Three reasons why Britain's housing market is broken

Britain's chronic housing shortage has been highlighted in an official report that lays bare the extent of the decline in UK housebuilding.

The report, published by the Office for National Statistics (ONS) on Monday, also illustrates the extent to which house prices have outpaced earnings growth.

Here are three reasons why Britain must build more houses.

1.) Housebuilding has been in decline for decades

The number of housing completions in the UK has fallen from 378,000 in 1969-70 to 141,000 in 2013-14, according to the Department for Communities and Local Government (DCLG). The brief upward trend between 2002-03 and 2007-08 came to an abrupt halt after the 2008 financial crisis, and building rates are yet to recover to pre-recession levels.

The decline is spread across the country:

In 2013-14, houses in England were being built at 63pc of the pre-crisis peak rate, compared with 55pc in Scotland and 58pc in Wales.

Northern Ireland, where house prices remain 46.7pc below their pre-recession high, is still suffering the consequences of the housing bubble. According to the ONS, housing completions hit the bottom in the 2011-12 financial year. But the glacial pace of recovery means the proportion of houses built compared to the pre-crisis peak was just 45pc in the latest financial year.

Government initiatives such as the controversial Help to Buy Scheme, have helped to boost supply. However, experts argue that the scheme is also pushing up prices, while the recent upturn in housebuilding is still not enough to keep up with population growth. Analysts also say the government itself is dragging its heels when it comes to releasing land.

The Confederation of British Industry (CBI), Britain's biggest business lobby group, has praised central government for releasing land, but noted that just one in seven local authorities are currently using the planning powers granted to them under the National Planning Policy Framework (NPPF). Katja Hall, the CBI's deputy director general, said:

We think central government has done a good job in releasing land, but local authorities have been quite slow in getting on with it. They’re all meant to have their own pro-growth plans detailing how they will make sure they provide enough houses for their area. But only one in seven have them. So they need to release more land and release it in plot sizes that builders can then build on in areas that people want to live in.

The Institute of Economic Affairs (IEA) has highlighted that new homes in Britain are much smaller than elsewhere in Europe:

Liberalising planning laws, not a large-scale public housebuilding programme, is the closest thing to a "silver bullet" to fix the chronic lack of supply, the think-tank argues. In a report on Monday, it said:

Ultimately, the affordability issues relating to rents and house prices can only be solved by building more homes. This necessitates planning liberalisation.

2.) The number of housing completions has fallen behind population growth

The CBI believes Britain needs to build 240,000 houses a year to keep up with population growth, or around four homes for every 1,000 people. In some parts of the country, we're building half that, according ot the ONS.

The ONS report notes:

Northern Ireland, the smallest country in the UK, is starting and completing the smallest number of houses compared to pre-financial crisis levels, however they completed many more houses on a per capita basis than any other country in financial year 2012-13 with a rate of 4.4. Scotland followed behind Northern Ireland at 2.6 while England and Wales come next with 2 and 1.8 respectively.

3.) Soaring house prices puts home ownership further out of reach in many parts of the UK

Owning a home has become little more than a pipe dream in some parts of the country.

The average London salary in 2013 was £30,479, according to the ONS. Compare that with the average London house price of £428,000, and it's little wonder that many people struggle to get on the ladder. Prices continue to rise. The latest house price data show the cost of a home in the capital rose to a staggering £514,000 in July, taking the average price above the 4pc stamp duty threshold.

The ONS calculates that the average house in London cost 14 times the average salary 2013. Ten years ago, it was ten times earnings. Across England, the house price to earnings ratio has increased from 10.4 to 11.8 over the past decade. In Wales and Northern Ireland, where house prices have fallen by 0.8pc and 46.7pc respectively, the ratio has remained broadly steady.