Is a housing revolution key to getting Britain unstuck?
Our economy is being strangled by the housing crisis, lets unleash it.
On a cold, dark evening on the eve of 2024, my phone chimes. ‘MANCHESTER ROOM AUCTION - your chance to win a room rental with an opening bid of £549!’ This is the reality of life in modern Britain. After my building was declared a deathtrap and I was forcibly decanted on a Friday evening, I was once again subject to the horror that is our housing market.
Within a minute the bids skyrocketed to £580 before I even got a chance to respond. As this continues, I recall how as recent as 2021, a two bed apartment in the city centre could cost as little as £750 a month, now they are listed at £1,400. This is unsustainable.
As this personal struggle unfolded, it became emblematic of the larger housing crisis that plagues our nation. Today, the foremost concerns on the minds of average Britons are intricately tied to housing—ranging from the scarcity of social housing to the relentless rise in private rental costs and the challenges faced by owner-occupiers dealing with escalating mortgage costs.
Unraveling the housing crisis isn't just about homes; it's unlocking our national productivity. How can we address this challenge and unleash productivity as a nation?
The history of the housing crisis
To examine Britain’s housing crisis, we must first look to the past. It cannot be disputed that housing in the UK during WW2 was dire, with the German bombs destroying a million homes in London alone and poor housing being one of the five ‘giants’ identified by Beveridge. Following this, in a move that would shock modern Britons, the conservatives oversaw the largest construction of social houses ever built in the UK at 250,000 a year in 1954, followed by an all-time peak of over 400,000 new homes built in 1968. Britain never again would see this peak, instead seeing a managed decline in new homes, led primarily by the severe decline in social housing as seen in Figure 1 and Figure 2 below.
The all-time-peak in social housing was caused by the government bypassing local authorities and founding New Towns, but as opposition from rural and suburban voters and MPs increased, the Tories bowed to this pressure and provided rural communities a veto on new builds, removing the central government's ability to overrule local restrictions, and instead limiting the space allocated to new builds based on an expected population of 54 million by the year 2000, a low estimate now that we can see we hit 58 million by the year 2000.
Thatcher's government dealt a devastating blow to social housing. Millions of social houses were sold at below market rates, with councils receiving less than half of the revenue and being mandated to clear debts rather than replenish housing stock. Fast forward to 2026, and the grim forecast looms: over half of these former council houses will likely fall into the hands of private landlords, a twisted cycle where councils end up renting them back at significantly inflated prices.
In the aftermath, successive governments, irrespective of their political affiliations, have dabbled in schemes and empty rhetoric, pledging to tackle the housing crisis. However, their efforts often revolve around easing access to loans for home purchases, a strategy that falls short as it fails to address the fundamental issue—insufficient growth in housing supply.
To make this clearer. Imagine a concert with 100 seats and 200 people wanting to attend. What would happen if we launched a ‘Help to Listen’ scheme, where we offered increased loans to concertgoers? Any casual observer would recognize that increased demand with constrained supply would make concert tickets skyrocket in price without actually increasing the number of people who saw the concert. So why do we think this way about housing? No amount of demand-side policies will magic up more houses. If the government wants to solve the housing crisis they just need to build houses.
How the housing crisis impacts British productivity
There is no shortage of literature on why increased housing costs are bad for the productivity of the nation, but in short:
Rising housing costs reduce disposable income, hampering spending on goods and services.
Increased housing costs limit job creation and lead to diminished tax revenue for the state.
High housing costs in job-rich areas force workers into less productive roles in lower-cost regions.
Speculative property investments divert funds from productive businesses, hindering overall state productivity.
Escalating housing costs contribute to homelessness, straining state resources and impeding productivity.
Tax revenue directed toward private landlords limits long-term investments for productivity growth, a concern even echoed by figures like Churchill who disapproved of landlords profiting excessively.
So, what can we do to solve this?
The urgency of this crisis demands an unprecedented paradigm shift - a bold commitment to build on a scale not seen in almost a decade.
The housing of the future
To paraphrase Gustavo Petro, ‘A developed country is where the rich live in social housing’, this should be the goal of Britain’s housing policy. Let us take inspiration from Vienna, where 60% of the 1.8 million inhabitants live in social housing. Despite being mostly social housing, Vienna is ranked as the world’s most livable city. As Hernández-Morales writes for Politico, the socially owned homes are beautiful and are a draw for the middle class, with open courtyards. Vienna is a walkable city with efficient public transport and monthly rents that are a quarter of the price of London.
A comparison between council housing in Austria and the UK reveals a stark contrast. To propel Britain forward, the government must abandon attempts to construct new towns on the outskirts, plagued by familiar grievances – cramped spaces, insufficient storage, and a lack of nearby public services or transport.
Breaking through NIMBYism and dismantling existing legislative barriers is crucial. Delivering mixed-use, medium-density housing where people truly need it is the key to addressing these long-standing issues.
An expansion of rent to buy using the newly built stock
Recognizing the enduring aspiration of the British people to become homeowners, it's evident that, even with the finest council houses globally, a segment still harbors the desire to purchase. In recent discussions with friends, the formidable obstacle hindering house purchases is the escalating deposit amount, perpetuating the rent trap for households.
In response, I advocate drawing inspiration from the rent-to-buy scheme, utilizing newly constructed council houses as a foundation. By offering residences at or below the market rate, strategically positioned in urban locales tailored for young individuals venturing into independent living, we address a critical need.
Given the government's ability to borrow at lower rates than private builders and an insatiable demand for housing, a strategic move is to construct homes and rent them out slightly below market rates. Here lies the innovative twist – returning a fraction of this rent to tenants as a 'Pathway to Ownership Deposit.' This initiative empowers individuals to progress seamlessly towards homeownership if that aligns with their aspirations. Leveraging this symbiotic relationship between builders, tenants, and the government presents an effective strategy to tackle the housing challenge.
In these critical times, urgency demands innovative solutions, and the severity of our housing crisis calls for nothing short of bold, unprecedented measures. As inadequate housing encroaches upon our nation, the resounding call for unwavering commitment to mass building, drawing inspiration from successful models like Vienna, grows louder. To unleash the full potential of our nation, we must break free from outdated policies and construct a housing legacy that stands as a testament to progress. The key to unlocking Britain's future lies in our hands, manifested in the bricks and mortar of change. Together, let's champion the cause for quality housing, the cornerstone of prosperity, reshaping our national landscape for generations to come.
To address the pressing housing challenges and present innovative solutions, this essay is submitted to TxP’s Progress Prize. Discover more about the competition here.