Written evidence from Professor Stephen
Nickell, Nuffield College, Oxford University
It appears that Sir Andrew Green (Q 541) thinks
that the expansion of households is the only significant factor
in housing demand. In fact, per capita real incomes are equally
important and will drive upwards the demand for housing services,
and hence house prices, even if there are no extra people.
My calculation is done as follows and refers
If we continue to build houses at the current
rate (ie roughly the RPG plans (Regional Planning Guidance), the
NHPAU (National Housing and Planning Advice Unit) model indicates
that the house price to income ratio will rise from 7.07 in 2006
to 10.46 in 2026. This uses the CLG (Communities for Local Government)
household projections of an average of 223k new households per
annum, an average growth of approximately 0.94% per annum. The
rise from 7.07 to 10.46 in 20 years is approximately 2% per annum.
The NHPAU model suggests that a 1% ceteris
paribus rise in the number of households raises house prices
by 2%. Suppose there was zero net migration. CLG used to suggest
that this would reduce the rate of growth of households by one
third, or by 0.31 percentage points per annum (one third of 0.94).
Using the model coefficient of 2, this suggests that house price
to income growth would be reduced from 2% per annum to 2-2x0.31
= 1.38% per annum. At this rate, the house price to income ratio
would rise from 7.07 to 9.3 by 2026 as indicated in my evidence.
If we use the latest CLG figures on the contribution
of migrants to household growth, namely 0.4, as favoured by Sir
Andrew Green, then if migration was zero, the house price to income
ratio would rise to 9.06 by 2026. So housing remains a big challenge
even in the absence of immigration.
23 January 2008