IFS - Compared to other countries, England is bad at building homes in areas with rising demand

1 Aug 2024 12:58 PM

While growth in the number of houses in England has kept pace with growth in the adult population since the mid-1990s, there has been a mismatch between where homes are built and where they are needed.

• Between 1996 and 2021, the adult population in England grew by 20%, while total number of properties grew by 21%.
• However, in London, the adult population grew by 29% while the number of properties grew by only 23%. 
• Building homes in areas with growing economic prospects is important for enabling individuals to take advantage of economic opportunities and shortening commutes, and could ultimately boost productivity.  

New analysis by IFS researchers considers whether homes are built in the right places by measuring the responsiveness of local housing supply to changes in local demand and assesses why some areas have more responsive housing supply than others. This comes as the government announces new housing targets and an “overhaul” of the planning system.

Key findings from the research include:

Between 1996 and 2021, local authorities that saw 10% higher house price rises, compared to other areas, experienced only a 1.4% additional boost to the supply of local homes. In other words, the supply of homes in English areas responds only slightly to differences in local demand.

• This makes local housing stocks in England less than half as responsive to changes in demand as areas in the USA and France.
• This responsiveness is also lower than comparable estimates in Germany.

Supply is especially unresponsive to demand in denser urban areas like London.

• Lack of available land which it is permissible to build on is the key determinant of this weak responsiveness of local supply and hence higher prices.
• Had supply responded even as much as it does in the rest of England houseprices in London would have risen by £21,000 less between 1996 and 2021.
• Greater constraints on land-use also lead to smaller properties, and fewer family homes, being built.

It is possible to boost supply even in areas where local constraints may appear severe.

• Boroughs in the East of London (especially Tower Hamlets) saw much greater housing supply growth than would be expected given local demand changes and local constraints.
• This area saw substantial redevelopment of brownfield sites over this period, particularly following the Olympics in 2012.

Elaine Drayton, a Research Economist at the IFS said

“England appears particularly bad at building homes where they are needed compared to other countries such as France, Germany and the USA. Constraints, particularly restrictions on land-use, mean that in England local housing supply does not track changes in local housing demand, even over long periods. This makes it more difficult for workers to move to areas with growing economic opportunities.”

England has a poor record of building homes where they are needed