For Charlie (Part 2): From myth to reality - how we build more houses
By Tim Thorlby
8 mins
What does the future hold for young Charlie?
This is the second of two blogs looking at the UK’s housing omni-crisis. Last month’s blog outlined the challenge of our six overlapping housing crises and showed how housing choices have deteriorated over the last generation. This month we explore possible solutions. In particular, why don’t we seem to build enough houses in the UK? And is this the main problem anyway? How do we improve Charlie’s prospects for a safe, decent and affordable home?
What’s the answer?
A wise person once said:
For every complex problem there is a simple solution. And it is always wrong.
Nowhere is this truer than in housing. If a politician offers you a simple solution to housing, it is wrong.
I have lost count of how many major Reports and Commissions on housing have been written and published during my career. It is a lot.
From the Barker Review of Housing Supply (2004) to the Local Government Association’s Housing Commission (2016) to Shelter’s Commission on the Future of Social Housing (2019) to the Chartered Institute of Housing/NHF’s Better Social Housing Review (2022) plus hundreds of think tank and government reports in between. Even the Archbishop of Canterbury is in on this, with Homes for All (2024).
Apparently, Dame Kate Barker is now chairing another Housing Commission, twenty years after the last one in 2004. She described the lack of progress as:
“depressing”
We clearly do not lack data, knowledge or reports. We have plenty of evidence. The housing problem has been analysed to death.
So why do we still not have enough homes for everyone? What is missing?
Our housing situation has continued to deteriorate for decades. We seem to lack the political will to actually implement any of these enormous reports; they get pushed onto the ‘too difficult’ pile.
But what exactly is so difficult? What is the answer to the housing challenge?
Firstly, let us address two myths about how to solve our housing challenges.
Myth 1: We just need to build more houses!
No, sadly not. It’s just not that simple.
Shelter’s 2019 Commission report provides a pretty sensible, rounded view of how to move forward on housing and does not shy away from tackling the difficult decisions. It rejects the simple suggestion of simply ‘pouring money into a broken system’ and acknowledges that the solution will require a mix of actions, including both new money and also reforms. In brief, their solution has three parts to it:
Social tenants deserve better – They recommend significant reform of the social housing sector to deliver a better experience for tenants. This means faster redress when things go wrong, a stronger voice for tenants and stronger regulation of the social landlords in the sector. They also call for more co-operative housing schemes, where tenants manage their own homes. Essentially, housing associations need reform.
Private rented tenants deserve better – Shelter also recommends stronger regulation and enforcement of more clearly defined standards in the private rented sector, together with reform of the law to end the no-fault evictions (the ‘Section 21 notices’) which are being abused. There is an important role for private rented housing but the market needs more robust oversight to make it work properly; there are too many dodgy landlords making too much money from providing rather shabby housing to renters with limited choices.
We must build social homes again – Shelter also recommends returning to a programme of building new social homes as the only realistic way to address the lack of affordable housing today and the only way to get overall levels of housebuilding back to sufficient levels and address the serious backlog of housing need. Their analysis is that private housebuilding alone will never be sufficient to address the challenge, backed by historic evidence.
Shelter’s proposal is for government to ensure that over 300,000 new homes should be built each year in England (something not achieved since the 1960s by the way) and that half of these should be social homes funded by Government, with the rest delivered by the private sector. In other words, the current level of private housebuilding (just over 200,000 per year) needs to be topped up by the state to deliver the total number required – this is the only model that has ever delivered 300,000+ new homes per year.
Such an ambitious target would be greatly enabled by land reform. In particular, ensuring that increases in land value because of the prospect of new housing are not simply given away to landowners would greatly reduce the cost of new housing. (This is explored more below.)
So, yes, we need to build more houses every year, but it is only one part of the total package of reform required across the housing sector; we need to do these other things too.
Before we look at housebuilding, there is also one more important aspect of reform that we need to look at. It’s a big one; strap yourself in.
Myth 2: Building more houses will bring prices down
It turns out that building lots more houses won’t actually reduce house prices any time soon.
What?!
One of the simple ideas floating around is that if we just built lots of houses then the buying of houses would become more affordable again. Except, it isn’t that simple (of course) because the housing market doesn’t work quite the way that most of us think it does.
I will attempt to explain and will also offer up George Osborne as a case study.
In the long run, building a lot more houses might (you would think!) help to bring down house prices (and rents) and make them all more affordable for more people. This is surely a bit of good old fashioned ‘supply and demand’ – flood the market with a greater supply of more houses and the price will eventually fall? Hooray! Problem solved?
