching the standard of living enjoyed by today’s pensioners – but have so far managed to put aside only £14,000.
Our long established national pension plan, supported by an assumed housing equity escalator, is broken. This double whammy, of an increasingly non-property owning population combined with poorly performing pensions, means that our ageing population now face the likelihood of living out their retirement in poverty.
The UK Government approached the volume house builders and asked them to double production to meet demand. The volume house builders said that they would love to, but couldn’t. Why not? Well the volume providers borrow their money from the same banks who brought us all to the brink of financial melt down. These are same banks that were bailed out by governments all across the globe. All of the major banks now have to submit to financial stress testing, which includes having a loan book that can only have so much speculative property lending as part of it. The banks simply could not lend enough to the volume builders to double production in this new world order.
Even short sighted politicians have spotted the problem and have started to act. In fact, they are panicking! This is not a bad thing. Politicians in a panic make quick decisions and we now have a Plan B emerging in the UK.
The government went looking for alternative solutions and spotted that, in 2013, 15,000 homes were delivered by self-builders. That’s 3 times more than the largest volume provider. The solution appeared to be in plain site, simply scale self-building. Self-building, unfortunately, isn’t easily scaleable.
So, if self-build is not the answer, what is Plan B for the UK?
Plan B is Custom Build. As is always case, we eventually started to look overseas for inspiration and politicians were amazed to discover there are other models of delivering housing. There are versions of self building that are scaleable, in particular plot led development that allows individuals or groups to build their own homes but not be the developer of the infrastructure of the site itself.
When politicians came back from their fact-finding missions, they had discovered that the UK has a pretty unique model. So unique, that the UK turns out to have the lowest percentage of self-build anywhere in the developed world! The illustration below shows the UK in context with the rest of the developed economy world.
If you live in Austria, for example, 84% of all housing is either self or group-built and often developed by intentional communities.
The ambition on scale is not modest. The target set for Custom Build is to deliver 100,000 more new homes each year by 2020. At UK Prices that’s a new £20n housing market. 50,000 of these new homes must to be delivered using MMC (Modern Methods of Construction), or Pre-fab in old money.
Well, in response to a national call, we set up a joint venture called BaleHaus Custom Homes. The JV is made up of the architects White Design, the build system is by ModCell Straw Technology, the developer Sustainable Britain and main contractor Cadfan. BaleHaus Custom Homes was selected to be one of 6 Home Manufacturers to deliver turnkey Custom Build homes for the Government’s pathfinder project. The pathfinder site has been master planned, up to serviced plot level by the Custom Build developer, Igloo Regeneration. Together we have just secured planning permission for a 54 house development in Cornwall. We have started to meet prospective Custom Builders who can choose their plot and then their new home from a range of house types and customise them to suit their needs.
What does a BaleHaus Custom Home made of straw look like?
I’ve run out of space for this blog, so I will show you next time round.