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CHAPTER ONE: THE CHALLENGE OF HOUSING SUPPLY
An adequate supply of decent housing at prices people can afford is essential for the health and well-being of individuals and communities. It is also a key foundation for the sustainable economic growth necessary to deliver a wealthier, fairer society.
In Scotland, despite national rates of building far ahead of those in England, the housing system is under severe pressure in many areas. The demand for houses to buy, driven by demographic, economic and financial factors, has increased, driving up house price inflation and excluding many households from the market. Unmet demand for home ownership has aggravated pressures on social housing in some areas.
These phenomena are common to many countries. People are living longer and in smaller households. But what is conspicuous about Scotland and other parts of the UK is the failure of the market to respond to increased demand. 2 Recent sustained house price increases have not been met with any significant increase in the overall supply of new housing.
In June this year, we published our Scottish Housing Market Review. The review highlighted the unprecedented growth in Scottish house prices since 2002 (see chart 2). It identified possible causes of this and set out the consequences for existing and aspiring Scottish homeowners.
Source: Scottish Government analysis of DCLG live tables 590, 592 and HM Treasury GDP deflators.
In the 1970s, 1980s and 1990s, Scottish house prices were much more stable than in the rest of the UK. However, from 2002, Scottish real prices began to diverge from their historical trend and, by 2006, average Scottish house prices were 31% above the trend.
Changes in what might be termed "the geography of affordability" across Scotland are illustrated in chart 3. Whilst the increase in real price is most pronounced in Edinburgh, all parts of Scotland, including rural areas, have experienced real price growth well above earnings growth. National average house price to income ratios rose by 23% between 2002 and 2006.
Source: Registers of Scotland and ONS Annual Survey of Hours and Earnings ( ASHE) data.
While house price growth has now begun to moderate, the relatively high level of house prices means that individuals and families now face greater obstacles in achieving their aspiration of home ownership. As affordability in the market sector has worsened, pressure has increased on an already stretched and unreformed social housing sector.
The result is that, in some areas, the aims of addressing need, mixing communities and offering choice are increasingly difficult to meet through housing allocations policies. 3 There is also a wider cost for society and the economy. Excessive house prices distort tenure choices, limit labour mobility, reduce Scotland's competitiveness and skew wealth towards the top of the housing ladder. Scotland would be wealthier and fairer if these market inefficiencies could be addressed.
There are no quick solutions to these problems. Measures to help first-time buyers have a role, as described in chapter 3. And we must ensure that we make best use of the existing stock, including through measures to bring empty properties back into use as described in chapter 4.
Over the long term, however, increasing the capacity of the housing market to supply more houses across all tenures, particularly in market hot spots, is the most effective way to sustain improved affordability. Yet increases in house-building cannot be achieved by government alone. The wider financial climate and local market conditions can have a significant impact on the ability or willingness of developers to commit to building in a particular area.
However, a housing system that is more responsive to demand would dampen house price inflation and reduce housing market volatility, so improving affordability and overall financial and economic stability.
The planning system has struggled to respond to demand, failing to enable an acceleration in housing supply. While the implementation of the Planning etc (Scotland) Act 2006 will help improve the responsiveness of housing supply in the longer term, there is a pressing need for measures in the short term to increase the supply of housing land and accelerate the delivery of new homes.
There is also a clear need for better integration of housing and related strategies at the local level, not least to ensure that actions within housing strategies contribute to meeting the health and social care needs of an ageing population.
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