Except, it seems not.
As ever in housing, if someone offers you a simple solution, it is probably wrong.
Numerous housing economists have pointed out that an era of low interest rates, readily available mortgage credit and the British view of housing as an ‘investment asset’ (rather than just a ‘home’) has pumped up the price of houses over the last few decades. The amount of money swirling around looking for a financial return from property is significant and this provides the ‘demand’ for housing. Yes, there are people looking for somewhere to live, but there are also people looking for something to buy for investment purposes. So, even with an increase in the supply of housing, prices may not fall much, as the overall financial demand is much larger than the number of people who just want to buy a house to live in it.
It would, according to economic modelling by Oxford Economics, take decades of housebuilding at some scale to impact on the price of housing in the UK[1].
Decades!!
The fundamental issue about housing is its affordability and this is only partly driven by the total number of houses available today (‘supply’); it is also influenced by how our housing markets work and the total economic ‘demand’ for housing, driven by the availability of credit and investment capital. So, building more houses every year would help in the long run, yes, but there is also a macroeconomic ‘market’ problem to solve here too.
Younger generations either need to earn a lot more money (giving them more ‘purchasing power’) to compete in this market, or we need to find better ways to help people on lower incomes buy homes or we need to reduce the number of investors trying to buy homes – or a combination of all of these. The overall ‘economic demand’ needs to be managed in a way that currently it is not.
As a nation, we really need to rethink where housing sits in our economy. If we don’t want houses to just be bought and sold like any other capital asset then we would need to manage housing credit and tax somewhat differently.
For example, a tougher approach to capital gains tax on residential housing might have a bigger impact on house prices than building another 300,000 houses[2]. Increasing stamp duty tax for investors (rather than people who buy a house to live in it) would disincentivise their involvement in the market. If housing is too important to be left to market forces then these are the sorts of changes we might need to consider. They would help to restrain house prices more rapidly and effectively than just building lots of houses every year – although we also need those new houses too.
Over the last four decades I believe that the UK has allowed the market to encroach upon territory that does not really belong to it or deliver happy outcomes for everyone by commodifying everything. Housing has become too ‘financialised’.
If we want everyone to have safe, decent, affordable home then this ‘market’ will need much better and stronger – and different – regulation which acknowledges that maximising financial value isn’t the only, or the most important, outcome from the housing sector. (A longer critique on some of these issues can be found in my blog explaining rentier capitalism; it’s more readable than it sounds.)
Case Study: How George Osborne pumped up house prices
Just to illustrate the challenge of improving housing affordability, it is worth dwelling briefly on one of George Osborne’s pet projects.
In 2013, Mr Osborne, as Chancellor, proudly introduced the ‘Help to Buy’ Equity Loan Scheme. It was intended to help first-time buyers get on the housing ladder by offering them loans of up to 20% of the value of a newbuild house and was the Government’s response to the problem of affordability and declining home ownership.
Loans of up to £120k were offered, rising to £240k in London. In the ten years it operated from 2013 – 2023, some £29 billion of taxpayer’s money has been invested in this, making it the largest single Government intervention on housing.
And what happened? Well, as we have seen in our discussion above, if you don’t build new houses and just increase the demand for them, prices rise. And that happened with this scheme. A committee of the House of Lords concluded in 2022 that although the scheme helped those few who benefited directly from it, it had almost certainly pumped up house prices more generally, making homes even less affordable for most other people. In other words, the scheme helped a minority jump the queue but the queue remains just as long; it didn’t solve the problem.
More concerningly, the other main beneficiaries of these price rises appear to have been the housing developers selling the newbuild homes to these first-time buyers. Much of this money actually went straight into the pockets of big housing developers in inflated profit margins. The House of Lords Committee concluded that the scheme was “poor value for money”, that there was little evidence that it prompted any new house building and that it would have been “better spent on increasing housing supply.”[3] Ouch!
In other words, it was a staggeringly stupid housing intervention. Unless, of course, your real aim was to ‘look busy’ on helping people buy homes, to keep house prices high for existing home owners and to help big businesses to make profits. Perish the thought.
How do we build more houses?
So, that’s two myths dealt with. We have established that building houses is not the only thing we need to do – we need to reform and invest in social housing. And we also need to change how the private housing market operates.
But we also need to build more houses, so let’s do it!
Here we will take a look at what has been holding up house building as this excites much comment from politicians. Surely it must be those evil Planners, right? (Boo!)
