House prices in London are £21,000 higher over five years than they would have been if the capital had kept pace with the rest of England’s new homes building rate, according to a new report.
The study by the Institute for Fiscal Studies shed light on the housing crisis in the city.
It highlighted that since house prices started to spiral in the mid-1990s, growth in the total number of homes has largely kept up with the increase in England’s population as a whole.
The report stressed that between 1996 and 2021 the total number of properties grew by 21 per cent, compared to the growth in the adult population (aged 16 and over) of 20 per cent.
However, it also emphasised that there was significant regional variation.
“London is the only region where population growth significantly outpaced growth in housing supply,” it explained.
“Over the 25-year period since 1996, the adult population of London grew by 29 per cent while the number of homes grew by only 23 per cent.
“Northern regions, in contrast, experienced much higher growth in housing stock than population.”
It added: “We find that, had the housing stock in London been as responsive as in the rest of England, real house prices would have risen by 21 percentage points (£21,000) less in the capital between 1996 and 2021.”
High house prices also push up rents as landlords charge more due to bigger mortgages.
The study suggested that rising overcrowding in London, as well as in the South East, showed housebuilding not responding “appropriately” to changes in England’s economic geography.
“In a fluid market, new housebuilding would occur in areas experiencing rising employment,” it outlined.
“This would keep local house prices low and ensure workers in the other parts of the country are able to move there to take advantage of growing opportunities.”
But the economists found that in England this was not happening quickly enough, particularly compared to other countries.
“For an increase in demand to live in a local authority that raises local house prices by 10 per cent, housing supply only increases by an additional 1.4 per cent,” they stated.
“This housing supply response is low compared with that in other countries such as the US, France and Germany.
“Comparable estimates from the US imply rates of housebuilding that are at least twice as sensitive to local changes in housing demand as they are in England.”
Responsiveness of housing supply to local demand was highest in the East of England, they added, and lowest in and around London and in the North-West.
This shortcoming could be put down to a number of constraints and other factors, but by far the biggest one was “lack of available land that it is permissible to build on”.
However, the report added: “One positive lesson from our analysis is that some areas appear to have built more homes than would be expected given their constraints.
“Boroughs in East London, which were highly constrained ‘on paper’ in terms of their population density and lack of unused land, saw much larger growth in housing supply between 1996 and 2021 than other areas with constraints and increased demand for housing.
“This was especially true for Tower Hamlets, which underwent substantial regeneration and redevelopment of brownfield sites, particularly around the period of the 2012 Olympics.”
The think tank also stressed that constraints on building impacted on the type of new homes, with areas with a shortage of land tending to build more one and two-bedroom flats.
“This has consequences of its own: decisions about when to start a family and where to live when one has a family can be shaped by the availability of suitable housing,” it added.
Labour has pledged to start 1.5 million new homes over the next Parliament, a five-year period, a target which has not recently been met.
The report concluded: “Over the last 25 years, land-use constraints, and the costs of building in already densely populated areas, have meant that local housing supply has not tracked housing demand.
“This is despite housebuilding keeping pace with growth in the adult population overall.
“All this means that, over the next 25 years, the government will need to think about not just how many homes are built, but also where.”
