Joseph Harnby is a PhD researcher in economics at the University of Bristol, and a property investor
Saying that housing in the UK is in crisis or is becoming a crisis is complete cliché at this point. We all know that houses are becoming increasingly unaffordable for most people, with first-time buyers being in the top 33% of earners (only 33% of workers earn more than first time buyers do) compared to the top 62% of earners 40 years ago. Fewer and fewer people are able to get on the housing ladder and the number of private renters will outstrip homeowners by 2039, if current trends remain constant (which they won’t).
A big part of this is due to home owners’ attitudes to new builds. Home ownership became the majority form of tenure in the 1970s and remains so now. During this time, enabled by the economic logic of the day and financialisation (more accessible mortgages and mortgage terms), housing has increasingly been seen as a financial asset. The average house price in 2021 is 16 times more than in 1970, once adjusted for inflation. It’s performance certainly suggests it’s power as a financial asset and gives us a clear reason why homeowners wouldn’t want things to change.
The political narrative throughout this period has been that homeownership is an essential part of private-asset-backed welfare, as the state retreated from frontline delivery in general. This narrative has then been mutually reinforced by the growing number of homeowners acting and voting in their own best financial interests, to maintain the status quo in the housing market, for prices to continue to grow.
As George Osborne put it in 2014, “the British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us”.
Demand has increased because of the growing population and average number of people per household decreasing but supply has lagged because of attitudes and the building restrictions that stem from them. From 1969 to 1989, 4.3 million houses were built. From 1994 to 2012, it was 2.7 million, despite a growing population. From 2007 to 2017, it was 1.37 million. It is estimated that, to deal with projected population growth we need to build around 240,000 homes a year. Pre-pandemic we were hovering around 160,000 built per year. That’s a huge gap to overcome.
There is, however, reason to believe that a lot can change in the current climate. The politics that has restrained home building over the last 40 years has crumbled. Growing economic inequality, manifest in the housing market as growing numbers of renters and decreasing home ownership, has led to a new politics, although nascent. The mantle for this populist agenda was fought over and won in the 2019 general election, by a Conservative party reshaped under Boris Johnson.
With elastic land availability, improving construction technologies, and exposure to international labour and material markets, house prices should decrease over time. Planning policies are usually identified are the major reason prices remain high, by limiting supply in line with homeowner’s attitudes. The Johnson government moved swiftly to remove some of these restrictions.
The increased scope of Permitted Development rights was aimed at increasing the number of dwellings in high density areas, where demand is highest and commercial property is struggling. The government also maintained and expanded schemes to help individuals get onto the housing ladder in one way or another. The stated goal is to increase home ownership figures, promoting a new “generation buy”.
Other than the blocky expression of “generation buy”, the policies themselves leave much to be desired from a populist perspective. They may well increase the raw numbers of home owners, or some type of home ownership, but there are hidden stings in the tail. The removal of planning restrictions and build standards risks reducing the quality of dwellings and the schemes to improve home ownership numbers often dilute the benefits of home ownership, by charging rent or having higher loan repayments. They seem more like a giveaway to mortgage companies and home builders than anything that will genuinely reduce economic inequality.
This is still early days for the current wave of populist politics. The key driver to actually increasing home ownership in a way that reduces economic inequality is to promote economic growth more generally and then argue for a more favourable balance of the profits between workers and shareholders. The problem with this is that it takes time to work, far longer than the five year time horizon in politics. Who knows if Boris Johnson or even populism will last long enough to add substance to the rhetoric?