Let’s start by agreeing how many houses we need to build. Just about everyone is agreed that we need to build houses in the UK, probably 300,000 or more per year. And the facts show that we don’t usually build much more than 200,000 (ish) per year. And this has been going on for decades. So, how do we solve this problem; how do we close the gap and build more?
Here are three important parts of the answer.
Key Message 1 – We need to build more social rented homes, not just homes for private sale (we need the right kind of homes, not just ‘more’)
The historic evidence seems quite clear that in the UK if we are to build enough houses then the state must also step in and fund some of this; the UK has never built 300,000 houses per year without substantial public sector investment. There is a lovely chart early in my last blog which illustrates this clearly.
The issue is also not just about quantity but about the type/tenure of housing. Sub-market housing (social/affordable housing) will not be built by the private sector in any numbers, and yet the need for it is significant (as discussed in the last blog) so the state must step in and not only build houses but ensure that more affordable houses are built too.
Key Message 2 – The volume housebuilders don’t really want to build enough houses, so we can’t just rely on them
The story from the private sector housebuilding sector is that they are raring to build all the houses we need, if only the planners would let them.
This is not true.
Let us consider the evidence.
The Competition and Markets Authority (CMA) recently published a huge report on an investigation into the housebuilding industry and how well the ‘market’ was functioning[4]. Their key findings noted that:
The number of housebuilders has reduced significantly in recent decades as companies have consolidated, with just 11 businesses (like Taylor Wimpey) now producing nearly half of the nation’s newbuild homes.
Since 2010, the industry has made strong profits, supported, they note, by the Help to Buy scheme. (Separately, Henley Business School have described the profits of volume housebuilders as ‘supernormal’, with the Big Three making up to 32% profit each year[5].)
The quality of housing, the design of housing estates and the provision of public amenities (parks, playgrounds, community facilities) leaves a lot to be desired. They use a lovely phrase here, noting “lower levels of innovation in the industry than we might expect in a dynamic, well-functioning market” (p.23) which is a polite way of saying that their end product is often boring, highly standardised and not very good, and that there really isn’t enough serious competition between these big companies. Satisfaction by new house buyers also declines over time as their cheaply built houses slowly fall apart. So bad.
The desire of housebuilders to sell homes at the highest price (to make the highest profit) incentivises them to build and sell houses more slowly to protect price levels – i.e. they do not build houses ‘as fast as they can’ nor do they build all of the houses for which they have planning permission, instead they ‘drip feed’ houses into the market. Their aim is to maximise profits, not maximise the building of houses. Even more concerningly, they CMA found evidence of collusion between companies on pricing, which is an anti-competitive practice and so the CMA has now launched a further formal investigation into the sector.
The CMA noted that the planning system also needed reform, as it was too slow and unpredictable for applicants. We will discuss this below, but here I would just note that the CMA took a rather narrow view here, which was not entirely fair.
What we can take from this enormous report is that the housebuilding sector is not really delivering what we need it to. The market is not working well and is now under further investigation; hardly a ringing endorsement of our volume house builders. The cosy club of large building firms almost certainly needs breaking up and the market opened up to a larger number of smaller firms who can compete and innovate – a healthier and more competitive market in other words.
Key Message 3 – Planning needs reforms, but it isn’t the main problem
There is indeed a need to improve land use planning.
The housebuilding industry and their allies like to cry that the planning system is too large, too onerous (all that ’red tape!’) and must be cleared out of the way so that they can crack on and build more houses. However, as we have seen, even if this was done, they almost certainly would not accelerate house building as it is not in their financial self-interest to do so.
In fact, the number of planning permissions for new homes is greater every year than the number that get built, and some 85% of applications get approved. Hardly a huge roadblock.
In Scotland where the number of planning approvals has accelerated in recent years, the number of homes actually built has not increased much, tending to underline the idea that the obstacle is not planning but the house building industry itself.
The criticism of planning also deliberately ignores the democratic purpose of the planning system which is not only to enable developments in the right places but also to prevent developments in the wrong places. Land use planning in the UK is a democratic process, overseen by elected local authorities, enabling local communities to have a say in what gets built where. It protects ancient monuments and lovely old buildings from demolition, it protects woodlands, nature reserves and urban trees, it ensures that the sewage works is not built next to the housing estate and that enough primary schools get built. Neutering the planning system would remove local communities from this decision making process and allow developers much more freedom to make their profits by building wherever they liked. This is almost certainly not in the public interest or in the interest of making attractive places to live or a process that would respect local communities. So, be careful what you wish for.
