Housing

Quick summary

The UK is currently facing a crisis in housing. House prices are now approximately seven times the average income. More people are renting their homes, and levels of homelessness and insecure housing are rising.

In part, this is because there are simply not enough homes. Land that can be built on is in short supply and thus fetches premium prices, meaning that constructing new houses by both private developers and the public sector becomes unviable.

The plan-based system for housing development currently in operation is failing to make sufficient land available and creates financial risks for private developers. Measures that provide more certainty regarding what developments will be permitted and their expected returns for developers could help to stimulate building.

The continued protection of the green belt is a major factor in the shortage of land for development around urban centres, where demand for housing is highest. A re-evaluation of the protections this land is afforded is urgently needed.

Where land is available for development, a lack of capacity in the construction industry jeopardises the delivery of new homes and impacts on affordability.

The chance of the average 25- to 34-year-old today owning their own home is around a third. Back in 1991, when their parents were a similar age, the likelihood of them being a homeowner was practically double, at 67%. This intergenerational inequity in homeownership is one of the most obvious manifestations of the UK’s housing crisis, and is certainly headline-grabbing. But the nature of this crisis isn’t just that many of us are no longer able to fulfil the cultural expectation that we will own our own home; it is that many citizens, and particularly young people, are finding it increasingly difficult to access housing that is secure, affordable and of reasonable quality.

Take affordability. In the 1960s and 70s, homeowners with mortgages spent around 5% of their income on housing costs, while for renters this totalled around 10%. Today, housing costs account for 12% of income for mortgaged homeowners, and 36% for private renters. Looking at what has happened to house prices relative to incomes is also startling. Since 1997, the median price of a residential property in England and Wales has risen by a little under 260%. Meanwhile, median annual earnings have increased by just 68%. There is also a regional dimension to this crisis of affordability – six of the 10 least affordable local authorities in the country (where the ratio of house prices to average annual earnings is greatest) are in London.

Many people are also living in less secure housing than previous generations, related to the reality that high house prices are pushing more and more households into the private rented sector. Tenants on assured shorthold tenancies in the private sector can be asked to leave by their landlord with two months’ notice, and the loss of one of these tenancies is now by some margin the leading reason for families accepted as homeless by local authorities in England to have lost their last settled home. Quality is also patchy in this sector – it is not uncommon for properties to fail to meet the decent homes standard.

Traditionally the social sector provided a way for families on lower incomes to access a secure and affordable home, but the availability of social housing has been severely compromised by policy changes and financial pressures on local authorities. Council housebuilding in the UK dropped from well over 100,000 completions per year in the early 1970s to below 500 in the late 1990s, with numbers only recently creeping back into the thousands. The policy of Right to Buy in the 1980s and 90s, in which council properties were sold off to occupants without the requirement to replace them, compounded the problem of supply. The consequences of these actions are obvious: almost 30% of families were accommodated in the social sector at its peak in 1981, compared to just 14% today. The condition of social properties has also become a more explicit concern following the Grenfell fire disaster in June of 2017.

The need for policymakers to act in response to these problems is self-evident, but policy reform that enables the dramatic expansion of the housing stock will mean tackling a set of complex and politically thorny questions. Some of these include the status of the green belt, which covers 6,000 square miles around towns and cities in England alone, and the treatment of land and property in the tax system. It is also likely to necessitate a more explicit discussion of the level of public resources we are willing to devote to social housing, and who these properties should be for. The expedient political response is often to side-step contentious debates of this sort, but solving the UK’s very obvious housing problem demands a more strategic response.

 

Expert commentary

Video

Kate Webb, Head of Policy at Shelter, on the future of housing policy.
Professor Paul Cheshire of the LSE on how to solve the housing crisis.