Britain doesn’t build enough homes. From that one fact, a long chain of consequences follows. For one thing, it means that homes in Britain are extremely expensive. According to the Office for National Statistics, the average salary in Britain in 2021 is £29,744. The average house price in the UK (as of March 2021) is £256,405 and prices have risen 10.2 per cent in the last 12 months. And if you want to settle in London, the average property price is now over half a million. No wonder so many people have chosen to move out.
Big prices mean big mortgages, taken out by the millions who are looking to climb what’s usually called the “housing ladder.” But the “ladder” metaphor, with its connotations of a consistent and inevitable upward advance, is deceptive. Most people who take out a mortgage are so burdened with debt they’ll spend the rest of their working life paying it off. Less “ladder,” more “merry-go-round.”
And these, of course, are the fortunate ones. High prices mean that many people are simply shut out of the property market. That is not only unfair, it is also absurd. Homes should not be a luxury. They are an essential. In the postwar period, the possibility of homeownership was within the grasp of the average worker. According to Nationwide, the average UK house price in 1952 was £1,891—at the time, the average annual wage was £481, giving a wage-to-house price ratio of around four. Nowadays, that ratio is over eight and a half. If you live in London, it’s almost 17.
Recent decades of surging house prices have skewed the housing problem significantly towards the young. Back in November 1996, a five-bedroom terraced house in Fulham, southwest London, could be bought for £143,500. Now, a house like that costs £1.3m. These sorts of increases not only shut younger buyers out of huge swathes of the capital and other desirable areas across the UK, they also create socio-economic bubbles. These clusters of high-end, expensive homes are snapped up by the successful, professional classes. As a result, the local schools find themselves with an intake of middle- and upper-middle class children from increasingly affluent backgrounds. The involvement of successful parents in the running of schools is one of the factors that drives their improvement. And so it is that more expensive house prices create social enclaves that span generations. These bubbles are sealed off from the rest by the enormous cost of buying in.
There are millions of people for whom owning their own home is impossible, and of those, some will struggle to pay the rent. They come to rely on social housing—but there is a substantial shortfall in the supply of social housing, which can push people into the pricier private rented sector. According to the HomeLet Rental Index, the average monthly rent in the UK is now £966, which is up 2.9 per cent from last year. That’s an average rent of £11,592 per year—a stretch even for people earning the average annual wage.
The government provides housing benefit to help with the rent. But as property prices have spiralled upwards and rents have risen, the housing benefit bill has swollen out of all proportion. Back in 1986-1987, the government paid £3.8bn in housing benefit. In 2014-2015 the bill peaked at £24.3bn and since then it has fallen away somewhat, so that in 2020 it was down to £18.3bn. A reduction, yes, but that amount is still more than the budgets of the Cabinet Office, the Treasury, HMRC, the Department for Work and Pensions, Defra and the Department for Culture, Media and Sport combined. In effect, tens of billions of pounds each year are paid from government coffers to people who then hand it straight to their landlords.
“If someone tried to design a housing system and they came up with this one, they would be told to think again. It is absurd”
If someone tried to design a housing system and they came up with this one, they would be told to think again. It is absurd, and at the root of it all is the shortage of housing. The developers aren’t building enough. There isn’t enough private housing to buy, and there isn’t enough social housing for those who need it. And sitting on top of it all is a sclerotic, top-down planning system, which requires councils to develop a local plan for new housing development, which is then sent for approval in Whitehall. This bureaucratic back and forth can delay new development for years, or even stop it in its tracks.
In the planning system, it is Section 106 that causes particular problems. It requires developers to make a contribution to the cost of local amenities, which seems reasonable enough. But the system also requires developers to provide a Suitable Alternative Natural Greenspace—or SANG—to offset the environmental effects of development. Developers are then required to enter into a Section 106 agreement on the SANG itself.
The hope is that the Planning Bill, announced in the Queen’s Speech in May, will begin to unpick these complexities. The bill proposes a number of changes, most significantly that land will have one of three designations: growth, protection or renewal. For sections of land designated for “growth,” there will be a presumption of automatic outline planning permission. The government proposes to do away with Section 106 altogether.
The bill comes before parliament in the autumn, and it will cause trouble on all sides of the Commons. Conservative MPs will have a particularly hard calculation to make. The current government prides itself on its go-ahead, liberal economic character. Ideas such as free ports are a reflection of this. No 10 wants—and needs—new trade deals, along with the development of new, vibrant businesses, that will power Britain ahead after the twin hits of Brexit and Covid. Housing is part of this picture. When it comes to planning No 10 sources stress that, in Britain, “we need a [planning] system for the 21st century—one which embraces digital technology, is more predictable and creates places we are proud of.”
But the make-up of the Conservative Party’s membership makes this drive to loosen the planning system a little tricky. The traditional shire Conservatives, along with the denizens of the Home Counties green belt, won’t like the sound of any easing of the planning rules. (And remember who it was that picked Boris Johnson to be leader of the Conservative Party.) The MPs who represent these southern, leafy constituencies will have a lot to say about the idea of throwing up acres of new-builds. Away from the southeastern corner, the problem repeats itself—the Conservatives are now the party of the British rural population. With the exception of Scotland, the electoral map of the country is now largely blue, except for the red cities. Tory MPs everywhere will have some serious questions to ask about the disruption to the lives of their constituents.
