The UK housing market is in crisis. Anyone can see that. According to the UK Government’s Ministry of Housing, 17% of the UK populace live in Social Housing. That’s over 12m people, across 4.2m households. Last year, nearly 36,000 households were in temporary accommodation (defined as hostels, bed and breakfasts, hospitals, and prisons) while another 5,000 households were sleeping rough and 56,000 households were living with friends and family.
By all measures, we have a crisis.
How did we get here? Like all roads to hell, the road has been paved with good intentions. In the late 1970s, a growing consensus amongst Conservative economists and policy makers was that there was a need for the government to liberalise the social housing sector, with the intent of freeing up governmental resources, and creating wealth. Margaret Thatcher, the Prime Minister led a government which passed the Housing Act 1980. This was an Act of Parliament that gave 5m council house tenants in England and Wales the ‘Right to Buy’ their house from their local authority. In October 1980, the Act took effect, and suddenly people all over the UK got the right to buy the houses they’d lived in. Social housing tenants were suddenly, with one Ministerial signature, prospective home owners. From serfs to Lords of their own manor, and many gave a smattering of thanks to the Iron Lady.
Over the following years, but less so now, a massive transfer of state owned assets, to private individuals and housing associations ensued, in an era of increasing financial access. The UK felt wealthier, and got wealthier. As wages grew, financing of assets increased, and monetary supply grew, the cost of housing increased. Yet, there remained a sting in the tail. National government had liberalised social housing, moving assets from local governments to private individuals whilst still making the provision of social housing a local government duty.
Local authorities disposed of assets, banking their gains, and mostly failed to build more housing. And now 40 years later, we can see the results. Theres a huge shortage of all housing, especially in cities. Planning laws aren’t fit for purpose, with planning permission for a large development taking two years on average, when approved, and subject to nimbyism and judicial reviews. Building regulations are more stringent, and harder to meet, whilst the cost of capital to create a property development project tends to be 700 basis points above the Bank of England rate. Meanwhile the UK population has grown from 56m in 1980 to 68m in 2020. That’s 12m more people, in an environment where the construction workforce average age is 45 and rising. People are getting married later, and having less children, which has had the effect of more demand for
smaller units.
