House Building Does Not Drive Down Prices, Research Shows
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House Building Does Not Drive Down Prices, Research Shows

posted in News by Skippy on 12:19 Aug 17th, 2015

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Research has found that building new houses doesn't decrease the price of houses nearby, countering the wide-held belief that the best way to make housing more affordable is to increase the supply available.

Building Houses Doesn't Affect Nearby Prices

A study conducted by the London School of Economics looked into eight different developments of around 300 houses each which have been building in the midlands or the south of England over the last five years.

All of the sites which were looked at were all located in the suburbs or villages, with many that had faced considerable local opposition from nearby residents before they were started. All of the schemes were large in scale in comparison to the amount of homes in the area they were being built.

However despite this, in every scheme house prices didn’t fall once the houses had been completed. Some saw a slight dip during whilst the homes were being built, but all returned to their pre-build value, and some even went up in price.

“Developments of the size and scale studied, even in areas where originally objections were significant, can lead to more rapid rises in local house prices,” the report said.

The report’s findings reflect similar ones found by Bank of England Monetary Policy Committee member Kate Barker who produced an influential report on house prices back in 2004. She found that housing supply was “not particularly responsive to changes in house prices”.

It is the view of many economists and housing analysts that Britain needs to massively increase the amount of housing it has available to moderate future house pricing. Most agree that between 200,000 and 300,000 new homes a year are needed, although in 2013-14 only 141,000 were built throughout the country.

Philip Barnes, group land and planning director for Barratt Homes, said local residents’ opposition to new houses was often based on a fear that it would drive down prices of their own homes. The research “fits with our general experience that opposition to new homes often rapidly recedes as a development is built”, he said.

“This is a small sample but the developments in this study are typical of much of the housing being built in many towns and does suggest that this additional housing can be absorbed without an adverse impact on an individual local housing market.”

With the construction industry now re-awakened after the poor years of the recession, many are hoping that a new housing boom can be kicked off which will give Britain the houses it needs in the future.

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