Keir Starmer’s newly elected government has made big promises about increasing housing supply in England without properly explaining why it wants to do so, writes Peter Apps.
Last week saw the UK’s new government spell out its priorities in the King’s Speech, with housing grabbing most of the headlines. Keir Starmer’s Labour Party won the general election with a manifesto generally light on specifics, but it did make one very clear promise in this regard: 1.5 million new homes will be built in England over the course of his first term.
This is a tough target. It would represent a 50 per cent increase on today’s output at a time when the numbers are trending down. A stodgy housing market, a major skills shortage, an MMC [modern methods of construction] industry that appears dead in the water, a financial crisis in the social housing sector, a highly volatile global supply chain and half a dozen other macroeconomic factors will make it very hard to achieve.
Amid a lot of debate a more fundamental question is rarely asked: why do it at all?
But amid a lot of debate about whether and how the new government should best approach the challenge, a more fundamental question is rarely asked, namely: why do it at all? There is a political consensus about increasing house building, but far less agreement about what we want an increased volume of house building to achieve.
In short, and to use slightly annoying business lingo, 1.5 million homes represents an output, not an outcome. Building 1.5 million homes is not the same as solving the housing crisis.
Study the political rhetoric around house building and you tend to find three separate outcomes politicians have in mind when they talk about building new homes.
The first is growing the economy. This – you can argue with some justification – tends to be the primary objective of chancellors, including the current one.
It isn’t hard to see why: a long chain of people are employed in the process of building each house, and the growth continues when someone moves in and fills it with flat screen TVs, fridges, IKEA furniture and babies. Each new unit of housing is a growth generator, and the economics of this are pretty well made out.
But building homes is sold to the public as more than just growth generation. We are also told it will make it cheaper for younger people locked out of the housing market to buy, and (even more nebulously) end the housing crisis overall.
Houses in our big cities are priced according to their value as investment assets
The actual contribution of a binary new build target to either of these outcomes is a lot harder to track. Yes, there is a significant degree to which high house prices in the UK are a direct response to constraints on supply, in particular the inability to provide housing around key cities due to the green belt designations. Research by the academic Paul Cheshire showed that the real price of houses has nearly doubled in every decade since the supply of urban land was frozen by the introduction of green belts in 1955.
But rising house prices are about a lot more than that.
They are also about the low-interest-rate world that emerged in the mid-to-late 1990s and the sudden surge of investor capital into fixed assets that resulted from it. Houses in our big cities are priced according to their value as investment assets (to buy-to-let landlords or huge funds like Blackstone) and that price will move up or down based on how that value changes, not on the overall number of supply.
And they are also about mortgage availability and demand-side policies, including Labour’s own mortgage guarantee scheme. I haven’t seen any convincing analysis on it, but it could even be the case that the net effect of building 1.5 million homes and introducing a comprehensive mortgage guarantee scheme is to put prices up.
House prices are currently either stagnant or falling at a point when supply is at a very low ebb, which should tell us that this is a more complex question than it is sometimes made out to be. However many homes the current planning reforms deliver, prices will rise again when the Bank of England finally cuts the overall interest rate. That, I’m afraid, is the economy, stupid.
New supply in a market dominated by private house builders will also have a limited impact on overall house prices because volume builders operate a business model that actively seeks to keep them high.
The housing crisis, as it manifests in Britain in 2024, is about human suffering
This is not a conspiracy theory, but a simple statement of how their business models operate. They will have a calculated “absorption rate”, which considers how many homes can be released per site without reducing the value of their product, and release the homes in accordance with it. Their objective as businesses is not to solve the housing crisis but to deliver value to shareholders and again, that is not a conspiracy but a pretty straightforward statement about how private businesses work in a market economy.
The best that could really be hoped for in that context is that hitting the 1.5 million homes target helps keep house prices stable – or at least more stable than they have been in recent decades – and wages grow at the same time, which reduces the affordability ratio a bit.
Now, that isn’t a bad thing to hope for. But when a young, desperate generation hear Starmer promise to make buying a home more affordable, they probably take that to mean a rapid and sustained fall in prices, and that simply won’t happen with new supply alone. In fact, the catastrophic economic fallout and political blowback that would result if it did would almost certainly cost Starmer his job.
Finally, we have to think about whether any softening in house prices would really represent an end to “the housing crisis”.
My answer would be that this could only be the case if you view the housing crisis through the very narrow lens of a young person who is close to being able to afford a home, but coming up slightly short.
But the housing crisis, as it manifests in Britain in 2024, is about much, much more human suffering than that.
It is about the 145,800 children in dreadful homelessness accommodation and the drastic impacts that is having on their future. It is about the tens of thousands of social-housing tenants enduring desperately inappropriate standards of disrepair.
Ending that housing crisis should be one of this new government’s fabled missions
It is about the 300,000 households who present as homeless to their local authority every year (80 a day). It is about the rapidly ageing population with no suitable housing to age into.
It is about the vast generational discrepancy between those who gained property wealth in a different era and those who now cannot, and how that transfer of wealth will open up chasms of inequality as it is passed down and inherited. It is about those trapped in unsafe buildings which were created – ironically enough – in part by previous pushes to increase supply at all costs.
It is about all this and dozens of other factors as well, which bake ill-health, inequality, lost potential and human misery into the fabric of our society.
Ending that housing crisis should be one of this new government’s fabled missions. But a plan to do it asks for a lot more than a simple plan to increase supply.
Peter Apps is a London-based journalist specialising in social housing. He was formerly the deputy editor of Inside Housing and his book on the Grenfell Tower fire, titled Show Me The Bodies, won the 2023 Orwell Prize for political writing.
The photo is by Michael Tubi via Shutterstock.
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