Addressing the UK and Europe’s Housing Undersupply: An Analysis and Path Forward

The latest data from the Ministry of Housing, Communities & Local Government highlights a pressing need to significantly increase the UK’s housing supply. Annual housing supply in England has decreased by 6% in 2023-24. This decrease underscores the ongoing challenge of housing undersupply—a multifaceted issue that impacts not only the real estate industry but also the broader economy and societal well-being.

Analysing the Data

The decline to 221,070 net additional dwellings is significant, especially when contrasted with the peak of 248,590 in 2019-20. This represents an 11% drop from the peak and highlights a trend that cannot be ignored. Several key components contribute to this figure:

• New Build Completions: These accounted for 198,610 dwellings, representing 90% of the net change. However, this is a decrease of 6.5% from the previous year (down from 212,360 in 2022-23).
• Change of Use: There were 21,590 dwellings gained from changes in use, such as converting offices or agricultural buildings into residential spaces. This sector saw a 3% decrease from the previous year’s 22,280 dwellings.
• Conversions: With 4,360 net additions, conversions between houses and flats decreased by 3% from 4,500 in 2022-23.
• Other Gains: This category saw a significant increase of 167%, adding 1,900 dwellings through means like caravans and houseboats, up from 710 in the previous year.
• Demolitions: There were 5,390 demolitions, slightly reducing the housing stock, representing a 3% decrease from 5,570 demolitions in 2022-23.

Key Areas for Improvement

To address the undersupply, several areas require attention:

1. Streamlining Planning Permissions: The complexities and delays in obtaining planning permissions hinder the pace of new developments. Simplifying this process can expedite housing projects and encourage more developers to initiate new builds. Implementing modern IT systems, increasing budgets to retain and train planning officers, and clarifying regulations can reduce bottlenecks. Enhancing the capacity of the Building Safety Regulator is essential to mitigate these delays.
2. Encouraging Adaptive Reuse: With a significant number of dwellings coming from changes in use, policies that promote the conversion of unused commercial spaces into residential units can alleviate undersupply. Enhancing permitted development rights (PDR) can facilitate this transition. However, it’s crucial to ensure that such conversions meet safety and quality standards to provide suitable living conditions.
3. Supporting Small and Medium Developers and Enhancing their Access to Finance: SMEs often face financial barriers that prevent them from contributing to housing supply. Providing them with better access to funding can unlock a wealth of development potential, especially in underserved areas. Simplifying the planning process for smaller projects and offering financial incentives can empower these developers to contribute more effectively. Notably, SMEs currently deliver only 10% of new homes, down from almost 40% in the late 1980s, largely due to complex planning processes.
4. Investing in Affordable Housing: In 2023-24, there were 62,290 affordable homes delivered, representing an estimated 28% of the total number of new additions to the housing stock (excluding demolitions). Increasing this percentage is crucial to meet the needs of a broader segment of the population and ensure inclusive growth. Government initiatives and partnerships with private developers can play a pivotal role in boosting affordable housing supply.

Signs of Optimism

Despite the overall decline, there are reasons to be hopeful:

• Stabilisation of Demolitions: A slight decrease of 3% in demolitions indicates a potential slowing of losses to the housing stock, which can positively impact net housing availability.
• Government Initiatives: New policies aimed at boosting housing supply, such as relaxed permitted development rights, can facilitate easier conversion of existing structures into residential units. This approach not only adds to the housing stock but also revitalises unused or underutilised buildings.

Maslow Capital’s Approach

At Maslow Capital, we recognise that overcoming the housing undersupply requires innovative financing solutions that support developers at every stage of their investment lifecycle. Our unique lifecycle lending approach is designed to spur growth across all sectors of the real estate market.

Supporting the Smaller Market Segment

Our bridging, refurbishment, and developer exit loans are specifically tailored to assist smaller developers who play a crucial role in the housing market:

• Bridging Loans: These provide immediate funding for property acquisition, allowing developers to act quickly on opportunities and reduce time-to-market for new housing. By offering loans starting from £300,000, we enable smaller developers to compete effectively in the market.
• Refurbishment Loans: By financing the renovation of existing properties, we help increase the quality and availability of housing stock without the need for new land development. This not only preserves existing structures but also contributes to community revitalisation.
• Developer Exit Loans: These loans enable developers to refinance completed projects, freeing up capital to invest in new developments and maintain momentum in housing supply. This flexibility is crucial for smaller developers to sustain and grow their businesses.

Supporting smaller developers is vital because they often undertake projects that large-scale developers might overlook, such as infill developments and  regeneration of underutilised spaces. By empowering these developers, we contribute to a more diverse and resilient housing market.

Financing SME and Large-Scale Developers

For SMEs and large-scale developers, our development finance loans offer flexible and comprehensive funding solutions:

• Customised Loan Structures: We tailor our financing to meet the specific needs of each project, whether it’s residential Build-to-Rent (BTR) or Build-to-Sell (BTS), co-living, mixed-use, student, or senior living developments. Our loans can support projects with financing from £10 million up to £300 million, accommodating medium to large-scale initiatives that significantly impact housing supply.
• Expert Underwriting and Risk Management: Our experienced team provides valuable insights and guidance, ensuring that projects are financially viable and sustainable. We offer support throughout the investment lifecycle, from origination to servicing.

Addressing Europe’s Housing Undersupply

The challenges facing England’s housing market are not unique; similar issues of housing undersupply are evident across Europe. At Maslow Capital, we have on-the-ground local experts in the UK, Ireland, Spain, Portugal, and Italy. Our network of offices continually shares trends, knowledge, and resources, creating a collaborative platform fully capable of tackling Europe’s housing shortage.

By leveraging our cross-border expertise, we identify common obstacles and implement effective strategies that benefit developers and communities across Europe. This unified approach allows us to contribute meaningfully to alleviating the housing undersupply on a broader scale.

Closing Thoughts

The Ministry of Housing, Communities & Local Government report highlights the challenges facing England’s housing market, but it also illuminates paths forward. Addressing the undersupply of housing is not solely the responsibility of policymakers; it requires collaboration across the industry. At Maslow Capital, we are committed to being part of the solution by providing financial support that enables real estate professionals to bring more housing to the market.

By supporting projects of all scales—from small to large—we aim to stimulate growth across the entire real estate sector. Our comprehensive financing solutions empower developers to overcome obstacles and deliver the homes that the UK and Europe so urgently need.