Has the "housing crisis" become a permanent condition?

All these numbers deviate from another official government source, the quarterly "Live tables on housing supply: indicators of new supply’", which record 178,300 permanent dwellings completed over the course of 2019. To complicate matters further, these figures are partly derived from different sources. Given that most people have neither time, patience nor expertise to fully unravel the numbers, 300,000 is an effective rallying cry because it speaks to a folk economics view of how housing works. It’s of a piece with the misleading "household budget" metaphor for the workings of the British economy. A big number - any big number, really - sounds good if you believe that housing is a simple case of supply and demand with the solution a straightforward matter of matching one to the other. 

Many ’’experts”, especially those sympathetic to Conservative housing orthodoxy support and actively promote this view, as did Gerard Lyons, chief economic adviser to Boris Johnson when he was mayor of London. His report for the centre-right think tank Policy Exchange early in 2021 called for a house-building boom to provide affordable properties on a “massive scale".

Unfortunately, not only is it just as tricky to pin down real demand as it is actual supply, but the task is made doubly difficult because house-building is not one market but two: one for homes and another for investment. Sometimes the two are embodied in the same physical property, as when parents buy a family home with the assumption that in the future they will be able to rely on an increase to its value to fund deposits for their young-adult children’s own house purchases. These contradictions lead to what has been dubbed the Daily Mail dichotomy: the idea that you want house prices to be as high as possible if you own one, but as low as possible for your kids to get on the housing market. 

Leaving aside, for the moment at least, the ethics of leaving the delivery of a fundamental human right to a market mechanism, the fact that there are two versions of housing operating simultaneously - sometimes ·within the same physical property - with fundamentally antithetical aims has enormous bearing on the crisis and its potential solutions.

You can only participate in the market for houses and flats as an investment if you can afford to buy one, a situation exacerbated by the British tendency to regard home ownership as a universal life-goal. Cross over into the other market, the one in which people are simply trying to secure a roof over their heads, and the option of buying is a reality for fewer and fewer people, particularly the "generation rent" of young adults. This is down to a range of factors including escalating prices, job precarity, student debt, low wages that make it impossible to save towards a deposit and the swallowing up of generational equity in funding 11 parents’ old-age care. 

If you can’t afford to buy, you rent, and move from being a potential beneficiary of the market to one of its victims. Whereas mortgage payments typically take up less than 20 percent of monthly earnings, rent, depending on where you live, can range from 20 percent of income right up to a crippling 40 per cent in London. On average, renters spend double the proportion of their monthly income on housing than buyers do. 

Looked at from the supply side, renting is predicated on businesses, institutions and individuals owning residential property, all of which share a common feature: someone other than you gets to bank the gains. It is important to benchmark the fact that the supply side of housing has been subject to a "revolution from above" for the past four decades, from the great era of postwar social housing to a period of escalating privatisation. The pivot between these was, arguably, Margaret Thatcher’s Right to Buy policy, which has seen just under two million homes transferred from public to private ownership. The scheme has been discontinued in Scotland and Wales and will end in Northern Ireland in August 2022, leaving it operating solely in England. It continues to hamper councils’ capacity to provide homes as it depletes housing stock and syphons public money out of the system by mandating that sales are made at a significant discount and imposing stringent rules of how much of the resultant cash can be spent by recipient councils on building or buying new homes. 

Nearly half of the homes sold under Right to Buy end up in the hands of private landlords, many of whom let to tenants who receive housing benefit. The faux­democratic boosterism accompanying the scheme therefore belies a massive transfer of public money to the private sector. To replace the social homes lost would cost, at today’s prices, a staggering £276 billion. 

Since 1980, the privatisation juggernaut has steadily gathered pace through the tenure of both the Conservatives and Labour before accelerating sharply under the Johnson government with a number of radical developments that, while apparently designed to boost the supply of houses as homes, substantially benefit the market for houses as investments. Recent legislation, for example, allows for-profit enterprises to call themselves housing associations as long as they sign on as registered providers with the Regulator of Social Housing.

For-profit housing associations have been able to take in large scale investment, the most controversial example being Sage Housing, which sold 90 per cent of its equity to Blackstone in 2017, extending to the UK the American private equity behemoth’s strategy of investing in huge swathes of affordable housing. Here, the target is Section 106 properties, social housing built by developers. Blackstone enables Sage in bulk-buying on a huge scale - 7,000 homes valued at more than £1 billion - raising fears that smaller affordable-housing suppliers may be left at a competitive disadvantage. Compared to traditional housing association financing, in which surpluses must be ploughed back into more house-building, the Sage/Blackstone model is extractive, with an 8 per cent minimum return expected from a "global base of long term institutional [limited partnership] investors, whose money comes from pension and endowment funds". 

