Tag Archive: housing supply

The British housing crisis: is EU migration also responsible?

Let us get down to brass tacks: Britain has a serious housing crisis. When demand for housing (people wanting to rent or buy) exceeds supply (the stock of housing) the effects are not good for society. House prices and rents rise, making it difficult for people to pay for their accommodation. This reduces the net income available for other things, makes people anxious and directly affects their quality of life.

If people migrate to the UK or wealthy foreigners invest in the housing market, this reduces the housing supply for the domestic population unless construction goes up. This drives-up house prices and the levels of frustration, especially when people have to share their homes with their parents/children, are priced out of living in their communities or see empty houses that are investments, rather than homes. This is especially so in Britain, a nation of home owners and this state of affairs leads some to conclude that the housing crisis is caused by the EU and its freedom of movement principle. It leads to a perception that perhaps EU mobility results in a lack of housing for the native population. This is powerful argument during the period leading up to the EU referendum in June 2016; it connects with the EU immigration and EU benefit tourism, topics I have previously written about, and is presented as another reason for Britons to vote to Leave the EU (i.e. Brexit). So it is important to address the nature of the British housing crisis and the EU’s role in it.

The first thing to be said is that there is no shortage of analysis of either the housing problems or the possible solutions, but the latter basically boil down to balancing housing demand and supply, together with the political will to solve the crisis.

My home is my castle: demand for housing

Numerous factors influence housing demand. A critical factor is price: at higher prices, real incomes fall and people will reduce their demand while alternatives to owning a property, such as renting, become more attractive. There is a multitude of other factors that are important, such as population dynamics (population size, migration, birth and death rates, age structure, etc.), incomes of households (some may shift from renting to buying, move to a bigger property, buy a second property, a holiday home, etc.), social and lifestyle trends (e.g. late marriages, divorce rates, decisions to remain single, etc. all increase single households and thus demand), availability of credit and interest rates (higher rates make ownership less affordable while lower ones achieve the opposite and restriction in the supply of credit reduces demand for housing and can lead to a fall in house prices) and other influences such as government incentives (to buy, to rent or to buy to rent) and expectations in terms of house /land price developments (speculation).

Since all the above influence housing demand, estimating future demand is a complex process. What is simple though is that immigration, whether from the EU or elsewhere, is only one factor among many others, the majority of which are more influential in terms of stimulating demand for housing in the UK.

Nevertheless, as far as the EU’s freedom of movement of people is concerned, there are two further issues to consider:

  • EU migrants are a sub-set of the migrants to the UK. In a separate post, I showed that of the 498,040 people who migrated to Britain in 2012, 80,196 or 16.1% were Brits returning home, 157,554 (31.6%) were from the EU and 260,290 (52.2%) were from the Commonwealth and other countries that Britain is entirely responsible for, rather than the EU;
  • EU migration is not a one way street and not all roads lead to London and the South East. In the same year, 321,000 people left the UK, a proportion of which migrated to other countries in the EU.

Consequently, even if EU migration was the only issue affecting demand for housing, which is clearly far from being the case, EU migrants do not constitute the majority of immigrants to the UK. Furthermore, the same process is happening in other EU countries that receive Britons.

A number of housing demand studies demonstrate the same trend in the UK: housing demand is increasing significantly and the government and the rest of the housing system, not least the planning system and the construction industry, need to respond in order to ensure that the supply covers the future demand. After all, it is not unusual for populations to increase and housing policy and system must respond in order to deliver affordable, quality housing. The public has the right to expect this irrespective of the particular set of factors that may drive housing demand (i.e. whether immigration is an issue or indeed whether it is from the EU or elsewhere) at a particular point in time.

A comprehensive estimate of housing need and demand in England was published by the Town and Country Planning Association. It estimated that England alone required 240,000 – 245,000 additional homes each year until 2031 in order to meet rising demand. Many similar projections have been made long before EU migration to the UK became an issue of debate post-2007.

Housing supply: decades of neglect = housing crisis

The issue then is how much housing is being built and is it sufficient to meet the demand for 245,000 new units per annum? The UK housing construction data (supply) are presented in the Table below.

