23 July 2018

Market forces can rejuvenate the housing market – if we are bold enough to unleash them


Though the ongoing Brexit tussles in Parliament and Brussels have unsurprisingly created something of a policy vacuum, there is perhaps no greater crisis in contemporary British politics than housing.

The extent of the problem is truly staggering. Since 1995, average house prices in the UK have increased by an astonishing 300 per cent – rising to as much as 1,000 per cent in some areas of London. No other OECD country’s experience has even come close.

When it comes to housing costs, British families are some of the worst off in Europe, spending, by one recent estimate, more than 40% of their household income on rent or mortgage payments.

Lack of affordable housing is having a devastating effect on our cost of living and career prospects. It is a major driver of homelessness, and lowers productivity by reducing labour mobility. The housing crisis also has a far-reaching impact on personal lives; with millions of young people struggling to save and, in some cases, being forced to postpone major milestones like marriage, starting a family or moving jobs. Such developments should be deeply concerning to both large and small ‘c’ conservatives.

How on earth did we reach this dysfunctional position, and what can we do about it?

Let’s start by rebalancing supply and demand. Britain’s onerous planning regulations, the most restrictive in the OECD, not only protect rural land, preventing development in arbitrary defined green belt areas, but have also made urban redevelopment complex and costly.

It has been widely overlooked that many of the most common complaints about housing are themselves interconnected – manifestations of the same, supply-side issue. In the social sector, we see long waiting lists for state housing, since tenants turn to social housing for want of other options. Tenants cannot afford to buy a house or rent privately, so they revert to the social sector, thereby putting pressure on councils’ housing stock.

In the private rental market, the shortage is visible in soaring rents and “rogue landlords”. Would-be homeowners, meanwhile, struggle to raise capital for deposits and access housing finance. It follows that any increase in supply would help alleviate these problems across the board.

Many of the obstacles to building are government-imposed, relating to outdated legislation like the 1947 Town and Planning Act, which first enshrined the concept of the green belt into British law. Yet too often, contemporary debate calls for decidedly statist solutions – from Help to Buy to calls for more government-led housebuilding, particularly in the social sector.

Here, we are perhaps guilty of a “Little Englander” mindset, liable to ignore the international picture. On the continent, private sector building is very much the norm – and it used to be the norm here in Britain too. In 1934-35, before the advent of Green Belt restrictions, the number of houses built annually by the UK private sector hit close to 300,000, with a much smaller population.

It is in the spirit of finding solutions to these thorny issues that the Institute of Economic Affairs has made housing the subject of this year’s the Richard Koch Breakthrough Prize, our annual essay competition which looks for market-based solutions to the most pressing problems in society.

The full title of this year’s essay competition is: “What market-based, popular policy would you recommend to alleviate the UK’s housing shortage, and to rejuvenate our property-owning democracy?” Entries should be between 2 and 3,000 words, and submissions will close at 11:59pm, on 14 September 2018.

Click here for essay guidelines and more information about the prize.

Madeline Grant is Editorial Manager at the Institute of Economic Affairs