The UK government has been trying to get ahead of the affordable housing crisis for years. Our current Prime Minister outlined a plan for affordable housing in 2020 and again in 2021 when he was Chancellor of the Exchequer. His government passed the Rental Reform Bill but didn't add anything to the housing market.
However, it places limits on rent increases, and that's a step in the right direction. But the UK is desperately short of housing, exceptionally affordable housing. And housing where it's needed the most - close to productivity centres, where all the jobs are. As Generation Rent is left ever more on the sidelines, our lawmakers should consider the following:
- factors that cause housing price increases
- limitations on building new, affordable housing
- how to overcome barriers to building new affordable housing
- possible solutions to our affordable housing crisis
But this article isn't just for Generation Rent. It's also for people ageing out of the workforce and worrying that their pensions won't see them through their golden years. And for those whose working life ended years ago, who might manage better with less house to take care of if they only had someplace to go. In this article, we examine gaps in the housing market and how we might address them.
The State of the Housing Market
Nobody in the UK needs anyone to tell them about the housing market, so we'll not spend much time discussing it. Instead, let's go over how the housing market got in the shape it's currently in. For that, we have to go 40 years back in time.
Our country was brilliant at rebuilding after the Second World War. The government had been funding and building council estates since the turn of the century, thanks to the 1919 Housing Act. But in the 1980s, the government suddenly decided to end social housing initiatives, so they quit building any. Many council estate dwellers took the government up on their offer to buy the properties they occupied, taking even more units off the affordable housing market.
By the turn of the millennium, roughly 1/3 of the government housing portfolio had moved into housing association control. These private groups had the funding to maintain existing properties. They could and did build more affordable housing.
But the early 90s saw the UK in a three-year economic recession that we've never fully recovered. The property market went through a profound slump, inflation ran rampant, and unemployment started to climb. Recovering from this downturn put the housing market on the back foot, and it's been there ever since.
That's not to say that things didn't even out. From around 1995 until 2007, the housing market remained steady, if less prosperous than before. But then, along came 2008, the year the whole world quaked. Incomes and property took a significant blow. This event laid bare the relationship between housing and economic growth.
Again, recovery was slow. We were seeing signs of things turning around when Brexit happened. But all that economic movement masked the real economic driver. Property sector growth wasn't because more people were buying houses. It was because the door had been thrown open to property investors.
Overcoming the Profit Motive
In just 40 years, our housing market went from a social to a capitalist construct. There's nothing wrong with that; capitalism spurs economic growth. But rampant capitalism is another breed of animal. One that successive governments have found impossible to tame.
Many factors drive housing market fluctuations; how much housing is available among them? How much one can - or is willing to pay is another. A household surviving on £27.000 per year can afford a mortgage. But they won't have the bankroll to compete with billion-dollar investment firms.
These firms aren't buying a flat here and a single-family home there but entire blocks and estates. That does wonders for the economy; we could use the investment. But far more damaging is that it reduces the number of homes for sale. And it prices people out of the housing market.
Often, investment firms buy large swaths of property to let. This poses another set of challenges because rent rises also price people out of housing. And subdividing grand properties to allow them piecemeal adds yet another wrinkle to the safe-and-suitable housing initiative.
Putting Homes Where They Need to Be
Many seem to think this bill is a way to curry favour with the monied at the expense of mom-and-pop landlords. It's hard to tell how effectively the account will put affordable housing within tenants' reach. And it does nothing to expand our country's housing stock. Especially not the cheap kind and not where we need accommodation the most.
People need to live reasonably close to where they earn their money. Typically, that means in or near a city. But expanding city limits and revising planning standards takes political work and will. Our government has the affordable housing crisis and many other pressing issues on their radar.
Perhaps the most important place to put homes is within households' price ranges. This challenge alone poses many hurdles because many factors go into pricing homes. Pandemic-related supply chain issues crippled the building sector because they couldn't get building supplies. And now, that sector is further hampered by runaway inflation, which drives up their costs.
Housing developers pass their costs onto homebuyers, which drives up home prices. To try and get inflation under control, government policy mandates raising interest rates on lending. That makes it harder for anyone to secure a mortgage. Meanwhile, rising rents mean wannabe homebuyers can't afford to save for their down payment.
And so, the vicious cycle continues. Could anything change our current course? Let's look at some possible solutions.
Solutions to the Housing Challenges
China has a problem much like what we're dealing with. As citizens' earnings and living standards rise, their lifelong thrifty habits allow them to invest in the property market. Many middle-class Chinese families now own more than one home. They live in one and maybe rent the others out.
You might remember that, about a year ago, China's housing market came dangerously close to crashing. Developers were building homes with funds they didn't have. The Chinese government recently put a stop to that practice. And they wrote into law that nobody may own more than two houses.
It's a radical solution, but it helped restore their teetering housing market to safety. Our government might not need to go to that extreme, but they could limit how much property investors could own. And of investor properties, they could mandate that a percentage of it, maybe 30 or 40 per cent, should be rent-stable. Such a plan could help renters plan for future homeownership.
No matter where the proposed building site is, obtaining all the proper permits is required in the UK. Rather than ticking off a few boxes to qualify for a build, any application must undergo a rigorous analysis. That's because the current method involves testing the proposed building plan against every law, bill and ordinance. And if denied, the decision can be appealed.
Applying to build anything takes a lot of time, money and effort. , But Local Development Orders (LDOs) might be a handy tool to get around the current process. They involve setting a few region-specific standards. If your permit application meets those standards, it is approved. If it fails to tick all the boxes, builders will know what they must do to get into compliance.
With a streamlined permit application system, developers might propose building new estates near transportation hubs. Prospective homeowners baulk at long commutes, and the cost of petrol isn't getting any lower. Affordable housing estates on our just outside city Green Belts, near train stations, might induce more prospective buyers to consider putting a little distance between themselves and their jobs.
What about senior housing? Lots of retirees and soon-to-be-retired wonder if our creaking pension system will allow them to stay in their homes. Some actively consider downsizing because they don't need such a big house. If this demographic had an affordable place to move to and a straightforward process, they might find relocating easier.
Such an initiative would make existing family homes available for purchase. Often, such houses are within the city limits, ticking another box off housing wish lists. If the house is big enough, it might be subdivided, making three flats out of one place.
Rising house prices have an outsized impact on our economy and the housing market. Our government must find the political will and the money to overcome these challenges. Nobody wants to live in a compact home forever. But close homes might be another possible solution to the UK's housing crisis.
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