The housing crisis is one of the most important public policy challenges facing Britain today, and it is one that affects young people far more than most.
That’s not to say that it is only young people who are affected. Our housing shortage leaves older Britons as well as younger ones living in smaller, less conveniently located homes. It constricts the wider economy, meaning that Britons of every age have worse jobs, lower wages and less well-resourced public services than they otherwise would. But at least for those who own, there is the consolation of a huge increase in their asset wealth. For younger Britons, the housing shortage rarely offers even this consolation.
Today, few young British people own their own homes: only 28% of 25- to 34-year-olds as of 2019, a fall from 51% in 1989. They may at some point inherit their parents’ properties, but this is likely to happen much later in life, after their own children have left home and their period of most acute housing need is past. Increasingly, young people are realising this, generating growing demand for reform. It was that demand that led to the formation of PricedOut, the campaign for affordable housing I have helped to run for several years.
In recent years, our campaigning – as well as the work of the Centre for Policy Studies and many other organisations on both left and right – has highlighted the scale of the housing crisis. But we’ve also seen how strong the opposition to reform can be. And the worse the housing crisis gets, the more appetite there is on both left and right for dramatic solutions, which are often either actively harmful or would be so unpopular they would make the situation worse.
So in this essay, I want to look beyond the usual arguments about the details of Tory and Labour policy, or the rows over planning targets (though I obviously have strong views on all of those) to set out an approach to planning reform that could be both extremely effective and politically achievable, drawing on the best examples from overseas. I will start by setting out how the housing shortage is affecting the young. I then look at rent controls, which are frequently implemented by cities to handle rising rents, but tend to have unintended consequences and worsen the underlying cause of the problem, as well as calls for radical planning liberalisation, which might address the underlying problem but have the opposite challenge that they are virtually impossible to implement. And in the final section, I outline a series of practical policies that really could make a difference.
The cost of the housing shortage
The average British home has long been substantially smaller than those of other large European nations, and this trend is even more marked with new-builds today. Our housing stock is the oldest in the world, meaning that much of it was built at a time when a much larger proportion of the population lived in large households: this means that there are especially acute shortages of homes suited for the young, as well as for the elderly and for single people of all ages. Much of it is poorly insulated and expensive to keep warm.
These are all problems that affect the whole population. So do the huge economic costs of the housing crisis. The most obvious such cost is in the lack of what economists call ‘agglomeration effects’, whereby people are more productive when they are physically near to large numbers of other people. A brilliant structural engineer living in an isolated hamlet might be completely unable to practise their profession because there is nothing for an engineer to do there. In a small market town, they might work for a small local builder. In London, they might lead a division at one of the world’s great engineering firms. In the first situation, the engineer earns nothing and is able to contribute very little to the economy; in the third, they should earn and contribute a great deal.
This is the most important reason why many people want to live in population centres, and why their doing so tends to boost the economy as a whole. Yet postwar Britain has deliberately thwarted this process.
As early as 1973, Peter Hall’s ‘The Containment of Urban England’ set out how green belts prevented the outward expansion of cities in the areas where there was most demand, while the planning system largely prohibited the intensification of existing urban areas.
The original intention was to make up for this by building New Towns elsewhere, created on tracts of rural land appropriated by the state at existing use value and built out under a development corporation. This process proved unpopular, however, with no further New Towns designated after the 1970s. Britain was left with the postwar system’s mechanisms for blocking development but without its mechanisms for enabling it.
This situation has persisted so long that it feels completely normal to those of us in Britain. But in fact, this makes a significant international outlier. The surface area of metropolitan Paris today is three or four times greater than it was in 1939. That of London is almost unchanged: in most places, the capital stops today where the builders laid down their tools when they went to war.
The economic growth that has been foregone through this is enormous. A famous study found that spatial policy constraints had lowered US growth by 36% between 1964 and 2009. British spatial policy is more restrictive than most places in America, so it is likely that our figure is even higher.
These figures may sound abstract, but what this means is not just more individual wealth but more resources for hospitals, schools, social care, the justice system, and the other public services that British people care about.
These effects, as I mentioned, are felt by more or less everyone. But for homeowners, there is a consolation: rising house prices. Some 63% of British households are still owner-occupiers, and the value of many of these homes will have increased enormously in recent decades.
But this is not, in fact, as much of a positive as it might seem, even for those homeowners. Theoretically, their wealth has gone up. But those who want to move to a bigger home still lose out, because bigger homes have become more expensive even faster than small ones. Homeowners who do not sell or remortgage their current home do not experience any improvement in their standard of living, because their wealth is locked into their home – a paper gain that does not actually result in higher living standards. So the only homeowners who benefit concretely are those who trade down.
