Britain’s housing crisis is acute: the nation today has a backlog of 4.3m homes.
Around 300,000 Londoners are on the social housing waiting list, and London boroughs spend, on average, £4m a day on temporary accommodation costs,
In England as a whole, 1.3m households are on the waiting list for social housing.
With house prices continuing to rise due to low supply, the price-to-earning ratio for housing in the UK is at its lowest in 20 years.
The knock-on effects of our housing crisis include growing inequality between homeowners and renters, overcrowding, higher commuting distances, reduced economic output as people are put off moving to expensive cities and a diversion of investment into playing the housing market.
Fundamentally, the UK’s housing crisis exists because not enough homes have been built. Output from private enterprises, local authorities and housing associations have all dropped over the last 70 years (some more than others), although the UK’s population has continued to climb. How have we ended up here?
Lack of affordable housebuilding
Affordable housing includes homes for sale or rent, and is meant for people whose needs are not met by the private market.
Crucially, affordable housing is not something the private market will deliver on its own.
Instead, there are two main avenues for providing affordable housing in the UK: firstly, for-profit companies are obligated to build a certain amount of affordable homes per development site; secondly, they are built or bought by not-for-profit registered housing providers.
Recently, however, these two arms of the market have fallen prey to significant financial difficulties. Costs have ballooned and subsidies have dropped – in two key ways.
Firstly, government grants per housing unit have fallen from 16.5 per cent of total housing costs in 1979 to 11.5 per cent in 2019–2020, according to the Tony Blair institute.
Secondly, the right-to-buy (RTB) policy implemented by the Thatcher government delivered huge short-term improvements in housing ownership, but effectively removed councils’ main source of income for its own housebuilding.
RTB, which allowed tenants to buy their council houses at deep discounts, led to the sale of almost 3m homes. But the money from the sales mainly ended up in the coffers of the Treasury rather than councils’, making both the replacement of lost homes and the repairs and upgrading of existing ones more difficult.
Equally significantly, the properties which were sold tended to be the best quality homes, mainly houses in the more popular and wealthier areas.
For councils, this meant that the properties and cash available to meet local needs reduced dramatically. Plus, it became unattractive for councils to build homes which could then be re-purchased after just a few years for a huge discount.
Houses built in the UK, from 1946 to 2024
Source: ONS
This is a key reason why housing completions by local authorities have fallen since 1979. The general decline in building in the late 70s can be attributed to widespread economic malaise as a result of the oil crisis.
Today, housing associations, rather than councils, build around 95 per cent of social homes a year. But as government grants have fallen, housing associations have come to rely on private borrowing and building more homes for the private market.
“Nearly all of the affordable housing is delivered by registered providers, and the vast majority of that is registered providers, who are working for a profit,” David Fletcher, Partner at Ceres Properties said.
This means two things. First, housing associations are now almost as tied to construction and financial markets as private builders – markets which, as we all know, has not been kind lately. It also means housing associations face a large viability gap, as they come up against the incompatible goals of building affordable homes and turning a profit.
Restrictive planning laws
If we remove local authority construction from the equation, that leaves housing associations and for-profit house builders. But these two agents are hamstrung by additional issues – notably the planning system.
Britain’s planning system dates all the back to 1947, with the introduction of the Town and Country Planning Act.
“The most restrictive policy within the Town and Country Planning Act was the introduction of Greenbelt, which at the time was really to protect this sort of urban sprawl around cities,” Fletcher said.
“Unfortunately, [that means] in a lot of the areas where there’s the highest demand for housing [cities], getting planning consent… has been very difficult.”
In addition to creating the greenbelt, the Act made it possible for developers to follow the local plan and still have their application rejected by the local authority’s planning committee.
This means permissions are not easy to come by. A CMA report into housebuilding called permissions “insufficient” to meet “government targets and measures of assessed need”.
Even if a building gets approved, a large number of well-intentioned new safety regulations have come into being in the last decade, slowing development further.
Developers submit approved designs of the building to councils to be signed off, which are meant to be returned within 12 weeks. A response alone is taking over a year in some cases, City AM understands.
To make things worse, “planning departments are massively under-resourced, demoralised and ill-equipped,’ architect Russell Curtis, founding director of RCKA, has said. “That’s the root of all the problems.”
The government has estimated that there are up to 300,000 homes stuck in planning permission purgatory in the UK, and countless more have not been built over the last 70 years.
The construction skills gap
If you manage to secure funding and have your planning permission accepted, there is another high barrier to pass before a development is built: a lack of people who know how to build houses.
