F4 NatioNal iNstitute ecoNomic Review No. 235 FebRuaRy 2016 *National Institute of Economic and Social Research and Centre for Macroeconomics. E-mail: a.armstrong@niesr.ac.uk. This commentary is based on a written submission to the House of Lords Economic Affairs Committee for their inquiry into ‘the economics of the UK housing market’. COMMENTARY: UK HOUSING MARKET: PROBLEMS AND POLICIES Angus Armstrong* Housing is at the top of our political agenda. This is appropriate given that housing is a necessity as it is essential for the security and well-being of our families. Article 25 (1) of the United Nations Declaration of Human Rights recognises housing as part of citizens’ right to a “standard of living adequate for the health and well-being of himself and his family.” There is mounting evidence that we are failing to deliver decent housing, especially for the younger generation. First, more and more houses are being bought for investment purposes which raises the cost of housing. Second, older generations appear to be ‘under occupying’ and even hoarding houses while younger generations are struggling to move into homes. Third, the number of new homes continues to fall below the number of new families. Fourth, the re-reclassifcation of housing associations may leave this essential source of housing for lower income families less able to access long-term stable funding. This Commentary looks at the problems in the UK housing market and considers fundamental reforms to housing taxation and housing fnance. Home ownership trends Housing policy is complicated because houses perform several functions at once. First and foremost, houses provide shelter. An obvious measure of a well performing housing market is if there are enough houses for everyone. The Offce for National Statistics (ONS) estimates that there were roughly 27.5 million dwellings (excluding long-term vacant houses) and 26.5 million households in 2013. But there may be problems on the horizon. The ONS estimates that the number of new households is projected to increase by 250,000 per year over the next decade while the number of net new houses completed over the past decade averaged 175,000 per year. The share of households who are owner occupiers has fallen from 69 per cent to 63 per cent over the past decade. This headline fgure masks interesting and divergent trends. Ownership among people under 34 has fallen by around 20 per cent, while ownership by those over 75 has actually increased. The decline in the owner occupation rate matches the rise in households in the private rented sector and coincides with a steep rise in the number of households who own additional homes. A new trend in home life is the rise in the number of households with shared families. For example, children staying at home with their partners at their parents’ home. This trend was relatively steady until 2006 but has since started to rise by around 7 per cent per year. The sudden change in trend suggests this has more to do with affordability than preferences. Overcrowding is almost exclusively found in rented homes rather than owner occupied. At the same time a remarkable phenomenon called ‘under occupied’ housing is on the rise. An ‘under occupied’ home is defned as having two or more spare bedrooms. According to the English Housing Survey, 61 per cent of those who own their house outright are said to ‘under occupy’, compared to 39 per cent of mortgage holders and only 15 per cent of private renters.