Britain’s housing crisis

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

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.