If you bought a house as a young professional in London in the early 1990s, sold it in the 2020s, and retired to somewhere where housing supply is abundant, then you have probably benefited from the housing shortage – in fact you may have benefited a lot. Along with landlords, land promoters and landowners with planning permissions, you are among the small minority of British people who are probably net winners from the housing shortage.
Yet young people are very unlikely to belong to this group. As mentioned above, only 28% of 25- to 34-year-olds owned their own home in 2019, a fall from 51% in 1989. Even then, the great majority of this 28% will only be on the first rungs of the housing ladder, hoping vainly to trade up, maybe to a family house like the one they grew up in. Almost none of them will have a house that is larger or more centrally located than they need, allowing them to move down the housing ladder (or, traditionally, outside the capital) in return for genuine riches or a larger property. Indeed, many cannot even afford to enter the private rental market: the proportion living with their parents has risen by around half since 2000, to 28% in 2020.
The housing shortage is, then, a bad thing for a majority even of older Britons. But it is even worse for younger ones. Many young Britons today have worse homes than their parents did at the same age – an astonishing reversal of a trend of improving housing conditions that dates back at least as far as the middle decades of the 19th century.
The social effects of this are only just beginning to be grasped, from falling birth rates to abandonment of mainstream political parties. If the shortage is not addressed, they will mount steadily in the years ahead.
The shortcomings of British planning policy are not, on the whole, the product of villainy or conspiracy. The post-1947 system was created with good intentions, and its failure was not orchestrated by any one individual. But it is now systematically redistributing advantages and opportunities from poorer and younger people to richer and older ones. So as well as generating massive deadweight losses, it is one of the most regressive policy programmes of modern British history. Few areas can be so important to the prospects of young British people today.
Rent control – the tried and failed approach
So how can we help these young people? One proposal that is gaining attention is rent control.
On the face of it, the argument for rent control is appealing. The most common version is that rents are rising not because landlords are working to increase the value of the property, but simply because housing is scarce, so it is unearned wealth extracted from those to whom it rightfully belongs. Capping rents therefore does not deprive people of the legitimate fruit of their labour, but simply prevents a privileged minority from capturing more unearned income. Although it will not in itself address the shortage of housing, it will mitigate one of its main malign effects on young people.
The standard argument against rent control is that it reduces housing supply in the long term by disincentivising homebuilding. At some levels, this is obviously true. If rent control forces rents below the point at which they cover build costs, building to rent will become uneconomic. But this would not necessarily be the outcome in the areas of Britain where housing is most scarce. In London, floorspace value is typically three or four times higher than build cost, so in theory rents could be depressed greatly without making new building unviable.9 (In practice this is not so true as those figures suggest, since much of this value is already captured by the Community Infrastructure Levy, affordable housing requirements, stamp duty, and so on: indeed, some development is already being pushed all the way into unviability by all this).
But there is another problem: rent control makes it extremely hard to get a property in the first place. That’s because, in addition to the potential impacts on supply, the lower rents make it easier for some people to occupy much larger properties than they need. That is a benefit to those individuals, who will largely be largely existing residents. But the flip side is that there is far more competition for the same properties, and especially for larger properties, leaving others with nothing.
Again, this makes intuitive sense. An older couple whose children have long since left, and who have a prime central property at a low rent, are likely to opt to stay there rather than downsizing, in order to keep the discount. This means that the young family who would have taken that home are left with nothing, and must either stay with their own parents, or simply leave the city. This is not just theoretical: Stockholm has a waiting list of up to 20 years for a rent-controlled apartment. During Berlin’s recent experiment with rent control it became famously difficult to find a property to rent at all. A common result is the emergence of ‘shadow’ rental markets, where tenants pay market rent, but without the legal protections offered to formal tenancies.
Another notorious issue with rent control is that it disincentives maintenance. If a landlord maintains a property poorly, its market value declines. Under normal conditions, this is bad for the landlord: they must either lower the rent to match the declining value of the property, or they will not be able to find tenants for it. But if the rent is fixed below market value anyway, the landlord essentially loses nothing by letting the property decay to the point at which its market value equals the controlled rent. If the landlord can charge £500 per month, at which rate they will easily be able to find tenants regardless of the state of the property, they will be unlikely to address repairs with the enthusiasm they might if it meant the property being empty for longer.