So, what is the problem with planning? There are two.
Austerity - From 2010 to 2018, local authority spending on planning teams reduced by 40% and the workforce shrank as a result of the tight squeeze on council resources. It cannot therefore be a great surprise that planning applications take longer to process if 40% of the staff have been made redundant. Spending has risen since 2018 but the service as a whole remains under resourced for the job it is being asked to do. Given the importance of getting planning and development right, securing an appropriate level of resourcing does not seem unreasonable. The CMA’s report appears to have largely missed this crucial fact.
Land reform – I have lost count of how often the planning system has been reformed and tinkered with in the last 30 years. It rarely makes much difference as these processes are not the real issue. Once we have understood that the ‘market’ (and the volume house builders) are never going to build all the things we want in the right places at the right quality at the right time then we need to work out how the public sector is going to intervene.
Where there are significant changes to make, they need to toughen up the system and give it more ‘bite’, not less. There is a longstanding debate in the UK about land reform and how we can better capture the huge uplifts in capital value that arise when land is designated for housing (NB: this increase in value is not earned, it is sheer luck). If we can work out how to capture this value, then we will be able to better resource social housing, public infrastructure like roads and schools and build better quality places. This is how most of our New Towns were built, so it has been done before. There are also numerous innovations possible within this, some of which are being piloted at the moment – like Community Land Trusts and small-scale community house building. This is a big debate and a blog for another time.
5 – Conclusions
Solving our long running housing omnicrisis is not a simple challenge, but in this blog I have attempted to provide an overview of where the solution lies. In summary:
Better regulation of landlords
Reforming the social housing sector so that tenants get a better deal
Reforming the private rented sector so that tenants get a better deal
More public investment
Higher public sector spending on social housing, to build more affordable homes; something which will partly pay for itself over the longer term
Better funding of the planning system so that it works better and faster
Housing market reforms
Breaking up the cosy club of volume housebuilders into a larger number of smaller building firms that will compete properly and produce a diversity of homes
Credit and tax reform in the housing market to prioritise residents over investors in order to manage prices and affordability in the long term
Land reform so that more of the profits from the sale of land for housing go into public infrastructure
These are not easy things to do, which is why politicians prefer to ‘look busy’ on pet schemes without addressing the underlying challenges.
As noted earlier, a core part of the underlying problem in the UK is that we have allowed the market to reach too far into matters of land ownership and housing. Most of us have not benefited from these changes and so it is time to shift the market’s boundaries back so that we can better achieve the social objectives we actually want – safe, decent and affordable housing for all.
For those who think this all sounds suspiciously expensive for the taxpayer, I would say that some of these public investments will actually pay for themselves over the longer term (see the previous blog’s discussion about the ludicrous cost of temporary housing) and much of the rest would be paid for by specific taxation on those making profits on land/housing, not borne by the general taxpayer. I don’t believe it is beyond us to fix these problems fairly and sustainably. We’re a bright nation.
A decent home for everyone is something that we are called to work towards as a shared national endeavour. Charlie’s parents have seen their housing prospects diminish as they have grown up. His generation doesn’t have to share their fate; it is not too late to give Charlie and the rest of our nation’s 8 year olds a brighter future.
If you want to be more actively informed and involved in the debate on the UK’s housing and to push for change, why not sign up to a campaigning organisation like Shelter or Generation Rent or Housing Justice? Decisions get made by those who show up, after all.
This blog was written by Tim Thorlby. Please subscribe for the free monthly email if you’d like to be alerted to future blogs.
Notes
[1] The Redfern Review into the decline of home ownership, 2017 | Available at: https://thinkhouse.org.uk/site/assets/files/1841/redfern.pdf
[2] Some very interesting analysis on the impact of tax changes can be found here: Wilcox, S (2017) UK Housing Review Briefing Paper, Chartered Institute of Housing | Available at: https://www.ukhousingreview.org.uk/ukhr17/
[3] See: House of Lords Built Environment Committee, 1st Report of Session 2021–22, HL Paper 132, Meeting housing demand | Available at: https://committees.parliament.uk/publications/8354/documents/85292/default/
[4] CMA (2024) Housebuilding Market Study: Final Report, Competition and Markets Authority
[5] Foye, C & Shepherd, E (2022) Why have the volume housebuilders been so profitable? UK Collaborative Centre for Housing Evidence