Select Committee on Economic Affairs First Report


159.  The UK economy has adjusted to immigration in various different ways but there is one factor of production that is fixed in supply: land. Consequently, rising net immigration—which remains highly regionalised—leads to an increase in the population density.

160.  Rising population density has important economic impacts, some of which are difficult to measure. This chapter focuses on the impacts on housing but it also briefly discusses wider effects of increased population growth.

Demand for housing

161.  The surge in property prices over the last 15 years has made the shortage of affordable housing an urgent political issue. In the summer of 2007, the Prime Minister unveiled a new target of building 3 million homes by 2020.[64] This new house-building target followed government projections suggesting that the number of households in England will rise by 223,000 during the period 2004-26—equivalent to almost 5 million new households in total.[65] Much of this projected growth is due to more people choosing to live alone. It is also important to note that the number of new households is not the same as the number of new houses needed as, for example, existing houses can be converted into flats to accommodate more households.

162.  Relatively little attention has been paid to the impact of immigration on housing which was not even mentioned in the Government's extensive written evidence to our inquiry. This is surprising as about a third of the projected household growth in England over the next 15-20 years is due to net immigration, according to Professor Christine Whitehead of the London School of Economics. Professor Whitehead added that in London about two-thirds of the projected increase in households until 2021 will be due to immigration[66] (Q 349).

163.  Apart from high-income earners, immigrants tend to demand less housing, on average, than UK-born persons. But immigrants who stay in the UK choose to live in smaller households over time, which means their housing demand becomes more similar to that of residents. Professor Whitehead suggested that in around 15-20 years an immigrant's housing demand converges to that of the average UK-born person (Q 350). In the long-run indeed, if the trend to smaller average household size reaches a limit, if the immigrants are reasonably successful within our society, and if the natural rate of population increase arising from fertility is roughly nil, then all of the increase in the number of households and thus pressure on housing supply will arise from net immigration.

164.  Given the difficulties of meeting the demands for housing, the Government should assess the impact of immigration on Britain's housing provision.

House prices and rental market

165.  The majority of recent immigrants live in the private rented sector. Nevertheless, Professor Whitehead said it had been "a great surprise" to find that "private rents have not been rising in anything like the extent that we would have expected" at the lower end of the market. Private rents have broadly stabilised since the turn of the century (Q 350). The answer to this apparent paradox is likely to lie with the quality of the housing taken up by new immigrants and the number of people living in each property.

166.  Helen Williams of the National Housing Federation (NHF) found "evidence that rather than consuming more housing it is actually a case of people being more overcrowded in houses and hence why there has not been a straightforward relationship with pressure on rents" (Q 351). Adam Sampson of Shelter spoke of "a large number of people who are willing to rent in fairly appalling conditions in some areas" (Q 352).

167.  Ms Williams suggested that part of the reason for this is that many immigrants, especially those here for a relatively short time, want to "maximise their profit from their experience in this country and send as much of their money home as they possibly can. Under those circumstances, they are willing to tolerate quite appalling housing conditions because that means that the rents are very low" (Q 357).

168.  In some cases, Ms Williams told us, immigrants have taken up poor quality properties vacated by students (Q 351). Mr Sampson said that landlords, especially those of poor quality housing, have benefited from the recent immigration which has helped maintain demand in areas that would have otherwise seen a decline in rents (Q 352).

169.  Many recent immigrants live in private rented accommodation. But rents overall have been largely unaffected as some have crowded into existing properties and rented poor quality housing shunned by the local population.

170.  Professor Whitehead and Mr Sampson noted that immigration also impacts on house prices, both directly through higher demand for houses by immigrants and indirectly through boosting the buy-to-let market (Q 352). Goldman Sachs have estimated that a 1% increase in the number of households raises house prices by 8% in the short run for a given stock of housing and by 6% once the house-building has responded to higher prices over the longer term.[67]

171.  Professor Nickell, who advises the Government on affordable housing, said that since 2000 the ratio of average house prices to average annual earnings had risen from four to seven. If net immigration had been zero, house prices would, according to Professor Nickell, still have risen to 6.5 times average income (Q 49). Professor Nickell also forecast that, if the current rate of house building is sustained for the next 20 years, house prices will rise to 9.3 times average income if there is zero net migration. But if there is 190,000 net immigration each year, house prices will rise to 10.5 times average income—13% higher than they would be with zero migration (p 33).

172.  Immigration is one of many factors contributing to more demand for housing and higher house prices. We note the forecasts that, if current rates of net immigration persist, 20 years hence house prices would be over 10% higher than what they would be if there were zero net immigration. Housing matters alone should not dictate immigration policy but they should be an important consideration when assessing the economic impacts of immigration on the resident population in the UK.

Housing conditions, homelessness and social housing

173.  Many local authorities giving evidence to us—Belfast, Slough, Westminster as well as the LGA—expressed concern about the increased vulnerability of A8 nationals in poor quality overcrowded homes sometimes with a high fire risk (pp 404, 274, 278, 259). One authority, according to the LGA, put the costs of inspections to tackle this issue at £400 per property (p 259).

174.  Slough Council told us that it has evidence of a rapid increase in the number of households with multiple occupations. Currently, it has 1,050 such homes on its records. The council calculates that it will take over £400,000 of new funding to make these homes meet legal requirements" (p 274). Mr Sampson of Shelter suggested that, in the short term, overcrowding could have negative spillover effects for other properties in the area (QQ 357, 358).

