The UK government is serious about solving England’s housing crisis. Shortly after the 2024 general election, it pledged to build 1.5 million new homes over the next five years.
A new report shows that last year, home building in England and Wales generated US $70bn of economic output and supported 834,000 jobs, underlining the economic potential of delivering the homes the country needs.
The Conversation, a platform created by academics and journalists, acknowledges that it’s a big plan that could help improve the quality of life of millions of people.
But is such an ambitious target plausible?
Or has the government created a rod for its own back and embarked on an economic mission that is doomed to failure?
At the heart of this mission is a political desire to shape the direction of the economy. And to succeed, this desire needs to be matched with a clear understanding of the economic reality at the heart of the UK’s housing crisis – a reality that is all about affordability.
To be successful, housing policies aimed at helping those on lower incomes need to address this head on. But the government’s emphasis so far has been on ‘zoning’, allowing houses to be built on land that was previously protected, or speeding up the hazardous process. All these factors are distractions from the main and simple point – that too many people simply cannot afford to buy, or even rent, a decent home.
And while there has been some suggestion that a bigger proportion of new housing projects need to be affordable, details have been scant.
Instead, most of the talk has been about ‘grey-belt zones’ where planning permission will be granted more easily and quickly to create new opportunities for house building.
But it is far from clear that this will help to bring down—or even stabilise—housing costs.
Obtaining planning permission is a small fraction of that total cost. And when these permissions are granted the value of land rises. The landowner makes money, but the hopeful future house buyer or tenant gains nothing, other than the fact there are extra houses on the market.
Imposing a requirement for higher proportions of affordable housing from building companies might be the single most effective thing the government can do. However, those companies may then increase their margins on the larger houses they plan to sell. And higher prices for bigger homes raises demand – and then prices – for smaller ones.
If the new government wants to tackle the affordability issue by increasing supply, it should note that just over half the costs of new housing are down to expensive construction. The use of modern pre-fabricated methods to help reduce those costs is still relatively low in the UK.
Sweden uses this approach for more than 80% of its new house building, and a faster switch (with government persuasion) to more affordable building methods in the UK could be beneficial. More new towns have also been promised. They’re not a bad idea, but building them takes a very long time, so any contribution they make to the housing crisis will take years (decades even) to be seen.
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The British government has already announced a series of house-building targets for local areas as part of its five-year plan. But this adds a further complication in a classic example of regional planning being done from Westminster instead of locally. But analysts pose the question: “How do they know these houses will be built where people actually want to live?
For a good sense of where people want to live, the government could immediately turn to housing associations—private, non-profit organisations that already provide low-cost housing to millions. There might be some mileage in seeking to boost their stock by encouraging—and even underwriting—further borrowing by them.
Typically, housing associations charge significantly lower rents as they are not focused on making a return for shareholders, and their long-term stability attracts lower borrowing costs. If the government’s promised increase in the UK’s housing stock leads to an expansion in the housing association sector, this could make a meaningful contribution to limiting the rents paid by those on lower incomes – and enhancing the potential for them to eventually buy a genuinely affordable home.
But for many others, the biggest hurdle over the coming years will be mortgage rates. Even if interest rates come down gradually over the next five years, this is unlikely to make much difference to those who cannot afford a mortgage. And it won’t happen quickly enough to conjure up 1.5 million new homeowners in five years.
It seems doubtful that the government will reach its target, however laudable. But, say sector analysts, if it is to stand a chance, it needs to be thoughtful in its economics. Merely setting targets and expressing frustration when they are not met—as they are unlikely to be—is not enough.
