This week, the Centre For Cities published a report entitled The housebuilding crisis: The UK’s 4 million missing homes, written by Samuel Watling and Anthony Breach.

Regular readers of this blog will not be surprised by either the report’s diagnosis or its policy recommendations, but it includes some previously unavailable original data, and it explains the nature of the problem with commendable clarity.

A bit of background:

Apart from a few cranks and contrarians, most people who know anything about the subject would agree that Britain has a housing crisis, and that this is primarily a crisis of the supply side. Yet we still fundamentally disagree on the causes of this crisis. There are two major competing explanations:

1. Britain has an unusually restrictive land use planning system, which fails to release enough land for housing.


2. Britain is overly reliant on the private sector, and the private sector has no interest in providing sufficient quantities of housing. It is more lucrative for them to build a small number of luxury flats and executive mansions than to build affordable housing for the average Joe. They actively prefer housing to be scarce, and expensive. There was no housing crisis in the 1950s, 1960s and 1970s, when the state was the dominant actor in the housing market. But in the Thatcher years, the state sold off most of its council housing, and phased out the construction of new ones. This is the root cause of the housing crisis.

These two explanations need not be entirely mutually exclusive. A socialist could, in principle, take the view that removing planning constraints is necessary, but not sufficient. Since planning constraints constrain public housebuilding as much as private housebuilding, they could view planning liberalisation as a means for unleashing a public housing boom.

But as I explained on this blog recently, this almost never happens in practice. Socialists cannot bring themselves to acknowledge that planning constraints are a problem, because doing so would mean admitting that free-marketeers have a point.

So even though the two explanations are not logically mutually exclusive, in practice, you are either on one side, or the other.

If you are a free-marketeer, the second explanation will immediately seem dodgy to you. In most other markets, low-volume/high-margin business models and high-volume/low-margin business models exist side by side. There’s the posh cocktail bar, and there’s Wetherspoons. Why should this not be possible in the housing market? From the perspective of one individual developer, it may be desirable to constrain supply and keep prices up. But this is true of any individual supplier in any market.

But implausible as it may be, the second interpretation is the dominant one, at least among Millennials and Zoomers. The IEA’s own polling shows that three out of four of them believe this (see pp. 55-57).

This is where the Centre For Cities report comes in. It tests these hypotheses empirically. It looks at both private and public housebuilding rates in Britain, and it does this separately for the postwar decades, and for the decades since 1980. It compares these figures to their equivalents in the rest of Western Europe, and in the pre-war decades in Britain itself.

The basic idea is as follows: if the planning system was the culprit, you would expect to see problems beginning to build up at some point after 1947, the year when the Town and Country Planning Act – which forms the basis of the current panning system – was introduced. If Thatcherism was the culprit, you would expect things to be basically fine until 1980, when the Thatcher government passed its first Housing Act, and to deteriorate from then on.

You would also expect to see other Western European countries that rely predominantly on private housebuilding to experience similar problems as Britain, and countries that rely to a greater extent on public housebuilding to do systematically better.

What do we see?

Firstly, housebuilding rates in the UK declined well before 1980. While there was a housing boom of sorts in the 1950s and 1960s, this already represents a decline relative to the interwar period, as well as the late Victorian and the Edwardian era (pp. 10-11). The interwar housing boom was predominantly, and the late Victorian/Edwardian housing boom was entirely private-sector-led.

Internationally, far from being a golden age, the 1950s, 1960s and 1970s were also a period of relative decline vis-à-vis Western Europe. In that period, Britain had the lowest private sector housebuilding rate in Western Europe, for which the relatively high level of public housebuilding was only a partial compensation (pp. 14-17).

The result?

In the 1950s, Britain enjoyed a head start, with a higher level of housing supply than, for example, Switzerland, West Germany and Finland. But the former two overtook Britain around 1970, and the latter more or less caught up with Britain in 1980. Denmark, which started from about the same place as Britain, raced ahead, and Sweden, which already enjoyed a lead over Britain, increased that lead further (pp. 20-21).

The private-public split makes no visible difference either way in that period. Finland had very little public housebuilding, and Switzerland almost none, but in both countries, private housebuilding alone was higher than the sum of private and public housebuilding in the UK.

What little was built in the UK was also smaller than what was built elsewhere. By 1992, British homes were smaller than Austrian, French, West German, Swedish, Irish, Dutch and Danish homes, and about the same size as Greek ones. The only “country” over which the UK enjoyed a visible lead was East Germany.[1]

In short – the idea that the postwar decades were some kind of golden age for UK housebuilding is completely wrong.

What about the more recent decades?

While Britain saw a decline in public housebuilding after 1980, this was far from unusual. Some Western European countries never had much state housebuilding to begin with, but the ones that did also saw a decline from the late 1960s onwards (pp. 25-27). Large-scale state housebuilding was never meant to be a permanent feature of the housing market. It was an emergency response specific to the immediate postwar challenges. For the 60-year period from 1955-2015 as a whole, the private-public split in the UK is about 2:1, compared to a Western European average of 4:1 (pp. 43-45).

What matters is the total housebuilding rate, not the private-public split, and on those terms, Britain is one of the worst performers post-1980 as well. Only Sweden had a slightly lower housebuilding rate than the UK in recent decades, but then, Sweden, as mentioned, was starting from a better place.

Had the British housing stock grown in line with the Western European average from 1955 to 2015, we would have 4.25 million more homes today than we actually have. That is where the “4 million missing homes” figure from the report’s subtitle comes from.

In short, the fashionable idea that the private sector cannot provide housing could not be more wrong. The private sector did precisely that in Edwardian and interwar Britain, and it did so in postwar Switzerland, Belgium, Norway, West Germany and Finland (among others). The fashionable idea that Thatcherism caused Britain’s housing crisis is an extremely insular perspective, which assumes that state housebuilding is the norm, and deviating from it after 1980 was a crazed ideological experiment. In reality, it was postwar Britain that was the outlier, in that it relied on public housebuilding to an unusual extent. Far from being a golden age, the postwar decades were a period of relative decline, in housing as in so many other areas. We can argue about when precisely the rot set in, but it was definitely before 1980. The culprit is the planning system, and the focus on Thatcherism is a distraction. If you feel socially obliged to blame Thatcher – blame her for her failure to do anything on planning, not for the Right To Buy.

The evidence in this report is so overwhelming that it should settle this longstanding debate for good. And yet, something tells me that it won’t.



 

[1] At this stage, it makes sense to still treat Eastern Germany as a separate country, because Germany’s political reunification obviously did not immediately bring West German housing standards to the East German states.