When the economist Adam Smith set down the first ideas of the theory of supply and demand at the back end of the 18th century, he probably did not realise the impact his idea would have and still has in the 21st century. Even when Alfred Marshall was putting the finishing touches to what we understand as one of the basics of economics over one hundred years later, the world was still coming to terms with the concept.
Even in today’s mortgage market, we cannot truly predict how supply and demand will interact and many of the problems which it faces can be traced to this issue. One thing that can be said with authority is that house prices are continuing to climb steadily as demand far exceeds supply. Many initiatives and schemes have been developed to help those affected, especially first-time buyers, but the crux of the argument is simply that there isn’t enough property to go around.
Solving the problem
Paul Fincham, senior media relations officer at at Halifax, comments: “The housing supply filtering through over the past few years has not been meeting the demand in certain areas of the country, especially in areas of increased economic activity.”
One way the government has tried to solve this problem is by the conversion of brownfield sites into housing developments. A report published by the Department for Communities and Local Government (DCLG) entitled ‘Previously developed land that may be available for development: England 2005’ found 74 per cent of residential building now occurs on previously developed sites and there is potential for a further one million homes across England.
Rachel Blackmore, head of external affairs at the Building Societies Association (BSA), says: “Clearly brownfield sites are the first place to start when looking to build property. Often these sites have associated costs that come along with them, but are frequently in urban areas ripe for development.”
However, as Blackmore and many others within the industry point out, the argument over using brownfield sites is multi-dimensional and there are many other factors which affect their use. Even the DCLG admits that many brownfield sites will not become available in the near future.
But this is not the main problem. Brownfield sites only offer a restricted amount of space and both developers and the government want to see the maximum potential extracted from each site.
As Steven Lees, head of marketing at SmartNewHomes.com, says: “The government talks about density, but if there isn’t much room on a brownfield plot, the only way is up. Developers are restricted as they need to make a profit too and if they can fit four or five family homes or a higher number of apartments or flats into a space, they are going to pick flats.”
The trouble with this is that the number of apartments being built is far outstripping houses. According to research conducted by SmartNewHomes.com, 94 per cent of potential buyers thought not enough family houses were being built and the firm believes a change of balance is needed.
Lees continues: “We can see there is a mismatch of stock available compared to what people are looking for. Young families want family homes but they can’t find them either as new build or from what is already there.”
Wider implications
This lack of family homes has wider implications on the UK economy because people want to live near to their place of work. As any commuter will tell you, the grind of getting to work is one of the more unpleasant parts of the day. However, commutes are getting longer as the price of housing around major towns, especially in the South East, goes up and people are now forced into looking further afield for affordable housing.
“We are now seeing key workers having to make long commutes to work as the property in their local area is so expensive,” Blackmore says. Britons have to make the longest commute in Europe, with the average time now at 45 minutes according to the RAC Foundation, and this is getting longer as the commuter belt extends ever further, pushing up prices as it goes.
Ian Giles, director of marketing at Kensington Mortgages, sums up the problem. “People still need homes near to their work and now it is a question of where the South East extends to. People are now travelling into London from Bristol, Birmingham and York and this London effect boosts property prices in those parts of the country as they earn the money in London then take it back and make it unaffordable for people who live there.”
Future
So what does the future hold for supply and demand in the housing market? Britain has one of the highest concentrations of people per square mile in the world and the balance has to be judged carefully so the demands of the property-buying masses do not usurp the amount of space given over to residential developments. While the resonance of England’s green and pleasant land does not ring as true as it did in the time of Smith and Marshall, no one wants to see the countryside carpeted in concrete.
However, this does mean the aspirations of those who want to buy a property must adapt to the changing face of 21st century Britain. Whether this happens or not remains to be seen.
Giles, like many, is sceptical. He says: “The biggest problem is people wanting to live in the parts of the country which are the most congested and developed. You can tell there is a supply problem from house prices and quite clearly demand continues to outstrip supply. I don’t see this changing any time soon.”
