The good, the bad and the ugly housing demand 2025
Introduction:
This report provides projections of housing demand in 2025. Not only does it project the overall volume of housing demand in England and its regions, it also looks at how demand might be distributed across different tenures under different economic scenarios: a good economic scenario, a bad scenario, and a worst-case ‘ugly’ scenario.
The overall volume of housing demand is influenced by demographic and behavioural factors, such as migration, increased life expectancy, a greater propensity for people to live alone, and young adults delaying forming their own household. How this demand translates into tenure choices is affected by factors such as employment rates and real household incomes, the affordability of rents and owner occupation, interest rates, the availability of mortgages, and levels of confidence in the economy and housing market.
Housing demand and tenure choices in different economic scenarios: the Good, the Bad and the Ugly:
We outline three contrasting economic scenarios – the good, the bad and the ugly – in order to model the impact of different unemployment and housing affordability rates on housing demand and tenure choices (owner occupier, private rented or social rented). Under all three economic scenarios, overall demand continues to rise, but the implications for housing demand by tenure differ.
What influences housing demand?
A number of demographic and behavioral factors influence housing demand. Clearly, population growth has a key part to play in driving demand, but the number of households being formed has outstripped population growth for decades: between 1971 and 2008, the number of households in Great Britain rose by 34 per cent, while over the same period the population increased by only 10 per cent.
Four of the key factors influencing the overall level of Housing demand are:
Longevity:
As life expectancy increases, people remain in their homes longer, reducing the supply of properties available to new households. In 1961, average life expectancy was 68 years for males and 74 years for females – by 2010, this had risen to 79 and 83 respectively.
Single-person households:
The number of single-person households increased from 1.7 million in 1961 to 7 million in 2009. This trend is linked to longevity, as the majority of single-person households are older women who have outlived their partner. However, relationship breakdown also accounts for some of this increase.
Hidden demand:
Shortage of available housing and unaffordability – either as a result of a high house price-to-income ratio or the high cost of borrowing – can result in people continuing to live with their parents, moving back in with their parents, or sharing houses with others. Analysis of the Labour Force Survey (LFS) reveals some steep falls in household formation rates for young adults in recent years, compared to those seen in the 2001 census. This trend is particularly notable in London.
Migration:
Higher net rates of inward migration result in greater demand for housing. This has been the case in recent years especially, as a strong economy attracted migrants to the UK. The Office for National Statistics estimates net migration to the UK will be 157,000 per annum to 2033, a downward revision from previous estimates of 171,500. Nonetheless, migration can be expected to boost demand for housing.
Projecting the overall volume of Housing demand:
We used the ippr model to project the overall volume of housing demand in England up to 2025 under four different population scenarios:
Principal:
This projection is based on existing patterns of household formation remaining constant going forward, with the population increasing as projected by the ONS. However, it should be noted that the level of immigration built into this projection is relatively high (net addition of 157,000 per annum), reflecting the levels of net migration the UK has experienced in recent years.
High migration:
As with the principal projection, this projection assumes existing patterns of household formation but is based on the ONS projection for high migration.
Low migration:
Again, this projection assumes existing patterns of household formation but is based on the ONS projection for low migration (net addition of 97,000 per year). Revert to 2001 headship rates: This projection assumes that recent patterns of household formation during the ‘housing bubble’ are unusual, and so uses 2001 household formation rates as the basis for projection.
Conclusion:
However, this housing demand is not evenly spread across the English regions, with demand projected to grow fastest in the East of England and slowest in the North West, North East and West Midlands. In terms of the volume of demand, it is the South East, London and the East of England that are projected to experience the greatest additional housing demand, while the North East and West Midlands are projected to experience the least.
Some of this variation is due to the differing population sizes of the regions but, taking these two findings together, the East of England emerges as the region facing the greatest pressure of demand, while housing demand is projected to rise more slowly in the North East, North West and West Midlands.
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