Table 1 UK Housing Construction

Source: Gov.uk, Live tables on house building, Table 209

A few points are worth noting based on the Table:

  • Housing construction (permanent dwellings completed) in England have fluctuated between a peak of 170,610 in 2007/8 and 108,870 in 2011/11;
  • The point during which it was perceived that there was an acute housing crisis was around 2005 but since then, the trend in terms of housing supply, albeit fluctuating slightly, has actually been downwards;
  • By definition if the target for England is 245,000 new units per annum, the equivalent for the UK will be much higher. The last year of housing construction data (2014-5) shows a gap of 93,000 even against the lower target for England;
  • In a well-functioning housing market where the citizens, planning authorities, construction industry and the government jointly perceive a housing crisis, the normal response would be for housing supply to increase to reach the target of 245,000 new housing units per annum for England. If this does not happen, it adds to the affordability pressures experienced;
  • If here is such a systematic lack of construction, then surely the respective people in charge of housing policy, finance, planning, construction, etc. are responsible.

To Scapegoat or not to scapegoat (or holding a mirror to British policy makers)

A considerate British voter in the forthcoming EU referendum might reflect on the following issues:

  • The EU has no control in the housing sphere: this is exclusively the remit of national governments, in this case successive UK governments;
  • There are many factors affecting demand for housing, of which EU migration is only a secondary factor;
  • The EU related migration accounted for 31.6% of the migrants to the UK in 2012, but the UK also sent its migrants to EU countries – the EU freedom of movement cuts both ways;
  • The UK has systematically produced fewer housing units than it needs for a period of decades despite projections of massive unmet demand for housing ;
  • The UK, including its politicians, its construction industry and its planning system (local authorities) are responsible for ensuring that supply keeps-up with demand and that housing is affordable. This requires responding to changes in housing circumstances, regardless of what is driving them (e.g. prices, birth rates, speculation, constrained land release, immigration, interest rates, tax incentives, etc.);
  • Despite mounting pressure, regular public outcries, evidence of shortage and affordability problems, etc., the UK only managed to build a paltry 150,000 housing units in 2014-5. This is a damning indictment of Britain, not least its politicians, policy-makers and industry.

It is up to each individual to form their own opinion of where the blame for Britain’s chronic housing crisis should rest. Scapegoating EU migration (which took off from 2004) for problems which have been systematically neglected in the UK amounts to a disgraceful attempt to blame others for issues which Britons have failed to tackle over and over again and are still doing a miserably bad job with.

In this context, it is worth addressing two issues which policy-makers, politicians and the Leave the EU campaign will almost certainly raise in defence of the indefensible: the lack of adequate and affordable housing in the UK, which is a basic human right.

Clutching at straws 1: the crowded island myth

Many, if not most, Britons appear to be convinced that the UK is a very crowded island and that there is simply no space left for housing construction, let alone to accommodate migrants from the EU or anyone else. Certain segments of the media that are biased against the EU, as well as the general Leave campaign, including populist political parties, are keen to emphasize this argument, so let us examine the claim.

The most comprehensive analysis of this issue (UK National Ecosystem Assessment) concluded that only 6.8% of the total land area of the UK is urban (10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales). But being urban does not necessarily mean that it is built upon since such areas also contain gardens, lakes, etc. The most detailed analysis ever conducted found that only 2.3% of England is built upon, the rest is natural. Elsewhere in the UK, the figure is less than 1%. Contrary to popular misconception, only a tiny fraction of Britain has been concreted over. Britain is not a crowded island. It can and must build more housing for the benefit of its citizens.

Clutching at straws 2: EU preferential treatment in accessing social housing myth

Another common perception is that EU citizens are benefit tourists, and that they strain the welfare state by having a higher demand for social housing. But the data show that about 17% of UK-born and 18% of foreign-born individuals live in social housing. That means that foreigners are on par with native Britons when it comes to access to social housing. However, when it comes specifically to EU migrants, the popular perception is even more incorrect. Studies demonstrate that citizens of EU-8 countries who arrived in the UK after accession are 57% less likely to live in social housing than native residents. More recent studies indicate that over 90% of immigrants in the UK are in households that are eligible to apply for social housing (p.3) and confirm that EU (and EEA) citizens are less likely to be in social housing than Britons.  The research also shows that, once factors like the demographic structure, location and economic circumstances are taken into consideration, immigrant households are significantly less likely to be in social housing than equivalent native households. Another popular myth bites the dust.

