What Are Some of the Negative Impacts of the UK’s Housing Shortage?

The approximately one million households in Britain who wish to buy a home but cannot are adversely affected group. But in fact housing affects everything else.

It’s a well-understood fact that there is a serious housing shortage in the UK. For a generation, building has not kept pace with population growth, and the most critical impact is on rapidly rising costs of homes, both to buy and to rent.

This has several implications for the country and its citizens. For owners of homes, rising prices mean increased net wealth. For those who rent – younger people in particular – a point has been reached for many where owning their homes is not possible. For homebuilders and investors in residential development (such as managers of UK property funds who endeavour to identify land where homes can be built on a large scale), the opportunity to build and profit are strong.

But until supply catches up with demand, which may not happen for 10 to 15 or more years, this shortage will have an effect on the UK economy overall, most of it in a negative way:

• Individuals (most often young families) who are unable to muster a deposit and credit worthiness to buy a home are most likely to rent in the private sector. They clearly accumulate no equity from their monthly rent checks and are subject to rent increases that would not occur with owned property.

• Housing in the private rented sector dominates the rental market, with social housing much smaller than 30 years ago. The quality of private housing varies, but in 2014 more than 80,000 people went to the Citizens Advice Bureau (CAB) to report problems with their rental housing; reportedly, a third of houses in the rented sector fail the Government’s Decent Homes Standard. A frequent complaint is draughtiness in winter and high costs of heating. “Revenge evictions,” in retaliation for complaining about substandard conditions, affected 200,000 renters in 2014, according to the CAB.

• The “housing pinched” are those people for whom housing costs constitute half of their disposable income. According to the Resolution Foundation, this is 1.6 million households, about 63% of which have working members (7% are pensioner households and 30% are workless households of working age).

• The effect of so much working income going to housing is so little is left to spend on other goods. According to the Family Resources Survey conducted by the Office of National Statistics, 830,000 households have an average of just £60 per week left over after paying for accommodations. That means less expenditures are made on durable products, transportation, food, clothing, entertainment and other “discretionary” expenditures, including educational experiences for children. Shareholders in those sectors should think about housing as something that affects them.

• Wealth inequality is growing in the UK, and property ownership is no small part of that. Thomas Picketty’s seminal book on this subject, “Capital in the Twenty-First Century,” strongly argues that returns on property and other capital provides greater returns than natural economic growth, and therefore widens the divide between those who own and those who rent.

Of course, if you’re an investor in home building, you benefit from capital at while helping to alleviate the shortage of residences that makes ownership more accessible to more people.

No investor should embark upon property development or other asset growth strategies without guidance. Independent financial advisors can help assess the relative risks and rewards that make for a balanced portfolio.

Real asset investing that turns raw UK land into homes has that net effect, even as the investor is able to experience relatively rapid asset growth