Again, there are numerous historical examples of this. In France, tight rent controls were imposed during the First World War and retained through the interwar period. As a result, only 6% of dwellings had a bathroom in 1951, compared to 42% in West Germany, while as late as 1946, 63% of dwellings did not have running water. Meanwhile, East Germany retained Nazi-era rent controls all the way to German reunification, causing a spectacular decay of its buildings that was often remarked upon by visitors. As recently as 1989, 24% of all East German homes had no private toilet.
The crucial thing to understand, in other words, is that capped rents do not erase the market rent: they hide it, such that it manifests itself another way. It might, in theory, be possible to design a rent control system that avoids these typical pitfalls. But it’s hard to find of any such examples internationally or historically, not least because it assumes a degree of clever policy design that seems unlikely in contemporary politics. Better, then, to focus on what is making rents high in the first place, and tackle the underlying cause rather than the symptom.
Planning deregulation – untried but politically problematic
If we want to tackle the root causes of the housing crisis, the most obvious solution is to build more houses. And the most obvious way to do that is to make it much, much easier to build.
This is obviously something many of us would agree with. But the more radical your approach, the more politically problematic such reforms become.
To see what I mean, let’s look at the most extreme version of planning liberalisation, taking the example of London – what you might call the ‘1894 Plan’. This would be to repeal the 1947 Town and Country Planning Act and reinstate the 1894 London Building Act, which like the similar systems governing all European cities at the time, essentially allowed people to build more or less whatever they wanted within the boundaries of London, subject to building safety regulations and a height limit – the same height limit which produced the gorgeous mansion blocks of Chelsea, Marylebone and elsewhere.
It’s easy to understand why people might like the idea. The most immediate consequence would be a gigantic building boom, which would not relent until house prices had fallen by about 75%, to equal build costs. Much of outer London could be transformed into something like Marylebone or Bloomsbury. The UK would see one of the greatest economic booms in the history of the developed world: average incomes could easily soar over those of the French and Germans, and close rapidly on those in the United States. Living standards would be enormously improved, and the tax generated would be enough to vastly improve our public services. Making it so attractive to build in London would also make the great majority of greenfield building unviable, easing most of the planning pressure on the English countryside.
Sadly, political reality means that the 1894 Plan and its close cousins are unfortunately unachievable. Partly because crashing prices like this would annihilate most of the asset wealth of the homeowning majority of the population. And partly because people would see a wave of building sweeping across their neighbourhoods, with eight-storey mansion blocks starting to appear on every suburban street in areas of acute housing scarcity.
In 1894, of course, this was essentially what people expected to happen – cities had developed through gradual intensification since the beginning of urban life. But norms have changed: people now have an expectation, literally priced into their homes, that they will be protected against disruptive development. They tend to react angrily to it, as we pro housing activists know all too well, and are unlikely to be appeased by the reassurance that their children and grandchildren will be vastly better off for it.
Of course, the 1894 Plan is not a realistic proposition: serious supporters of planning reform know that a move of this scale would be out of reach, and none (to my knowledge) are actively advocating it. But it does show that politically achievable planning reforms need to have a minimum level of political durability to pass and to remain passed. Indeed, we are now approaching two generations of failed efforts at reform, each of which has collapsed in the face of the NIMBY backlash.
In other words, it is easy to devise 1894 Plans that would produce huge quantities of housing. It is difficult to devise reforms that deliver large quantities of housing without generating unstoppable backlash. In the formula of John Myers of the YIMBY Alliance, this is the ‘hard question’ of housing politics. So how can housing reformers credibly answer it?
Towards of a new planning consensus
The politics of development are sometimes presented as a zero-sum conflict between a privileged older generation of homeowners and a deprived younger generation of renters: each can win only by crushing the other.
As we have seen, it is certainly true that young people suffer especially from the housing shortage. But what happens if we reject the adversarial framing, and seek ways to make development popular across the generations?
It turns out that, precisely because of the scale of the housing crisis, the benefits of reform are sufficiently great that you really can create a broad based majority in favour of building more homes.
This idea may sound ludicrous: surely experience shows existing communities are always against change, regardless of the benefits they derive from it?
In fact, there are numerous international examples which show that communities often support development – if they are given a generous share of its benefits.
For decades, South Korea has operated a system whereby the government permits specific urban districts to vote on intensification schemes. The scheme has generated huge quantities of housing. Indeed, districts often vie for the right to hold a vote, so great are the opportunities that it will generate for residents. Likewise, Israel recently developed a system allowing apartment blocks to vote for the right to redevelop at higher density. This was originally intended as a way of enabling more buildings to reach modern earthquake standards, but residents have been so keen to take advantage of it that it has ended up generating a substantial share of Tel Aviv’s new housing. And there are similar examples in Canada and the United States.