“An ageing workforce, the cost-of-living crisis and the lingering effects of Brexit are having an impact on the uptake of new workers to the industry,” Adrian Attwood, Executive Director at DBR said.
With 41 per cent of construction professionals predicted to have retired by 2031, along with the fallout of Brexit, the UK will need 937,000 new recruits in construction and trades by 2032.
In an RSM survey, a quarter of housebuilders cited a shortage of skilled workers as the biggest barrier to meeting housebuilding targets going forward. RSM estimated the current skills gap at 250,000.
Apprenticeships, too, are on the decline, with 337,140 apprenticeship starts in 2022-23, a sharp drop from over half a million in 2011-12, according to Fix Radio.
“Since Brexit, record numbers of tradespeople have left the country, and the stresses of an overstretched workforce are prompting thousands of colleagues to either retrain or leave the industry entirely,” ex-builder Clive Holland said.
The government has pledge to inject £2.5bn in additional funding to address the skills gap in construction, in addition to removing red tape to accelerate apprenticeship training.
“There’s some concern that even with government intervention, this isn’t progressing fast enough,” Kelly Boorman, partner and head of construction at RSM UK, said.
“The added post-Budget pressure of rises to employers’ national insurance contributions from April, could see labour shortages worsen,” Boorman said.
However, it’s not all bad: “The transition towards modern methods of construction over the next few decades will mean greater focus on modular builds, robotics and AI to innovate and build more efficiently,” Boorman added.
Lack of cross-party consensus or long-term planning
Each incoming government has tried to fix the UK’s slowly-worsening housing crisis. But continued policy interventions have done little to stem the tide of dwindling supply, partly due to a lack of long-term planning as housing policy becomes tied to the electoral system.
Political decisions like Thatcher’s 1979 Right to Buy or Blair’s 2004 Housing Act changed the system but ended up hurting the long-term supply of affordable homes – both by reducing government intervention in the social housing arena.
The issue of political certainty is exemplified by the lack of a long-term consensus on a rent settlement for housing associations. Rent settlements from the government, which set the social rent on houses, currently cover five years, and are prone to last-minute changes.
But this makes the operating environment tough for both new builds and re-fits: “Long-term certainty, combined with sustained grant investment, is essential to improving the quality of existing homes.” Gavin Smart, chief executive of the Chartered Institute of Housing (CIH), said.
Jonathan Seager, policy delivery director at BusinessLDN, said: “[Political certainty] is a real challenge… How do you create structures which give people confidence to invest and [avoid feeling like] that policy isn’t suddenly going to do a U-turn after seven years, when your scheme is going to last for 30?”
Places for People, the 230,000-home housing association, have campaigned for a 10-year social rent settlement.
“First, it will truly give housing providers the long-term ability to effectively plan their finances; second, its duration will transcend electoral cycles and minimise the impact of political change; and third, it will attract sustainable investment into our sector,” it said.
Savills, too, has said that a 10-year rent settlement would deliver “greater certainty on future rental income, would help [registered providers] plan their programmes of investment in existing stock and contribute to helping rebuild financial and balance sheet capacity”.
The disconnect between income and house prices
So – the UK’s housing crisis can be sorted into two distinct issues. Firstly, there aren’t enough homes that people can buy on a minimum wage i.e. affordable homes. Secondly, there aren’t enough homes being built in the right parts of the UK i.e. on the outskirts of cities.
There is something crucial making both of these issues more painful for people in the UK, which is that incomes haven’t kept pace with house price growth.
Real house prices and wages in England from 1960 to 2015
Source: Centre for Cities
Someone earning an average UK wage and buying an average first property with a 20 per cent deposit would have a monthly mortgage payment equivalent to 36 per cent of their take-home pay – well above the long-run average of 30 per cent, according to the most recent Nationwide Affordability Survey.
England is home to the largest number of people living in households that spend more than 40 per cent of their income on housing in Europe. That number stands at 11.3m.
It’s not just those with mortgages that are suffering from the unaffordability of UK houses. As affordable houses have become scarcer, many households have been left with no choice but to rent, often paying more than they would for a mortgage, but unable to save up for a deposit.
In some areas 40 per cent of tenants need state help to pay their monthly housing bills, putting immense pressure on already-stretched councils and making it less likely they have the time or resources to tackle the root causes of the housing crisis.
With councils and Brits both stretched ever-thinner, the current Labour government has pledged to build 1.5m homes via two channels: higher investment and a simpler planning system.
The Planning and Infrastructure Bill currently going through Parliament aims to deal with the planning element of that equation. The question is: will it solve the crisis?