Right to Buy continues to hamper councils’ capacity to provide homes as it depletes housing stock and syphons public money out of the system

Then there’s the car-crash that was the government’s "starter home" programme, launched in November 2015 with a purported £2.3 billion budget. The National Audit Office (NAO), reporting on the scheme in November 2019, found that MIICLG had spent £174 million acquiring sites for the construction of 5,998 houses. It said it was “possible" that developers had built homes that met the necessary criteria, but they could not have been sold under the starter banner because the enabling legislation had not been passed by parliament. The NAO also noted that in July 2018, at the end of his short tenure as housing minister, Dominic Raab had claimed that £250 million had been spent solely on land acquisition; the statement "clarified" that building had not yet started. The NAO’s frustration at the impossibility of securing any reliable data on housebuilding from the government is palpable in the wording of the report. 

Help to Buy, introduced in 2013, has been excoriated by both the National Audit Office and the Public Accounts Committee for, once again, failing to make any contribution to solving the dearth of new affordable homes. Instead, its critics say, it has inflated property prices and house builders’ profits. Then there is Shared Ownership, a government scheme to help home buyers who struggle to raise an initial deposit. It allows them to purchase a 10-75% share of the property and pay rent on the remaining equity, which the owner - usually a housing association - retains. They can also increase the share, which is known as staircasing. 

Shared Ownership has enabled around 157,000 households with a combined income of £80,000 or less to buy homes. But there are frequent complaints from Shared Ownership "owners" in the press who feel trapped by the scheme. Problems include the escalating cost of monthly service and maintenance charges. which are owed in addition to rent and mortgage payments, the fact that owners are often barred from subletting the properties, and unsellable homes due to negative equity - an acute problem due to the cladding and fire-safety scandal having written the value of many properties down to zero.

Shared Ownership has proved a juicy prospect for big institutional investors, however. As estate agent Savills observes: “These sources of income come with relatively little risk. The repossession rate for shared Ownership properties was just 0.02 per cent, less than half the level for general owner occupation at 0.05 per cent." Even where the stated goal is to provide nominally affordable housing, profit-seeking entities are either already firmly entrenched or are poised to make a killing. 

Where exactly does that leave the 300,000 target? Those rooting for the further financialisation of housing (i.e. actual and potential beneficiaries from the process) promote increasing housing supply as the best way to reach the government’s goal. Even setting aside the questionable name of that figure - and the serial annual failure to achieve it - we are still left with the critical issue of which homes are being built and are likely to be built by the private sector. A singular, monolithic target for house building is supremely unhelpful; what matters is what kind of homes are being built, where they are located and who they are for. 

Conventional market wisdom enshrines two foundational - and demonstrably false - beliefs: that building more houses will reduce prices; and that the private sector can be incentivised, legislated and persuaded into producing homes for lower-income households. The first, the supply and demand fallacy, states that in a theoretically free market, increasing supply will cause prices to fall. But the housing market is anything but free, not least owing to something called the market absorption rate. When a developer has all its ducks in a row to start building homes - a site, land purchases, planning permission secured, finance in place and so on - it doesn’t just crack on with constructing and making available the total promised housing stock. If the timing is not right, that could reduce prices - useful for people wanting to buy a home but potentially ruinous for the house builder because of the valuation. The price of the land purchased is based on projections of what the homes will sell for. It is essential that the sale prices are maintained or the whole development will lose money. 

Oliver Lctwin’s independent 2018 report on the divergence between land allocated or permissioned for housing development and the pace at which homes were actually built based on a study of 15 sites confirmed the developer practice of drip-feeding the market. 

The median build-out period was a full 15.5 yea.rs, but the slowest development took more than four decades. Market manipulation of this sort, even if developers are simply acting rationally within this system, rides roughshod over any simplistic law of supply and demand. As a result of this and other distortions of the market for housing, economic modelling indicates, according to the UK Collaborative Centre for Housing Evidence, that "even building 300,000 houses per year in England would only cut house prices by something in the order of 10 per cent over the course of 20 years”. A miniscule 0.5 per cent per annum fall in house prices, set against projected annual inflation rates of per cent and long term wage stagnation, will have no effect on access to housing. 

Then we come to the second belief: that the private sector is best placed to deliver new homes for everyone who needs one. Despite the Conservatives’ devotional belief in the market, their supporters don’t always agree. The Tories’ shock loss in the Chesham and Amersha byelection of June 2021 was widely seen as a rebuttal of former housing secretary Robert Jen rick’s sweeping planning reform proposals, which rural campaigners excoriated as a "developers’ charter’’. Jenrick’s reforms were subsequently ditched by his successor Michael Gove, introducing a "pause" in the legislation that has created a policy vacuum; a vacuum that has been filled with speculation and rumour.

Will we get "street votes" giving local people the power to make their own development rules? Will mandatory housing targets for local authorities be scrapped or reinforced? Will land in some areas be exempt from planning permission altogether? Will there be incentives for brownfield sites to encourage urban, as opposed to rural, house-building? 

One of the proposed reforms likely to have the greatest impact is the mooted abolition of Section 106, along with the current Community Infrastructure Levy (CIL) and their replacement with a blanket infrastructure levy on developments over a certain size. Since the 1990 Town and Country Planning Act, Section 106 payments having been the flagship instrument for managing this particular variety of "trickle­-down” economics. However, there are signs that many housing associations are disillusioned with the sector’s reliance on Section 106 and have started to move away from it. 

