Increasing Housing Investment in Wales

As part of our first work programme, Professor Christine Whitehead of London School of Economics and Cambridge University provided advice to the Minister for Housing and Regeneration on approaches to increasing housing supply in Wales.

Here she reflects on the current situation in Wales; exploring what underlies the slow growth in housing supply, and suggesting what might be done to overcome the barriers to increased investment.

Increasing housing investment in Wales

The housing investment problem

There has been considerable debate about the poor showing of housing investment in Wales over the last few years. The most immediate cause for concern relates to the period since 2008/9 when output fell off a cliff and has to date shown little sign of recovery. Before 2008 output was roughly keeping pace with household growth. Since then both household growth and output have fallen, with the decline in new supply being much the more dramatic. In 2006/7 almost 10,000 dwellings were completed; in 2012/13 the figure was under 5,500. This suggests that there is a major unresolved cyclical crisis with respect to the supply of all types of new housing.

In many ways the levels of investment in social housing are even more worrying. In the decade from 2001 to 2011 social rented homes accounted for only around 7% of new build, while the stock of social rented housing actually declined by 20,000 units. And although investment in social housing picked up after the financial crisis as the Welsh Government increased the subsidies provided, output levels have been falling over the last three years. These figures suggest that there is a longer term structural issue with respect to the financial viability of social and affordable investment.

In terms of the housing stock, since 2001 the big net gainer has been the private rented sector which grew by over 90,000 units over the decade – doubling the size of the sector. These units have come mainly out of the existing stock of both owner-occupied and social housing units, and therefore, for the most part, do not represent new investment. This suggests that, in addition to those who would choose to rent privately, the sector is now accommodating both those unable to afford owner-occupation in current conditions, and those in need of subsidy to pay for adequate housing. And this appears to be a structural change in the way the market is working that is being driven by both the lack of investment in affordable housing and problems of affordability and access to credit in the owner-occupied sector.

Mortgage loans concept

How can more investment be achieved?

Although the lack of investment is fundamentally a long run supply issue, increasing sustainable demand is a pre-requisite if developers are to expand output in the shorter term. Helping households – particularly first time buyers – to achieve home ownership through improving credit availability and schemes such as the Welsh Government’s Help to Buy Wales equity loan programme increases the incentive to provide additional market housing now. It also helps to get the existing market moving, providing jobs especially for the white good industry and for repair and improvement. In an increasingly positive general economic environment such measures are likely to have the most direct impact on starts and completions.

Second, financial viability in housing construction needs to be improved immediately and there are a number of things that the Welsh Government might do to this end. Viability can most easily be addressed by bringing forward the affordable housing element in mixed schemes as this improves cash flow. Initially this could probably most easily be done by spreading the subsidy more thinly to increase affordable rather than social housing development; kick-starting projects that are close to viability; modifying any s106 requirements that can clearly be shown to make projects unviable; and speeding up the flow of public land to be used by joint ventures to provide both affordable and market housing.

A difficulty faced by many builders is how to fund the development stage given that banks are far less prepared to lend than before 2008. The Welsh Government has already introduced a broadly based Construction Development Fund. It might also be worth examining the potential for introducing an English style Build to Rent scheme which helps support developers who are finding it difficult to fund the construction stage of rented housing prior to transfer to Housing Associations or other landlords.

There are particular issues around the shortages of development funding for smaller builders wanting to develop for owner-occupation. Across the UK, local and regional builders have all but disappeared, making it harder to develop smaller and windfall sites which would otherwise be easy to market. Attracting this group back into the market could have a positive impact on supply. The Welsh Government has recognised this, and introduced the Property Development Fund aimed at small and medium sized building firms.

A number of issues need to be addressed in developing longer term approaches to supporting investment. First among these is to get a clear picture of both the market and social housing requirements. There are areas where improved data would be valuable for policy development. These include: using the updated household projections to identify housing requirements and how this splits between market and affordable housing; clarification of regional balances and their relationship to the cost of provision and therefore appropriate subsidy levels; and, given its very rapid growth, a better understanding of the role the private rented sector is playing. This would include a better understanding of the pattern of private versus social rents and mortgage costs which would support a more clearly enunciated policy on the role of private renting both overall and in new supply.

The second core longer term requirement is to examine the potential for a wider range of ways in which the supply specifically of affordable housing can be expanded without large increases in subsidy. One important way forward is the use of broader partnerships and joint ventures with Housing Associations, local authorities and private providers of both market and affordable housing. Here there is a growing understanding of good practice and well-functioning arrangements. A related issue is how best to use available public land including the potential for equity arrangements that enable social and financial value to be captured for the public purse into the future rather than through immediate sale at highest and best use. The Housing Finance Grant programme and the Ely Mills model both point to possible ways forward.


There are no quick costless fixes to the current shortfall in both private and public investment in new housing in Wales. The Welsh Government is facing both cyclical and structural barriers. While it has taken steps to address both, there is more that it might do. In particular, there is an increasing range of innovative ways to use the resources available more effectively. Many are likely to involve some element of subsidy or guarantee– but the benefits to the economy as well as to the housing market of well-designed approaches to bringing in new actors and increasing options for households across the income scale are well worth the cost.


About the author: Professor Christine Whitehead is Professor of Housing Economics at the London School of Economics and Senior Research Fellow, Cambridge Centre for Housing and Planning Research, University of Cambridge.  She is an internationally acknowledged applied economist and an expert on housing policy.



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