Television news and social media feeds are full of housing market headlines. Keywords like 'unaffordable', 'substandard' and 'priced out' make routine appearances. There's a lot of talk about what people think about housing matters. It's too expensive and unsafe to live in, and there are no plans to improve the situation.
Thanks to a 1991 United Nations General Assembly designation, most Western world regards housing as a human right. The Universal Declaration of Human Rights, Article 25, laid out the housing condition at that time. It states: "... a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing...".
As a founding member of the United Nations, one might think that the UK would take the lead in upholding these Articles. But our current housing situation seems to point to the contrary. How did we get here, and how can we resolve the housing issue? To get the whole picture, we need to look at:
- what political and economic events shaped today's housing market
- what supply and demand have to do with current housing markets
- how the government is making up housing shortfalls
- actions the government could take
Building the Housing Market
After the Second World War ended, the United Kingdom had to rebuild. Not just housing but practically everything, from infrastructure to social services. Prime Minister Clement Attlee nationalised virtually everything from coal mines to railroads and established the National Health Service (NHS). Everything was rationed during this Age of Austerity, and housing was hard to come by.
The Attlee government was successful in most areas except housing. That wasn't entirely his cabinet's fault. A shortage of materials and a lack of workforce kept builders from meeting the administration's target of 400,000 homes. The same lack of skilled artisans stalled repairs on mildly damaged housing stock.
In 1951, when the Tories retook power, housing became the top priority. Council housing dominated, but the drive to build quickly often meant sacrificing quality. Soon, repairs and renovations outstripped building new estates.
By the late 1960s and early 70s, the UK had struck a balance in the housing market. The council estate initiative kept its measured pace while newly cleared slum areas made way for new developments. Prices had stabilised, and the workforce was once again abundant. Developers no longer struggled to find building materials.
And then, Margaret Thatcher became Prime Minister. American economist Milton Friedman had an outsized influence on her economic vision for the country. He contended that profit must be the driver of every economic initiative, public and private. Prime Minister Thatcher promptly implemented privatisation initiatives across every sector, including housing.
It used to be that a developer would charge just enough to cover his expenses with a little leftover for himself. Paying workers, buying materials, securing permits, and inspections comprised much of their commissions. Buying blueprints could be expensive, too, if the developer didn't have their architect on staff.
But now that profit-seeking was prime, developers could charge as much as they'd like for their homes. Thatcher's government instituted restrictions on building new council houses early in her first term, throwing open the doors to private construction. Developers joined speculators from every other industry to figure out how to maximise their profits. These actions form the foundation of the affordable housing crisis we face today.
Factors Impacting Housing Markets
Profit is one of the main factors impacting the housing market. Developers aren't keen to build affordable housing because they won't earn much from such units. The government never restarted subsidies to replenish public housing stock, so builders can't count on the Central Bank to make up their losses. Money aside, though, we have to consider other points.
People want houses where the jobs are, typically in or close to urban areas. We're fortunate to have Green Belt initiatives around our most congested cities, but they limit the land available for building. Building up isn't always an option because of view corridors and height restrictions. Couldn't developers build affordable housing in existing communities just outside the cities?
Established communities are against that proposal. Utilities and services are strained, and such estates would generate no extra tax revenue to reinforce water and sewer lines. Or to widen roads, build new schools or other amenities that serve communal life.
Outside of metropolitan centres, developers have lots of land to build on. But those housing units would be too far away from job opportunities. The demographic currently shut out of the housing market, the under-40s, would baulk at buying or renting there because the commute would be too long. This problem defines the relationship between housing and economic growth.
Demand, Supply and Real Housing Numbers
Everything detailed in the previous section points to a lack of supply in the housing market. Available housing is not where people need it to be. Areas of population concentrations - where good-paying jobs are, do not have any room for further development. And initiatives meant to stimulate demand make housing more expensive.
Around 2017, the government instituted schemes to help people get the housing they need. Help to Buy initiatives were designed to push homebuyers into favourable credit brackets to qualify for a mortgage. But new-build houses allowed under these programs were still too far away from the job markets. These schemes had a net effect of creating a demand for housing that didn't exist, which pushed housing prices across the country even higher.
In short, the under-40s are now even further away from affordable housing. To compensate, developers have renovated legacy properties like old shopping centres and blocks of flats. Living space is subdivided, allowing for more tenants in less area.
You might have noticed that pundits no longer discuss housing development completion. Today, the conversation concerns net additional dwellings added to the housing supply. They're referring to such refurbished properties. Words like 'gentrification' describe old factories and warehouses converted into pricey lofts and studios, dwellings too small for a family.
Dividing an existing property into smaller living spaces is very profitable for developers. Refurbishing an obsolete property is far cheaper than building from scratch. And they get to charge hefty prices for their new, trendy development. These developments have a damaging effect on the economy and renters and buyers alike.
Ways to Increase Access to Housing
With such an undersupply of housing in productivity centres where people earn their money, people have little choice but to rent. But renting feeds the myth that there is no housing shortage because rents have remained stable (until recently). But rents reflect the price of a service, not an asset for sale. Public transportation costs remain steady because there is no competition to buy the train.
Stagnant wages make the affordable housing crisis even more urgent. Though it seems that would lower housing demand, it has the opposite effect. With profit as a driver, Owners of the current meagre housing supply can afford to ask top prices for their stock. Wealthy investors worldwide are keen to buy hot properties in population centres as an investment.
London currently has thousands of properties sitting vacant for just that reason. Holiday lets and short-term stays also cut deep into the existing housing stock. Limiting those practices could return available properties to the market. However, bans or strict regulations might cause an uproar because of the past 40 years' profit free-for-all.
The government might consider loosening development limits in Green Belt areas, provided a new estate would cause little environmental impact. Or they may extend the Green Belt, where feasible, to allow for further development. Ideally, such a development would be close to transportation centres so homebuyers needn't worry about a long commute.
Building around transportation hubs within city limits is another potential solution. The government could broker deals between station owners and developers, giving builders exclusive development rights. Such an estate might be limited in size to the number of passengers the transportation system could accommodate. We must only rethink planning and development regulations to turn such sites into affordable housing.
The London School of Economics (LSE) published a thought-provoking comparison. From 1959 to 1988, England saw nearly 7.5 million new houses added to the market. During the post-Thatcher 30-year period, from 1989 to 2018, builders completed fewer than 3.5 million homes.
Everybody looking for affordable housing knows the 'no shortage of housing' line is just that. Building more houses is not complex, but political and financial issues complicate it. Our government must first find the will to confront today's housing challenges. And then, they must take action, through regulation and spending, to improve the UK housing market.
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