Labour will have a very different calculation to make. The Corbyn policy in the run-up to the 2019 election came close to suggesting that the building industry should be taken under government control. Keir Starmer is a long way from that. But Labour will need to welcome the government’s plan to build more homes, while expressing unease at how this round of deregulation throws open the door to the big developers.
If the government gets its way—and with a parliamentary majority of 80, that would seem likely—then a wave of new homes could follow. But the problem is not only one of supply. It is a problem of price. The intuitive economic assumption is that a growth in supply tends to make something cheaper. But it is not necessarily the case with housing, where greater supply does not always depress prices. Or at least, that is what the government must be hoping. Through its “Help to Buy” scheme, the government encouraged people to buy their own homes. But if a surge of new homebuilding were to lead to a decline in house prices, then the government would have encouraged people to take out mortgages at the bottom of the interest rate cycle, and then proceeded to introduce policies designed to devalue their homes in a time of rising inflation. That would lead to homes losing their value, just as mortgage repayments started to increase.
So either the government’s new planning policies will do nothing to solve the problem of excessive house prices, or they will have the effect of devaluing the housing market. Either of those two things has the potential to be politically incendiary. Over a year ago, I interviewed Robert Jenrick, the Secretary of State for Housing, and I put this issue to him. He refused to be drawn on it, but made it clear that it was not government policy to devalue the housing market. A spokesperson from his department told me recently in a statement: “We are enabling the delivery of the new homes the country needs, taking decisive action to ensure our communities have beautiful places to live in that reflect the character of the area.
“We delivered more than 243,000 homes last year—the highest in over 30 years and the seventh year in a row with an increase.
“Our wholesale reform of the planning system, First Homes, Shared Ownership, £12bn investment in affordable homes, the Help to Buy scheme, and the new mortgage guarantee scheme will help many more people get the keys to their own home.”
This government has a broad populist streak. It is easy to see how the idea that, under Johnson, “more people get the keys to their own home” fits into that. But as with all populist ideas, what sounds easy in a press release is much trickier in practice. A surge in home building will meet a counter-surge of Nimbyism. The new Planning Bill still leaves significant powers at the local level—and it is at the local level that these planning disputes will be most aggressively fought. In the recent round of local elections, the Green Party gained 80 seats, 14 of those in Bristol, where it is now the joint-biggest party in the council. These are modest figures, but indicative of a new, environmental focus amongst the electorate. There are plenty of people who will react badly to a loosening of the planning laws.
“How can a government bring down prices down without causing a political firestorm, an economic collapse, or both?”
The government wants to build 300,000 homes a year by the mid-2020s—that’s the equivalent of a Newcastle every 12 months. Some of those new homes will need to be for rent, and some of those at subsidised rates. But who’s going to build all these houses? The building industry is already reporting a shortfall in labour, and the blame for that lies largely with Brexit. When Britain left the EU, a large section of the workforce went back home, which turned out to be on the continent. Where will all the workers
come from?
The house building industry is not static. It is constantly looking to adopt new technologies and manufacturing processes to speed up the construction of new homes and the renovation of old ones. That requires the use of new methods of manufacturing, including the development of new kinds of modular homes. These are constructed offsite, shipped to the place where they are to be installed and then put together, as if from a flat-pack kit. This speeds up the construction process substantially—but it brings further issues. The people who you need to design, ship and build homes like this are technically skilled, and again, Britain doesn’t have enough of them. The problem here is one of education. The country is not producing people with the skills to oversee or carry out this sort of work. Without them, we will not be able to build the homes we need.
Politicians have known for decades that there is a problem with housing. The solution has been clear all along—build more houses. The industry agrees. In fact, everyone agrees. The question is, why hasn’t that happened? The planning system, Nimbyism and political cowardice have all played a part. Of the three, the last has been the most damaging. And then there is the issue of price. It is not clear how a government, especially a Conservative government, can solve that problem. How can a government bring prices down without causing a political firestorm, an economic collapse, or both? If that’s an insoluble problem, the only alternative is to make wages rise. Well, yes—but that is simply to exchange one huge problem for another, even larger one.
The fundamental problem is that, somewhere along the line, homes moved from being treated as a possession to being regarded as an investment asset. This shift started in the 1980s, when some clever people on Wall Street worked out how to tap the huge value that was kicking about in the home loans market. They realised that, if a bank lends someone a pile of money to buy a home, then the bank ends up with a signed piece of paper, a contract with the borrower. This contract can then be sold—it is a tradable security. This insight underlies the entire mortgage market, which in the period of low interest rates since the crash of 2008 has been doing very well. The Treasury’s policy of quantitative easing essentially created new money within banks, which it lent generously to, among others, homebuyers. This, combined with buyers from the continent looking to get their savings out of euros, drove a boom in British house prices, which now stand well above their pre-2008 peak.
It is not clear that planning changes will have any effect on the status of housing as an investment asset, or whether a government with liberal economic tendencies would want to change that status anyway. So long as that remains the case—and homes in Britain remain out of the financial reach of a significant part of the population who cannot afford to buy or even rent them—then the housing problem will remain unsolved.