In fact, we do not even need to go so far afield. In London, since 2018, all estate regeneration schemes have been required to ballot existing residents on whether they want the scheme to go ahead. They can only proceed if they win majority support.
Many expected this to prevent estate regeneration, but in fact dozens of ballots have been won, frequently giving estate regeneration a stronger democratic mandate than it possessed previously. Existing residents support regeneration because they are guaranteed bigger and better homes when it is over. Like people with any other tenure type, they are willing to put up with considerable disruption if the benefits are great enough. The same is true in the West Midlands, where the Conservatives have performed most impressively in the areas that are benefiting the most from new housing and the new HS2 line.
In fact, a policy based upon this principle of consent and mutual benefit is currently under consideration in Parliament – ‘street votes’, versions of which have been proposed by a number of organisations.
The principle is simple. If permission were granted for a street of suburban semi-detached houses to be redeveloped at the densities of Georgian Marylebone, then – in areas with an acute housing shortage, such as London – it would instantly increase enormously in value, even before any building work had been done. Many individual homeowners would very much like this to happen. Their neighbours, however, would not want the construction work, loss of sight lines, and so on. It’s a version of the Prisoner’s Dilemma: on any given street there might be a large majority of residents who would very much like to redevelop their property, and make themselves much richer in the process, but they are currently incentivised to block such permission for everyone else.
Under normal circumstances the planning system would reflect this by blocking such redevelopment. But street votes gives such residents the power to get around this collective action problem by creating permission for change through a qualified majority vote. The very group who would block the 1894 Plan – existing suburban residents – are thereby incentivised to vote in favour of creating the homes that the next generation so badly needs. As mentioned above, similar policies have had high uptake in Houston, Tel Aviv and Seoul, and have become established parts of their housebuilding systems. In Houston, such an incentive system is so popular that residents have rejected reforms to it via referendum no fewer than three times.
The crucial thing here is that this housing is not being imposed from above, but embraced from below. If those local communities do not want it, it cannot and will not happen. It is a policy based around consensus.
It’s also easy to see how this kind of thinking could be applied elsewhere.
In much of England, parish councils can allocate sites for development through a referendum on the neighbourhood plan, if the community thinks that such development would be a net benefit for it. However, many areas where development would create an extensive value uplift lie in green belts, and parishes are forbidden from releasing green belt land.
In some cases, this is reasonable, since the land may be an important national asset as well as an important local one (for instance, because it is of scientific or environmental importance). But is it reasonable that parishes should be forbidden from permitting ‘gentle density’ development on environmentally poor land near to railway stations – given such development tends to enjoy the strong support of existing residents?
Supposing the development were to pay for exemplary local services and substantial reductions in council tax bills, or the creation and protection of genuinely high-quality green spaces nearby, residents might be keen to see it happen. Why not at least give them the option?
It would also be possible to extend the possibility of estate regeneration. As we have seen, estate regeneration is often popular with a majority of local residents on account of the benefits it brings them. However, power to initiate such development lies entirely with the council or housing association. This is a problem, because estate regeneration is a complicated and exhausting process, and councils and housing associations do not necessarily have strong incentives to undertake it.
Between Canary Wharf and the City of London lie many relatively low density postwar housing estates. If residents received a generous share of the benefits from redeveloping it at higher densities, might they be keen to do so? Might we find a way to give them a choice?
It is worth investigating more radical options here. One option might be allowing housing association residents to convert their associations to a cooperative model, in which tenants become part-owners of the estate in which they live. They would then be in a position to capture the lion’s share of the value uplift that redevelopment would bring, and they would be empowered to bring such changes about. And by doing so, they could create new homes for young people, in the places where such homes are most urgently needed.
Conclusion
Young people are not the only victims of Britain’s housing shortage, but they are certainly the most severely affected. Their homeownership rates are collapsing. They have to pay sky-high rents – which in turn makes it harder to save for a mortgage – or remain living with their parents for years longer than they would prefer. This has knock-on effects on everything from their employment opportunities to their prospects of starting a family. If these trends persist, a generation will grow up for the first time whole living conditions, and possibly even living standards, are clearly worse than those of their parents.
The key to resolving this is to avoid framing the housing shortage as an intergenerational war in which the young can prosper only by triumphing over the old. The ‘containment of urban England’ has suppressed so much growth that – if we design our policies rightly – we can find ways of enabling development that benefit everyone, winning the support of those who currently block it.
The policies listed above are complex and require much more discussion than I can give them here. But they illustrate at least the type of policies that we need to explore if we are to find a remedy to the housing shortage that actually helps, and that might actually happen.
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