‘Examining Housebuilder Behaviour in a Recovering Housing Market: recommendations for improving housing supply’
This 15 month project was funded by British Academy and finishing in July 2015.
Principal Investigator: Sarah Payne
The final report will is available here: BA Research Report FINAL 280116.
Given the pressing need to address the UK’s housing crisis, there remains a significant gap in our understanding of how housebuilders adapt and change their business behaviours in response to significant institutional shocks in the housing market and whether this institutionally-constituted behavioural change is limiting or inhibiting housing supply, in spite of demand-focused policy interventions.
Addressing this crucial gap, my project contributes to a growing literature on housebuilder behaviour by investigating what changes housebuilders have made to their business behaviours since the onset of the recovery phase in the housing market and considers how these institutionally constituted behaviours may be constraining new housing output.
Whilst the UK housing market is now considered to be in its recovery phase, the shape and characterisation of this recovery is very different from previous ones. The cumulative impact of sustained housing undersupply, on-going housing market volatility, a relatively high house price-to-earnings ratio and historically low interest rates, presents a very different institutional context for development. Squeezed effective demand and worsening levels of affordability indicate that price signals alone are unlikely to stimulate new housing supply as the recovery phase matures.
Given this context, recent policy measures aimed at tackling housing undersupply by facilitating demand might not be effective if they are based on assumptions that speculative housebuilders will respond to price signals and increase supply. As housing output across the UK remains well below the levels anticipated by Government, there is growing evidence that housebuilders are not responding to demand-led price signals and face other institutional challenges to increasing supply in the emerging recovery phase.
Research examining housing supply constraints has conventionally focused on investigating structural barriers e.g. planning, finance and land allocation systems, and there remains very little research examining how housebuilder behaviour may constrain supply, particularly as the housing market enters its recovery phase. However, recent research highlights the significance of housebuilders’ strategically selective behaviours (Payne 2013) and their organisational networks (Henneberry & Parris 2013) in influencing policy responsiveness and deliverability, indicating that developer behaviour may play a much more significant role in constraining housing supply than traditionally thought.