175.  Given the evidence that some immigrants have moved into properties suffering from a poor state of repair and/or overcrowding, the Government should assess whether its housing standards are being compromised and whether more inspections are necessary.

176.  So far, demand from immigrants for social housing has been relatively low, partly because many immigrants are not eligible for social housing upon arrival (NHF p 224). The NHF reported that, from April 2006 to March 2007, 4.3% of a total of 150,522 housing association lettings were taken up by non-UK nationals including 1% by A8 nationals. A8 nationals were more likely than others to report a loss of tied accommodation or racial harassment as the reasons they needed help with housing. The NHF said that overcrowding in previous accommodation was also often cited as a problem (p 224).

177.  Although many immigrants are renting accommodation privately, there is a knock-on effect for local authorities' social housing provision. Westminster City Council told us: "There is a considerable degree of competition for rented housing accommodation, in which pool the city council also fishes for its own social housing provision. So it makes it much more expensive—it is an indirect effect, not a direct cost" (Q 449).

178.  As A8 immigrants do not have the right to social housing until they have been employed in the UK for one year, many A8 nationals without a home are not formally classed and counted as homeless. Only a few hundred A8 immigrants were recorded as homeless in 2006. Mr Sampson said: "That number of people who are formally accepted as homeless is likely to increase over time as those new economic European migrants gain rights" (Q 360). Hammersmith and Fulham Council said a minority of new immigrants have found themselves unemployed and living on the streets, placing a burden on publicly funded hostels and day care centres. The largest local homelessness project in the borough has recruited Polish-speaking workers (p 467).

179.  According to a survey carried out by Westminster Council in 2006, around half the rough sleepers in central London are A8 immigrants (p 279). A survey by Homeless Link found that among rough sleepers in Greater London, 18% were from the A8 countries, Bulgaria or Romania.[68]. Mr Sampson said that in Hammersmith and Fulham about 50% of recognised street drinkers are European immigrants. "The vast majority of shelters that are on offer to them can only be paid for by housing benefit" (Q 360).

180.  The present and likely future scale of homelessness among A8 and non-EU immigrants should be thoroughly assessed as a first step to determining the implications of recent immigration for social housing provision.

Wider welfare issues

181.  In addition to its direct impact on the housing market, increasing population density raises wider welfare issues with consequences for the living standards of UK residents. For example, the English countryside is an environmental amenity of great value and a substantial rise in population, however caused, is likely to diminish it. Rising population density will also increase the demand for infrastructure including roads and airports, decrease the per capita living space available to residents, and reduce the space available for public parks and green fields. Although some of these developments can be opposed on environmental grounds, many of the wider welfare consequences of rising population density are highly subjective and difficult to measure. Different people will have different views about whether or not an increasingly crowded environment is desirable.

182.  It is also clear that, given the uneven distribution of net immigration and population density across the UK, some of the issues arising from increasing population growth are of greater concern in more crowded areas of the country such as the southeast of England. As Mr Portes of the DWP pointed out: "If everybody wanted to live in London and the South East that would have quite different implications to a much more even spread" (Q 524). Scotland, which is considerably less crowded than England, has set a policy of attracting immigrants to work and live there to stem the decline of the population and reduce its dependency ratio(pp 501-02).

183.  Despite their partial subjectivity and regional concentration, the wider welfare consequences of rising population density need to be considered in a serious manner, as many of them will involve economic consequences. For example, Lord Turner, in his LSE lecture, explained how a home owner, faced with a new noisy motorway or rail line nearby, would often be compensated for the loss in value of their home. Such compensation costs will rise as population density increases, creating a clear economic impact. Failure to compensate fully for the loss of individuals' welfare in such cases will, according to Lord Turner, lead to more "Nimbys" (Not In My Back Yard), who attempt to block public infrastructure and transport developments. Lord Turner argued that Nimbys are more prevalent in Britain than France or the US due to the much higher population density in the UK. It is thus the UK's higher population density, rather than its planning system, which often makes it much slower and more costly to build large infrastructure projects compared to other countries.[69]

184.  Lord Turner also suggested that a higher population density makes trade-offs more difficult, for example, between the need to build more roads to cope with the transport needs of larger population and the environmental damage, such as noise and loss of countryside. Although such trade-offs exist everywhere, Lord Turner argued that they become even more difficult in countries with higher population density.[70]

185.  In addition to its direct impact on the housing market, rising population density creates wider welfare issues and consequences for the living standards of UK residents. These wider welfare issues are potentially significant but in practice difficult to measure and, in part, highly subjective. They do, however, involve economic impacts on, for example, the cost and speed of implementation of public infrastructure projects. It is therefore important to include them in the debate about the economic impacts of immigration. Yet the Government appears not to have considered these issues at all. These wide-ranging impacts should be assessed urgently and the conclusions reflected in public policy as appropriate.

64   Statement by the Prime Minister on Draft Legislative Programme, 11 July, 2007, Hansard, Column 1449.  Back

65   New projections of households for England and the regions to 2029, Department for Communities and Local Government, 16 March 2007 available at: 

66   Also see The Impact of Recent Immigration on the London Economy, London School of Economics and the City of London, July 2007, p 33-35 Back

67   Goldman Sachs Global Economics Paper No. 159, Europe's Immigration Boom: Causes and Consequences, July 26, 2007, p 11. Back

68   Homeless Link, Central and Eastern European Rough Sleepers in London: Baseline Survey, February 2008. Available at: Back

69   Lord Turner of Ecchinswell, 'Do we need more immigrants and babies?' London School of Economics, 28 November 2007. Back

70   Ibid Back

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