Build, Build, Build

The housing crisis is fundamentally a matter of demand and supply and the policy choices each country makes about how to prioritize public investment and other policy decisions. For decades Britain has emphasized home ownership as the one and only housing policy priority. It has constrained social housing construction for ideological and financial reasons, while at the same time forcing social housing to be sold at discount. Its recent policies have stimulated a boom in buy-to-rent, which has increased private renting but also boosted house prices and exacerbated the affordability problem.  At the same time, policy makers have not stimulated the planning system to release sufficient land for housing construction, mainly due to the NIMBY (Not In My Back Yard) syndrome. In the meant time, the construction industry has shown much more readiness to speculate in order to accumulate, rather than increase construction efficiency, productivity and quality. None of this has stimulated housing supply greatly while housing affordability has declined.

Housing is a matter for each of the 28 nation states of the EU. Some countries, like Germany, build enough housing to meet the needs of their citizens whose quality of life is significantly improved by having sufficient, high quality, affordable homes to rent and/or buy (the recent refugee crisis could not have been planned for in advance. By definition, a surge of 1.1 million asylum seekers in 2015 was not part of the housing forecast). Others, like Britain, do not build enough housing. This is not because of insufficient land, EU freedom of movement of people or other handy excuses for systemic failures on the part of British politicians and their policies, the British planning system and the British construction industry. Any such interpretation amounts to the politics of scapegoating others for one’s own glaring failures and I, for one, will have no truck with it.

  • Is the EU responsible for the British housing crisis: The British housing crisis has been decades in the making. Strong EU immigration is a relatively recent phenomenon.
  • Is the British government responsible for the state of British housing: Its policies have focused almost entirely on housing ownership (tenure), rather than housing construction.
  • Should I vote to leave the EU because of the state of British housing: Britain alone is responsible for regulating demand and supply to deliver sufficient and affordable housing.

© Ricardo Pinto, 2016, AngloDeutsch™ Blog, www.AngloDeutsch.EU

Housing Markets in Britain and Germany: Similarities and Contrasts

© Ricardo Pinto, 2015, AngloDeutsch™ Blog, www.AngloDeutsch.EU

Housing as a basic necessity

Someone asked the other day: “If you had to choose one issue that fundamentally differentiates Germany from Britain, what would it be?” This is a tough question to answer since the response depends directly on what the individual considers to be important and we all prioritise things differently.

For me, the single most important thing, regardless of country and its level of development, is the extent to which our essential human needs are fulfilled or not. The definitions vary but the three immediate “basic needs” have traditionally been food (and water), clothing and shelter, followed by sanitation, education and healthcare. In the sense of fulfilling our basic needs, the key difference between Britain and Germany for me personally, is the issue of shelter or housing. The economic, social and cultural right to adequate housing and shelter is recognised in many national constitutions, the UN’s Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights. But this right is not simply about having a roof over one´s head, it is also a matter of whether it is affordable to households with different levels of income, as well as whether people are able to enjoy security of tenure (without fear of unreasonable eviction, rent hikes, etc.), which is fundamental to our quality of life.

To my mind, Germany broadly fulfils the right to housing, as well as affordability and security of tenure. But it is far from clear that Britain does; indeed according to some indicators, the housing market may even be moving backwards.

I have previously written a blog post comparing housing in Britain and Germany and another that argued that none of the main political parties in Britain are prioritising housing policy. The post comparing the UK/German housing systems concluded where I want to pick up in this post:

“… the AngloDeutsch™ Blog will compare and contrast the housing system in Britain and Germany. There is significant potential for policy-makers in both countries to learn from each other, despite the clear specificities and uniqueness. I plan to focus on key themes such as: the differences in the housing structure in the two housing systems; the variation in the house price trends and the reasons for it; the differences in the housing finance system; the reasons why one housing system has consistently delivered high quality, affordable homes, whereas the other has consistently failed to do so over several decades.”