London-based Network Homes, for example, started almost half of its built homes using Section 106 contributions in 2017/18; the following year, that number was down to zero. Over the next two years, it will be just 5 per cent.  Network’s Matt Bird has said that "it’s not something that has happened by accident. Moving away from Section 106 gives you more control; the number of homes, where they are and the quality of them.”

The ultimate irony is that the 40-year campaign to build a "property-owning democracy" has been an outright failure. Home ownership has been falling for almost two decades.

But the capital to build homes must come from somewhere, and the government grants that originally fuelled social house-building have been relentlessly run down. The result is a social housebuilding sector that embraced divergent motivations, values, funding sources and degrees of independence from commercial pressures is being collapsed into a single, increasingly competitive marketplace. Developers such as British Land are registering their own housing associations, for-profit housing associations are raising investment from the financial industry, and private equity firms are buying up huge tranches of affordable housing. The ultimate prize in this brutally competitive race is land. Housing associations, writes Peter Apps in lnside Housing "must now compete in the land market with the big boys and somehow still turn out something which serves a social good". 

The notion of land for building on has been eclipsed by the potential of land for speculative investment, as a source of unearned profits, the "economic rent" derived from owning a scarce or exclusive asset. As Josh Ryan-Collins and his co-authors observe in their book Rethinking the Economics of Land and Housing, land is "a good that is not subject to the normal laws of market competition". Generally speaking, the supply of land is an absolutely finite quantity, apart from perhaps reclaiming it from the sea or, in the mincis of deluded tech plutocrats, by terraforming Mars. Aa result, says the book, ’"the vast majority of ... increases in housing wealth and house prices have come not from increases in land prices.”

Laurie Macfarlane’s report for UCL"s Institute for Innovation in Public Policy ls it Time to End Our Obsession with Home Ownership? notes that "since 1995 alone, the value of Britain’s housing stock has increased by £5 trillion, accounting for three-quarters of new household wealth". While that wealth is concomitant upon home ownership, the vast majority of it - a full 90 per cent of transactions - is generated by the trade in existing homes, which because of their dominance set prices for the market overall, including new homes - a situation that privileges anyone already on the ’housing ladder’. 

The ultimate irony is that the 40-year campaign to build a ’’property-owning democracy’· has been an outright failure. Home ownership ’’has been falling for almost two decades and in June 2021 levels of home ownership were only marginally higher than they were when Right to Buy was introduced in 1980”, writes Macfarlane. Just as lower-income households have been progressively bought out, or priced out, of home ownership, the middle-class, especially younger cohorts, have been subjected to a similar, more recent squeeze. Over the past two years the complicity between business and government has been clear to anyone who cared to look. The plethora of schemes to increase the housing supply and the "democratising’’ rhetoric around them have, despite being stretched out over a longer timeframe, been similarly damaging. 

Where does this leave the 3.8 million people in need of social housing? If the paltry 6,287 affordable social rent homes built in 2019 are any indication, the vast majority of those people are still waiting. 

Can local authorities fill the gap? The current regime makes council house building a Sisyphean task. There are serious constraints - "severe impediments” according to the APSE network local government officers - on how local authorities can use the capital they raise from Right to Buy sales, in spite of recent changes in response to a 2018 consultation 

process. 

What is strangely difficult to ascertain is what proportion of Right to Buy receipts have been channelled away from local authorities’ house building budgets into council debt reduction, subventions to the Treasury and the administrative costs of running the scheme - as mandated by acts of parliament. When then-housing secretary James Brokenshire refused to release this data in 2018, Inside Housing used Freedom of information requests to compile the figures and discovered that in the previous six years, less than half of Right to Buy receipts had been spent on replacement housing. The Treasury took a bit less than 20 per cent - £920 million - while council debt absorbed a whopping £1.1 billion. The end result? “When David Cameron vastly increased Right to Buy discounts in 2012, he promised all additional homes sold would be replaced within three years” reported Inside Housing. "Since then, councils have sold 63,518 homes and started 15,981 replacements”

Despite the yawning chasm between the number of homes needed and the amount built, it’s premature to judge the situation as beyond remedy. Councils are returning to house building, albeit on a small scale, by taking advantage of legislative changes and loopholes, such as the 2018 lifting of the borrowing cap on how much they can raise to fund housing or, delving further back, the 1963 Local Authorities Land Act which empowered councils to develop land. Despite the limited size of individual developments, the reach is impressive, with over 40 per cent of local authorities having started their own house building company. Whether this constitutes "quietly building a housing revolution”, as the headline of a late-2019 piece in The Guardian suggested, is debatable. The atavistic persistence of Right to Buy means that, despite building new homes, the end result is still a net loss of social housing. 

Steve Taylor is a writer and editor who has also worked in innovation with start-ups and accelerators. He recently completed an MRE in Architecture at UEL, led by Anna Minton, where his research involved developing a mapping technique for charting the capital flows through and from Delancey’s redevelopment Elephant and Castle.