All the wrong moves for British homeowners
The law of unintended regulatory, fiscal and monetary consequences has stopped investment in its tracks
[LONDON] When it comes to housing policy, the British government motto ought to be: We have met the enemy and it is us.
The law of unintended regulatory, fiscal and monetary consequences has stopped investment in its tracks. Left to its own devices, the market functions pretty well. But right now, for everyone from the homeless to first-time buyers, it’s essentially paralysed.
Getting specific, according to the OECD, homelessness in the UK is almost 40 per cent higher than the next-worst member country (France), and the problem is getting worse. The annual rate of growth in those without a permanent home is now 14 per cent, according to the housing charity Shelter.
At the same time, many of those who bought their first homes at any point in the last 15 years has most likely seen the value of their properties stagnate or even fall in real terms. Adjusting the Nationwide UK House Price Index for inflation shows that the average home today is worth roughly the same in real terms as it was in 2003.
This isn’t the kind of improvement in housing affordability that can do anyone much good. Falling real values are largely a function of the increased costs associated with property ownership: a sharp rise in mortgage rates and the expense of meeting all manner of new regulatory requirements – from fire safety and mold prevention to energy efficiency.
More importantly, these same costs are being faced by housing associations, the not-for profit providers of homes let to low-income families and key workers at discounts of up to 50 per cent. This severely compromises the associations’ ability to meet the almost insatiable demand for social housing. Despite their increasing spending by 17 per cent in 2024 to £14.6 billion (S$25.3 billion) in 2024, little headway is being made in terms of providing new accommodation.
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Faced with rapidly rising costs, and successive governments more minded towards austerity than investment, social housing waiting lists have spiraled to 1.5 million people with the average wait for a family-sized home in London projected at 27 years.
The disconnect here is that local government has a statutory duty to provide emergency accommodation to homeless families – at a cost that Shelter and others project will rise to £22,000 per year per family by 2029. So while one arm of government is cutting spending and limiting investment, another is forced to pick up the huge costs of the consequences. The result is little or no net new investment.
An indication of this can be seen by looking at recent property auctions – where buyers and sellers, attracted by the prospect of cutting out all the delays associated with real estate agents, exchange contracts the moment the gavel falls. Housing associations were the largest single sellers at Savills’ May property auction. All the properties offered for sale required some modernisation and most won’t meet new energy efficiency requirements being introduced in 2028. Lacking the funds to improve, the associations are robbing Peter to pay Paul to keep as much of their existing inventories as serviceable as possible.
The tragedy is that this investment squeeze also means that local government programmes designed to address homelessness are instead resulting in tens of thousands of brand new homes standing empty. Local housing planners have the power to mandate that a certain portion of each new property development is set aside for social housing. Typically, housing associations would buy this stock. However, with the associations struggling to maintain their existing portfolios, let alone expand them, these properties are going unsold. According to a survey conducted by Savills, more than half of the top 30 associations have either cut or completely halted such purchases.
With the logjam over social housing, developers lack the means and incentives to add fresh supply, resulting in UK building activity contracting at the fastest pace since the coronavirus pandemic.
With so much going wrong, it’s tempting to throw up your hands in horror, but there are some specific measures that can be taken to at least alleviate matters. Local councils, faced with huge bills to provide emergency accommodation, are recognising that any help that they can provide to housing associations will mitigate the cost to them of the housing crisis. Even the central government is providing some limited grants to help smooth the process.
The basic issue, though, is that, even as investment is falling far short of what’s required, private investors are being discouraged from playing a role. In the past if housing associations needed to move stock on, they would sell to private landlords who would refurbish the property and put it back into use. Today, landlords are selling up, withdrawing their capital, at precisely the moment at which government resources are at their most stretched.
While it’s clearly not ideal to have more than 50 per cent of the private rental market controlled by “mom and pop” investors with just a handful of properties each, actively discouraging such capital is having rather predictable consequences.
However it is achieved, the overwhelming priority has to be to make Britain’s property market investible once more. That doesn’t mean a bonfire of regulation and a prioritisation of profit over safety. It does mean though that we have to make investors fall back in love with property by being smarter and more coordinated in our objectives and actively directing cash (private and public) to the choke points that are the real cause of Britain’s housing emergency. BLOOMBERG
Stuart Trow is co-host of Money, Money, Money on Switch Radio and author of The Bluffer’s Guide to Economics.
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