This blog post sets the broad nature of the housing systems in Britain and Germany, with reference to the European Union (EU) context. The analysis below covers the issue of tenure, dwelling type, size and quality, dwelling construction (supply), adult population (demand), price and affordability. It demonstrates that the housing systems in Britain and Germany are fundamentally different in some ways, yet remarkably similar in others.

Housing Tenure: owner occupation, social renting and private renting

Housing tenure basically refers to the legal rights of different forms of housing ownership and occupancy. The first distinction to note is owning and renting; whereas the owner buys a property (new or existing), the renter makes a regular payment to the owner for the right to live in a property. If the rent is paid to a private individual / institution, this is private renting. If the rent is paid to a local authority, housing association or cooperative, it is known as social renting.

Table 1 illustrates the tenure differences between Britain and Germany.

Table 1: Tenure in Britain and Germany, 2013 (%)

Tenure Type UK (2007) Germany (2001)
Owner Occupation 70 41
Social Renting 18 6
Private Renting 13 49
Other 0 5

Sources: International trends in housing tenure mortgage finance (2014); Housing Tenure (2009)

The key difference is that whereas Britain is primarily a nation of homeowners (70%), Germany is a nation of renters (55%) and has one of the lowest proportions of owner occupiers in Europe. These rather dated statistics reflect the fact that housing tenure is not collected on a like-for-like basis across countries. A notable feature of the British housing system is the recent decline of owner occupation in favour of private renting. To counteract this issue and to include the EU dimension, I Table 2 presents Eurostat data with a focus on population by tenure status.

Table 2: Population by tenure status, 2013 (%)

Tenure Type UK Germany EU-28
Tenant 35,4 47,4 30,0
Tenant — reduced price or free 18,1 8,5 11,0
Owner 64,6 52,6 70,0
Owner occupied, with mortgage or loan 37,4 27,6 27,3
Owner occupied, no outstanding mortgage or loan 25,0 27,3 42,7

Source: Eurostat Housing Statistics SILC, (online data code: ilc_lvho02)

On this basis, by 2013 Germany had also become a nation of owner occupiers (52,6%) but renting remained equally important (47,4%) in terms of population. The respective figures in the UK are 64.6% and 35.4%, highlighting the fact that the level of private renting has experienced a revival in recent years, partly as a result of government policy. In the EU-28 countries, the situation is much closer to Britain than to Germany (70% and 30% respectively). .

Housing type: flats, detached and semi-detached dwellings

Major tenure differences exist in Britain and Germany but the variance is even more pronounced when it comes to type of dwelling that people actually live in. Britain is very much a nation of house dwellers, with 84,8% living in detached or semi-detached homes. By contrast, Germany is even more a nation of flat/apartment dwellers (53,2%) than in the EU-28 (41,6%) as a whole. Britons obviously love their houses and gardens but I am not sure if the rest of the EU loves flats, even if a large proportion of the population in Europe certainly lives in one.

Table 3: Distribution of population by dwelling type, 2012 (% of population)

Dwelling Type Britain Germany EU-28
Flat 14,5 53,2 41,6
Detached house 23,9 28,6 34,0
Semi-detached house 60,9 16,7 23,7
Other 0,7 1,5 0,7

Source: Eurostat Housing Statistics YB2014 II (online data code: ilc_lvho01)

Housing Quality

An important aspect of quality of life is not only having a roof over one´s head, but the quality of the housing conditions that people live in. The overcrowding rate (% of people living in an overcrowded dwelling) in the EU-28 was a remarkably high 17.2% in 2012. The figure was much lower in UK (7%) and Germany (6,6%) according to the Housing Statistics Year Book (2014). The situation in the two countries is remarkably similar but 6-7% of people living in overcrowded dwellings is still a relatively high figure.

