Central England faces growing housing shortfall

Development of new homes in the Midlands has reached a standstill – and, according to Knight Frank’s latest Central England residential development review, with severe implications for the long-term economic and social health of the area.

The government itself estimates that housebuilding in the region this year will fall 10,000 short of its target of 41,061 homes. The report suggests that this prediction is overly optimistic, as housing starts for the first quarter of the year were around 60 per cent below the required level.

This will add substantially to the massive shortfall of accommodation that has already built up in a region where household numbers are set to increase by 42,000 on average each year for the next decade and a half.

Liam Bailey, head of residential research at Knight Frank, said: “Although average prices in the Midlands have fallen by 5% since last Autumn, the current crisis in development means that affordability is likely to become even more of a problem in the longer term.

“The longer developers cut back on output, the more grave the situation will become, and not just in terms of sheer numbers. The capacity of the housebuilding industry will be severely damaged, and it will take a long time recruit and train the number of skilled employees needed to produce the homes that the country desperately needs.

“This may not seem a pressing issue with house prices now falling back rapidly. However, when the housing and mortgage markets return to vigour, the shortage will become a real barrier for anyone trying to get on the housing ladder, and will result in yet another spike in prices.”

Lack of family homes

The Knight Frank report also points out that the urban centres of the Midlands have seen a development boom over recent years, creating a large number of city centre flats.

The focus on flats has resulted in the consequence of a severe lack of good quality houses that are suitable for families, which means that values for these types of homes will increase markedly once the market bottoms out.

Bailey added: “Well-situated, large houses are likely to outperform the average when confidence returns.”

In order to compete, the city centres are now faced with the challenge of providing environments that are just as attractive to families as the suburbs, but the slowdown in the market could pose a real threat to a number of the regeneration schemes planned for the urban areas.

Reasons for optimism

Some areas will fare better than others. Birmingham will benefit from the number of committed infrastructure projects taking place in the city – as highlighted by an interview in the report with Clive Dutton, director of planning and regeneration at the city council.

Milton Keynes, on the other hand, is unlikely to see a major shortfall in development as a result of its status as an official growth area and support from national regeneration agency English Partnerships.

Both cities have a young population and are forecast for strong economic growth.

More generally, land values are beginning to fall across the region, which could stimulate developers to increase their activity. However, as Knight Frank expects prices to fall until the end of next year – by 20% from a peak in Autumn 2007 – this is a long-term process, and shortage is likely to be the watchword in Central England for the foreseeable future.