What can be done to make housing more affordable?
Renting is a mainstay of Glasgow student talk. Everyone has a story to tell: outrageous prices, tiny rooms, rats. Since 2010, housing as a topic has steadily increased in importance to voters, based on polling by Ipsos. By now, every sixth voter names it as one of the most important problems facing the UK. According to YouGov polling in the summer, almost two-thirds think that the situation has become worse since the 2019 general election.
Politicians have been responding in kind. Labour leader Keir Starmer wants to get “Britain building again”, lamenting an obstructive planning system. Home ownership had been put out of reach for too many. On the other side of the aisle, Conservative Housing Secretary Michael Gove promised “radical action to supply new homes”.
So, both major parties want to build more. Why does it appear like nothing is happening, then? Firstly, building new housing at large may sound like a good idea. But making sacrifices for it is not exactly popular. This shows in the debate about the green belt. The green belt covers large areas around large British cities, restricting them from development. The term might evoke images of parks and gardens, but two-thirds of the Belt is farmland. This might be one reason why Starmer refers to parts of it as “a grey belt” and vows it “cannot be […] a reason to hold our future back”.
Voters tend to disagree. In one YouGov poll, three out of five respondents wanted the green belt to stay, even if this restricted housing development. Only one out of five was willing to sacrifice green belt land for more dwellings. Even among younger voters, a relative majority prioritises green belt protection over housing. If development does get close to one’s doorstep, resistance is only going to grow.
However, building more could be difficult for a second reason: Britain is already constructing a fair bit. In the years just before Covid-19, it managed to build one new dwelling for every 100 existing ones. This completion rate puts it in line with other Western European countries like Ireland, Belgium or France, and means that Britain sits comfortably above countries like the Netherlands or Germany in this regard. Still, Britain could probably boost its construction rate. But would this help? There is plenty of evidence that more supply can indeed lower prices. But even a big boost would hardly shift the dial. Austria is probably the Western European country best at home building and manages 1.5 new dwellings per 100 existing ones. If UK construction rose to this level for five years, it would imply a supply increase of 2.5 per cent. That might stop prices from rising but is hardly sufficient to massively lower them. Delivering it could be hard enough. For a start, Britain would need hundreds of thousands of construction workers.More supply is not the easy way out, both for political and practical reasons. Therefore, the solution might be to change demand. A close look at the numbers reveals that the British housing crisis is highly localised. Since 2005, real rents in the UK have remained almost constant. The same holds true for the ratio of house prices to incomes – except for three regions. Guess where? It is not difficult. The steepest rise has been in London (35 per cent), followed by the surrounding regions of the South-East and East of England (around 20 per cent). No other place has seen increases of more than 10 per cent.
London and the surrounding areas do not only top the table when it comes to price growth, they are also the most expensive places to live right now. In most regions of the UK, the ratio of average house price to average family income is between five and seven. In the South-East and the East, the ratio is 9.5, and in London, it has reached 14. The story is similar for London rents, which are almost twice as high as the English average.
Still, London and its surrounding areas continue to see population growth that is faster than the national average. Especially for the young, bright and ambitious, the lure seems irresistible. According to the QS World Rankings, four of the five best UK universities are based in London and the South-East. This is also true for every one of the 15 biggest companies by revenue.
This top-heaviness shows in the UK’s income distribution; the average person in London has a disposable net income that is around 15 per cent higher than the average Scottish person. But for the richest tenth, the gap is 40 per cent. As long as this is the case, young people with the highest potential will flock to London, ensuring that companies and institutions there keep their edge, again attracting the best and ambitious – a self-reinforcing mechanism.
But what does this mean for the problem with UK housing? It makes the supply-route seem even more unrealistic. Significantly increasing construction capacity in a nation at large is hard enough. Doing so in a densely populated region with labour shortages is almost impossible. Instead, spreading demand seems to be the way out. The Midlands, North England or Scotland could accommodate many more without astronomical prices. What is lacking are the opportunities. Regions beyond the capital need better schools and universities, improved infrastructure, and good conditions for companies. All of which needs to be paid for by London money – no easy feat. But this should be the focus to solve the UK housing crisis.