The severe housing deprivation rate is defined as the proportion of persons living in a dwelling which is considered as being overcrowded, while having at the same time at least one of the following housing deprivation measures: lack of a bath or a toilet, a leaking roof in the dwelling or a dwelling considered as being too dark. Across the EU-28 as a whole, 5.1 % of the population experienced severe housing deprivation in 2012. The equivalent percentage was much lower in the UK (2%) and Germany (1,9%).

Within the population at risk of poverty (households with a disposable income per person below 60% of the national median), the overcrowding rate was 29.4% in the EU-28, but the figure was much lower in the UK (13,6%) and Germany (17,6%). Poverty and poor housing conditions go together to large extent.

Dwelling Size

When it comes to dwelling size, unfortunately the UK data are not comparable with other countries. The average dwelling is almost 107 m² in size in Germany, compared with 102 m² in the EU-28.

Table 4: Size of the dwelling by tenure status, 2012 (m²)

Dwelling Type Britain Germany EU-28
Total – unreliable data 106.8 102.3
– with mortgage or loan – unreliable data 128.9 105.2
– without mortgage or loan – unreliable data 135.1 124.5
– market price – unreliable data 76.8 78.6
– reduced rent or free – unreliable data 82.4 80.7

Source: Eurostat ad-hoc module ‘Housing Conditions’ (HC020)

Space standards are significantly more generous in dwellings that are owned than those that are rented in both Germany and the EU. The private rented sector has the lowers dwelling size of all.

Broadly the same trends are likely to apply in the UK. For example, the English Housing Survey Housing stock report found that. “The average useable floor area of dwellings in England was 91 m². However some 52% of social sector bungalows, 50% of social sector flats and 35% of private rented flats had a total floor area of less than 50 m²” (2008, p.8). The indications are not only that the average dwelling size is smaller in the UK than in Germany and the EU-28. There is evidence that the average new average new home in the UK is actually getting smaller over time (76 m²). Elsewhere, the average size of new homes is increasing.

Housing Supply

House developments are influenced by many factors but a strong relationship exists between house prices and other indicators of demand and supply. Specifically in terms of supply, housing construction (i.e. building permits issued and housing units completed) is related to house price developments. If supply is out of kilter with demand, it may not matter too much in the short-term, but over a period of decades it can lead to acute housing stress and eventually crisis. The trend in terms of supply of housing in Britain and Germany is illustrated below.

Graph 1: Housing Completions in Britain and Germany (2002-2013)

Graph 1 Housing Completions










Source: Hypostat 2014, Table 12, Housing Completions, author additions

Graph 1 illustrates that Germany has outperformed Britain in terms of new supply of housing during the last decade or so. As demand for housing increased post-2008, there is evidence of supply responding accordingly. The German government forecasts 270,000 residential completions in 2015, the highest number of completions in over a decade, and argues that construction has reached the amount needed to keep up with future demand. By contrast, in Britain a country which is acknowledged by all and sundry to be in the depths of a full-blown housing crisis, supply has flat-lined around 140,000 completions per annum and government forecasts 135,000 completions in 2015. This suggests that housing supply is significantly more responsive in Germany than in Britain, despite not actually experiencing a housing crisis. The reasons for this critical difference will be explored in future blog posts.

Total Dwelling Stock and Adult Population: demand

Another way to examine the situation is to examine the changes in adult population (over 18 years of age) and the extent to which the total dwelling stock is keeping up with the changing demand. During the period 2002-2013, the adult population in Germany increased by 1.8 million. During the same period, the dwelling stock increased by over 2 million units. By contrast, whereas the adult population in Britain increased by 4.4 million, the dwelling stock only increased by 2.1 million units (see Hypostat 2014, 26 Population 18 years of age and over). I shall explore other indicators of demand in future posts to illustrate the point that supply is lagging behind demand and has done so for decades in Britain.

House Prices

The OECD’s real house price index for the period 1970 (2nd quarter) to 2013 (4th quarter) reveals fascinating trends, as illustrated in the graph below.

