The housing crisis: causes and solutions
Let me start by saying a few words about how we got into this mess.
On housebuilding and house prices, we have good data going back about 170 years. And what that data shows us is this:
From the mid-19th century until the outbreak of World War 2, the UK had consistently higher housebuilding rates than it does today. The housing stock used to grow by an average of almost 2% every year, and that expansion was sustained for nearly a century. The closest thing to a golden age was the 1930s, with an annual housebuilding rate of 2.6%. Much of Outer London was built during that decade.
As a result of that sustained building effort, housing affordability improved, slowly but steadily, for a century. Around 1850, average house prices were about twelve times the average annual income, so home ownership was out of reach for most people. By the turn of the century, this ratio had fallen to about eight. On the eve of World War 2, it had fallen to four. The average house price, in other words, was about four times the average income – the lowest it had ever been.
This was, broadly speaking, a success story. Pre-war Britain may not have been a role model for affordable high-quality housing, but the country was clearly on the right track.
All of this happened amidst high rates of population growth. The vast majority of the housing development that took place during this period was undertaken by the private sector.
The watershed moment was the Town and Country Planning Act of 1947, which completely changed the way housing markets operate in this county, and not for the better – we’ll get to that in the discussion. Its effect was not immediately obvious. There still was a housebuilding boom of sorts in the 1950s and 1960s, around half of which was public housebuilding. Proponents of council housing therefore see the 1960s, rather than the 1930s, as the golden age. But I don’t see it that way, for two reasons:
Firstly, the post-war housebuilding boom, such as it was, already represented a deceleration compared to the interwar housebuilding boom. It should really have been an acceleration, given the extent of wartime destruction due to Luftwaffe bombings, and simply, pent-up demand. Secondly, and perhaps more importantly: housebuilding rates during this so-called postwar boom were below the Western European average. So it was actually a period of relative decline.
And that decline only got worse and worse. We now have one of the lowest levels of housing supply – one of the least adequate housing stocks – in the developed world. If we wanted to catch up with the European average, we would have to build three and a half million new homes. And that would not make us good. It would just make us about average.
In the postwar decades, housing affordability no longer showed systematic long-term improvements. In the mid-1990s, the ratio of house prices to incomes was similar to what it had been in the late 1930s. And from then on, it got drastically worse. Today, the average house price is nine times the average annual salary, a level last seen in the late 1870s. We have regressed a century and a half in terms of housing affordability.
Why is that?
It’s not that Britain is “full”. It’s not that we’ve run out of space. That is a complete red herring.
It is true that the UK, or rather, England on its own, has a fairly high population density figure. But that is simply because, unlike many other countries, England does not have any empty or near-empty regions that could pull down the average. It is completely meaningless to compare national population density figures between England, and, say, Australia, Sweden, or Norway, because large parts of those countries are basically empty, and as far as the housing market is concerned, the empty parts don’t matter. They’re irrelevant. They might as well not be there. If these countries experience housing pressures, they are not going to build in the empty parts. They will build in and around the population centres. So we need to look at regional population density figures in those parts of the country where people actually live. If we do it in that way, population density figures for English regions are still fairly high, but not in any way unusual.
So what is unusual about Britain, if it’s not population density?
Housing and planning nerds sometimes talk about the distinction between “discretionary” and “rules-based” planning systems. In a discretionary planning system, each planning application is discussed on its own merits, on a case-by-case basis. The British system falls into that category. In a rules-based system, there are general, pre-agreed rules about what can be built where, and planning applications that are within those rules are difficult to reject.
At first sight, the former may sound more sensible. Each planning application is different: no two housing developments are exactly alike. So why not have a flexible system? Why tie your hands in advance?
The problem is that a discretionary system is prone to capture by NIMBY interests, and what really sets Britain apart from most other developed countries is the extent to which NIMBYs dominate the system, and use their power to block everything.
NIMBY power has been building up gradually over the years, and become more and more entrenched. That’s a huge problem. But it is not an especially complex problem. Giving NIMBYs this much power is a political choice. The solution is to stop giving them that power.
We can – and no doubt will, over the next two hours – argue about what this means in practice. But to me, there can be no doubt that solving the housing crisis requires breaking the stranglehold of NIMBYism.
Building houses is not rocket science. If people managed to build decent-quality housing in the 1930s, we can do so again today. And much more.