Bri­tain’s hous­ing cri­sis

The lack of af­ford­able homes is drain­ing fam­ily fi­nances and in­creas­ing in­equal­ity across the coun­try.

The Week - - Briefing -

How bad is the prob­lem?

The gen­eral con­sen­sus, as bluntly stated in a re­cent Gov­ern­ment white pa­per, is that “the hous­ing mar­ket in this coun­try is bro­ken”. And 69% of Bri­tons, as a poll for Opinium last year in­di­cates, be­lieve the coun­try is in the throes of a hous­ing cri­sis. It’s not sur­pris­ing they do: house prices have risen so sharply that for many peo­ple home own­er­ship has be­come un­af­ford­able: since 1997, the ra­tio of av­er­age house prices to av­er­age earn­ings has dou­bled. Buy­ing a house to­day will, on av­er­age, cost you more than seven times your an­nual in­come. Hence, for the first time since Cen­sus records be­gan, home own­er­ship has fallen: a sur­vey by the Res­o­lu­tion Foun­da­tion found that the pro­por­tion of fam­i­lies own­ing a home (where “fam­i­lies” in­cludes cou­ples and sin­gle peo­ple) dropped from an all-time high of 58% in 2003 to 51% in 2016. At the same time, the sub­sidised so­cial rental (coun­cil and hous­ing as­so­ci­a­tion) sec­tor has shrunk sub­stan­tially, while the pri­vate rental sec­tor has bal­looned.

How has the cri­sis af­fected peo­ple?

Many bet­ter-off older peo­ple aren’t af­fected at all. Home own­er­ship among older birth co­horts is at his­tor­i­cally high lev­els. But it is the op­po­site story for to­day’s 30-year-olds. They are half as likely to own their home as their par­ents were at that age: four in ten 30-year-olds now live in pri­vate rented ac­com­mo­da­tion. And con­di­tions there can be un­savoury: in Eng­land, a third don’t meet ba­sic stan­dards, ac­cord­ing to Shel­ter, and ten­an­cies are rel­a­tively in­se­cure. In big cities in par­tic­u­lar, “gen­er­a­tion rent” is hav­ing to make do with less space and longer com­mutes than ear­lier gen­er­a­tions. They’re hav­ing to spend more, too: hous­ing costs for the av­er­age fam­ily have tripled since 1961, from 6% of in­come to 18%, and pri­vate renters are worst hit. This ma­jor drag on liv­ing stan­dards not only pre­vents money be­ing in­vested more pro­duc­tively in the econ­omy, it also in­creases in­equal­ity, both be­tween gen­er­a­tions and be­tween the prop­erty-own­ing and rent­ing classes.

Why have house prices risen so fast?

Be­cause de­mand for hous­ing has risen greatly in re­cent decades. This is partly a mat­ter of fi­nances – peo­ple are richer, mort­gages are freely avail­able and in­ter­est rates are low – and partly a mat­ter of de­mo­graph­ics: in­creased longevity, im­mi­gra­tion and higher di­vorce rates have meant more homes are needed. Hence the num­ber of house­holds in the UK has risen by nearly ten mil­lion in less than 30 years: from 18.5 mil­lion in 1988 to 27.1 mil­lion in 2016. Since the late 1970s, a fairly steady av­er­age of 160,000 new homes have been built in Eng­land ev­ery year. Sup­ply has failed to keep pace with de­mand: the Gov­ern­ment’s view is we need at least 250,000 new homes to tackle years of un­der-sup­ply.

And why have rental costs risen?

In the 1980s, the pri­vate rental sec­tor was lib­er­alised: rent con­trols were scrapped and the loos­en­ing of ten­ants rights made it eas­ier for land­lords to raise rents. And when buy-to-let mort­gages were in­tro­duced in 1996 pri­vate rentals boomed: in 1989 the sec­tor housed just 8% of fam­i­lies; last year it housed 18%. And as a re­sult of the right-to-buy leg­is­la­tion in­tro­duced by Mar­garet Thatcher in 1980 (en­abling coun­cil ten­ants to buy coun­cil flats and houses at large dis­counts), the so­cial rented sec­tor has shriv­elled (see box). At its peak in 1981 it pro­vided 29% of all fam­i­lies with homes, in 2016 just 14%. Wait­ing lists to­day are very long.

Why can’t more houses be built?

One ma­jor rea­son is the lack of suit­able land to build on. Re­stric­tive plan­ning laws mean house­builders strug­gle to find land to de­velop, par­tic­u­larly prized green field sites – ar­eas, like the green belts around cities, that haven’t pre­vi­ously been built on. The slow-mov­ing plan­ning sys­tem is also de­signed to take ac­count of the con­cerns of lo­cal res­i­dents who in­vari­ably ob­ject to the prospect of ur­ban sprawl. In any case, house­builders have no in­cen­tive to build in large vol­umes: if a com­pany re­leases too many homes, prices fall fast. So it’s in their in­ter­est to hold land they could de­velop, in or­der to keep prices high; a Guardian in­ves­ti­ga­tion in 2015 found that the four big­gest house­builders – Berke­ley, Bar­ratt, Per­sim­mon, Tay­lor Wim­pey – were sit­ting on 450,000 plots with plan­ning per­mis­sion.

Can’t the pub­lic sec­tor build more?

In the post­war pe­riod, when Bri­tain was build­ing some 200,000 to 300,000 houses ev­ery year, pub­lic au­thor­i­ties con­trib­uted half or more of all new-build homes. But since 1979, these num­bers have dropped off: un­der Thatcher, gov­ern­ment grants for coun­cil house build­ing were scrapped, and strict lim­its were placed on the abil­ity of coun­cils to bor­row. In the 12 months to the end of March this year, Bri­tain built 147,960 new homes. Of those, the pri­vate sec­tor de­liv­ered 121,030, hous­ing as­so­ci­a­tions 25,090 and lo­cal au­thor­i­ties a mere 1,840. Last year, the House of Lords Se­lect Com­mit­tee on Eco­nomic Af­fairs called on the Gov­ern­ment to al­low lo­cal au­thor­i­ties to bor­row to build, and de­scribed the ex­ist­ing re­stric­tions as “ar­bi­trary and anoma­lous”; many Euro­pean coun­tries al­low their lo­cal coun­cils to bor­row. Re­cent govern­ments, how­ever, have not sup­ported the tak­ing on of new pub­lic debt at a time of aus­ter­ity – though they have sub­sidised pri­vate home­buy­ers, in the form of the Help to Buy loan scheme.

What will hap­pen next?

The Gov­ern­ment white pa­per this year promised – as govern­ments have been do­ing for decades – to build many more houses. This white pa­per pro­posed a se­ries of new mea­sures: that lo­cal au­thor­i­ties should be forced to make up-to-date plans for meet­ing hous­ing de­mand; that the plan­ning sys­tem should be more ac­ces­si­ble and open, and should pe­nalise de­vel­op­ers who don’t build on ar­eas for which they’ve won plan­ning per­mis­sion. And at the Tory con­fer­ence this week, Theresa May sig­nalled a change of di­rec­tion for her party, promis­ing to “start a re­birth of coun­cil hous­ing” by pro­vid­ing an ex­tra £2bn in fund­ing, and mak­ing it eas­ier for lo­cal au­thor­i­ties to build homes for so­cial rent.

House­builders strug­gle to find green belt land

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