Graph 2: Real House Prices in Britain, Germany and Euro Countries (1970-2013)

Graph 2 Real House Prices










Source: OECD Real house prices database (seasonally adjusted, index based in 2010)

What the real House Price Index shows is that British house prices have historically been significantly lower than the German ones. But whereas the prices declined gradually from 1994 onwards in Germany, the UK experienced rapid price increases (with some volatility, especially during 1989-1992) until the end of 2007, when the global economic and financial crises hit. Thereafter, German house prices flat-lined for a while, but increased rapidly from 2010 – 2013, a trends that continues today. By contrast the UK prices experienced a steep decline in 2008, followed by a gradual increase from the end of 2013 onwards, a trend which has more or less continued to today.

Rising since the 1970s, the UK house prices eventually surpassed those of Germany for a five-year period (2005 and 2010) but a gap is evident once more. For Germany, the real house price index remained more or less the same in 1970 as in 2013, suggesting a fairly stable housing market.

The trends in house prices in the two countries are ultimately a reflection of demand and supply issues. Since supply is highly restricted in the UK for various reasons to be discussed in a future blog post, the trend of house price increases is almost certain to continue, especially in London and the South East region.  It is only a matter of time until the UK house price index outstrips that of Germany once again.

Housing Affordability

Housing affordability is a fundamental issue. Countries have broadly the same definition for this, namely that affordable housing should address the housing needs of the lower or middle-income households. The level of disposable household income is a key factor in determining affordability and it is ultimately the responsibility of governments to create the framework conditions for the delivery of affordable housing.

Eurostat defines the proportion of the population living in households that spent more than 40% of their disposable income on housing as the housing cost overburden rate. Table 5 illustrates the situation in German, UK and EU-28 countries.

Table 5: Housing Cost Overburden Rate, 2011 (% of population)

Dwelling Type Britain Germany EU-28
– with mortgage or loan 8.8 13.6 8.6
– without mortgage or loan 9.1 10.5 6.2
– market price 45 21.4 26.8
– reduced rent or free 23.9 16.5 13.3

Source: Eurostat Housing cost overburden rate (ilc_lvho07a). Data from 2011 used because there was a break in the UK time series in 2012.

As a general rule, a significantly higher proportion of the population in the rented sector experience affordability problems than in the owner sector. Furthermore, the problem is particularly important in the private renting sector (market rents) and is especially acute in Britain, where 40% of the population in the private renting sector experiences a housing cost overburden. Overall, although the housing cost overburden rate is higher in Britain than in the EU-28 countries, the rate is higher still in Germany in the two owner categories. However, the housing cost overburden rate in the private and public rented categories are significantly higher in Britain than elsewhere.

The housing cost overburden rate also varies between different groups of society. Generally, women are more vulnerable to housing cost overburden than men and, in some countries, the elderly tend to experience it more than the younger age groups. But the housing cost overburden rate says nothing about the extent to which people can afford to get a foot on the property ladder or rent privately. If people cannot do so, they have little alternative but to live with parents, friends, etc. in order to meet their housing needs.

Two Markets: different realities

Based on the analysis above, the tenure pattern in Britain and Germany is very different in some ways: there are many more owner occupiers, people living in houses rather than flats, the dwellings are smaller and getting smaller over time and there is noticeably less responsiveness in the supply of housing in the UK than in Germany.

On the other hand, the two housing markets converge in other respects:  general overcrowding rate, overcrowding rate within the population at risk of poverty, severe housing deprivation rate, etc. are remarkably similar.

Other indicators are mixed:  house prices suggest a fairly stable German housing market but a somewhat volatile British housing market which is likely to exceed the German prices. The owner sector seems to exhibit more housing affordability issues in Germany, yet affordability concerns are much more acute in the British rented sector, especially in the case of private renting.

The temptation may be to conclude that the differences in the two countries are not that great: wrong and double wrong! We all know the quotation: “There three kinds of lies: lies, damned lies and statistics”. Statistics are one thing but the housing reality is quite another. In the course of the next few blog posts, I intend to elucidate my starting point, namely that if I had to choose one thing that fundamentally differentiates Germany from Britain, it would be its housing system.