Unraveling the Knot: Britain’s Housing Crisis

24th October 2023 / United Kingdom
Unraveling the Knot: Britain's Housing Crisis

By Graham Vanbergen: There is no doubt that Britain is grappling with a housing crisis of immense proportions. It is affecting millions of people from the wealthiest areas of the country to the poorest, and straining the very economic and social fabric of the nation.

The situation has become an increasingly pressing issue with successive governments failing to tackle the crisis in any meaningful way. Even with the current property price slow-down (soaring house prices are still expected), there is a significant shortage of affordable rental properties, and what is expected to be an alarming growth in homelessness. In 2019, an estimated 8.4 million people in England alone were living in unaffordable, insecure or unsuitable homes. So bad is it that rented property is the most unaffordable and insecure in Europe.

The reasons behind the crisis are more than simply building a few homes. In reality, there exists a complex web of economic, social, and political factors.

In 2016, the housing crisis was in full swing and had been for some years. So much so that economists agreed that if left to fester, it would damage everything from the economic prospects of the country to poverty. An extract from a conference of economists concluded in 2016 that – “While the foundations of the contemporary housing system were laid in the period following the First World War, the roots of the crisis lie in two developments in the 1980s: the privatisation of the social housing stock through the Right to Buy and the growth of mortgage lending in response to financial liberalisation. These two changes combined to produce an upsurge in the value of residential land and a restructuring of housing consumption and production around the pursuit of ground rent.”

The result of that conclusion has come patently true. One of the primary drivers of Britain’s housing crisis is the steep increase in house prices. In 1980 the average house cost £19,273. The average wage in Britain was £6,474. This meant that the average house was costing 2.97 times the average annual salary. By 2000, the average house was costing £75,630 on pay of £18.848 (4.01 times the salary), but by 2020, the average property was costing £240,000 or 7.62 times the average wage. In London, it is now over ten times the average pay.

Throughout the 1970s. 80s and early 1990s, interest rates fluctuated between 6 per cent and 16 per cent but in the very early 1990s interest rates started a long-term decline culminating in the financial crisis that led the Bank of England base rate to fall to almost zero.

In the 1970s, mortgage lending was pegged at 3 times the main income earner. In the early 1980s, a second income was added (3 times plus one). Gradually, over the rest of the 1980s, these multiples were withdrawn for an affordability calculation – and this was a significant factor in runaway property prices.

The decades-long price surge then made it increasingly more difficult for first-time buyers to enter the property market. A combination of factors, including new low-interest rates, population growth, and demand for investment properties, then fueled a non-stop rise in property prices. The demand for housing then outpaced supply, causing prices to surge further and beyond the reach of many potential buyers.


Affordability trap

Affordable housing shortages then plagued the UK, especially in major cities like London. Developers often prioritized high-end properties to maximize profits, which meant there was an increasing limitation on the supply of affordable housing for those on lower incomes. Government initiatives like Help to Buy have aimed to address this issue, but critics argue that they’ve also contributed to inflated house prices.

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To make matters much worse, wage growth in Britain did not keep pace with the rising cost of living and house prices. This stagnation has made it even harder for many individuals and families to afford to buy their own homes or rent in more expensive areas. As a result, they’re forced to look for housing in areas with fewer job opportunities and limited access to amenities. Social mobility is stymied in an environment like this.

The consequent shift from homeownership to renting is now a major factor contributing to the housing crisis. Many people, particularly younger generations, are finding it more convenient to rent due to the flexibility it offers, especially for work. However, this increasing demand for rental properties has caused rents to rise. What this does is make it much more difficult for many to save for a down payment on a home. Thus, the rent trap is created.

In addition, Britain is facing a significant shortage of housing units, with new construction failing to keep pace with population growth. Planning regulations, local opposition to development, and limited availability of land in high-demand areas have hindered new housing projects. This shortage has led to overcrowding, longer waiting lists for social housing and soaring property prices.


Between 2012 and 2022, a total of 84,215 social rent homes were delivered, but 193,845 social homes were lost through sales, and 55,392 were lost through demolitions


Real inequality

The availability of social housing in the UK is now woefully short to meet demand. There are 1.2 million families on waiting lists for social housing. According to Shelter England, between 2012 and 2022, a total of 84,215 social rent homes were delivered, but 193,845 social homes were lost through sales, and 55,392 were lost through demolitions. This works out as a total net loss of 165,022 social homes in the last ten years. For perspective, this all happened when the UK’s population grew by 4.3 million (6.9% increase) in the decade 2010 to 2020. Thatcher’s Right-To-Buy has failed. The evidence for that lies in the fact that by 2015, 40 per cent of all council homes bought were in the ownership of private landlords. Local councils were then left paying huge amounts of housing benefit to buy-to-let landlords charging high rents for the very properties the council owned in the first place.

The result is that people in need of affordable housing face a daunting uphill battle. The reduced funding for social housing and the Right to Buy scheme has only exacerbated the problem.

To add more pressure to the housing crisis, the result of multiple banking scandals over the last four decades saw many people investing in property to keep away from ‘financial advisors.’ This helped drive prices upwards, which then became a speculative opportunity when interest rates fell to almost zero. These landlords now own, on average, three properties in the private rented sector and reduce any effect that affordable housing schemes might have.

The housing crisis is not simply a supply problem as politicians make out, it is deeply intertwined with the broader issue of economic inequality. It is a multifaceted crisis, rooted in economic, social, and political factors. The consequences of this crisis are far-reaching, affecting individuals, families, and communities across the country and until these issues are addressed comprehensively, Britain’s housing crisis will remain a significant hurdle in the pursuit of a fairer and more equitable society.


Easing the Crisis

In reality, housebuilding was a problem before 1980. With population growth, compared to other European countries, Britain in 2020 had a property shortfall of 4.3 million. According to the 2023 Centre For Cities report – “The housing deficit would take at least half a century to fill even if the Government’s current target to build 300,000 homes a year is reached. Tackling the problem sooner would require 442,000 homes per year over the next 25 years or 654,000 per year over the next decade in England alone.” That is a daunting set of numbers.

Planning reform is required, but the housing crisis is not solved simply by making it easier for builders. A vision for building new cities is now needed. As of April 2022: only 8.7% of land in England is of developed use, with 91.1% of non-developed use (agriculture/forestry) and the remaining 0.2% being vacant.

As I have said many times before, to significantly ease the crisis, new cities like Milton Keynes are a good example. Once established, the New Town of Milton Keynes contained around 40,000 people. By 1981 it had risen to 123,289. 50 years later, more than 280,000 people call Milton Keynes home and by 2026 the population is expected to increase to over 300,000. That number is in the borough of Milton Keynes, but the local catchment area is well over 500,000.

By 2015, nationally, Milton Keynes was ranked first in terms of housing growth, second in terms of population growth, third in terms of employment in London-headquartered firms, fourth in terms of business start-ups, and fourth in terms of cities with the highest proportion of private sector employment. By 2019, according to a PWC report, Milton Keyes was the fifth top-performing city in the United Kingdom – and had been for four years in a row.

At least four new cities, on top of national building targets, would go a very long way towards solving what is right now an ever more threatening housing crisis. It would be very good for the economy and would make dents in rising inequality whilst promoting social mobility. Building new cities is not the whole answer, but Milton Keynes demonstrates a route forward.






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