UK might solve its housing shortage by 2100

Matthew Brooker and Marcus Ashworth 

BRITAIN needs to build a lot more houses. Few who have observed the country’s unaffordable home prices and soaring rents disagree. All it is getting at present is political squabbling.

Members of the opposition Labour Party in the House of Lords succeeded last week in blocking a government proposal that would have eased environmental rules to enable the building of 100,000 new homes.

The two main political parties, which agree on the need for more construction, traded insults over the outcome, with the ruling Conservatives condemning Labour as “blockers” for frustrating a plan that the opposition had decried as “reckless”.

The more important takeaway is that the proposal was a drop in the bucket, in any case. The 100,000 was for the period through 2030, or about 16,500 homes a year. That would still have left construction well short of the government’s goal of building 300,000 homes a year.

The Conservatives did not come near to meeting that commitment in any year, before downgrading it to an advisory target in December. Net housing supply reached a post-2000 peak of about 243,000 in 2019.

The extent of the housing predicament is even worse compared with most European nations. Britain built less than any other western European nations in the six decades through 2015, according to research by the Centre for Cities. The London-based think tank calculated how many extra homes the UK would have if it had built at the same pace as its peers: The figure ranged from 1.6 million, using Switzerland’s rate of homebuilding, to 8.3 million using Finland’s. The average was 4.3 million.

It would take more than half a century to make up a deficit of 4.3 million homes at the government’s targeted rate of construction, the group estimates. Clearing the shortfall would take 25 years even at a rate of 442,000 homes annually – a pace of housebuilding that the UK has never achieved in the post-war period. In London alone, there is a shortfall of nearly half a million homes, which would take 14 years to construct at recent rates, Capital Economics said.

The reasons behind the UK’s housing shortages – and worsening affordability – are manifold and complex, and are not all supply-related. An average home in England cost 8.4 times median earnings in the year ended in March 2022, a ratio that has almost doubled since 1999, the latest figures from the statistics office show.

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That trend has much to do with the decade and a half of rock-bottom interest rates that followed the global financial crisis. A lack of available properties is certainly a factor in the misery of Generation Rent, with broker Hamptons showing the growth in rental costs reached an annualised 12 per cent in August. 

But in considering the barriers to increased supply, one factor stands out among all others: the planning system.

Britain’s underperformance in home construction dates to the immediate post-war period and the passing of the Town and Country Planning Act 1947. The legislation vests decision-making power on planning applications in local councils. Elected local representatives can reject applications even when they conform to planning policies. The system has been a key driver in the rise of the “not in my back yard”, or Nimby, phenomenon. In effect, most people recognise the necessity of building more homes somewhere – just not near their own.

Most countries do not do it this way. More often, they have legally binding land-use zoning policies, so that any plan conforming to the overall policy is approved automatically. Such an approach would give certainty to developers and clear logjams caused by the current system. The government has considered introducing such changes, with a White Paper published in 2020 including proposals for a zoned planning system and a national housing requirement that local authorities would have to meet.

Britain already has the National Planning Policy Framework, which is meant to improve process and accountability, but this is evidently no longer fit for purpose. All it serves to do is accentuate the divide between local council planning departments, elected representatives who ignore the advice of their own planning officials, and the big developers that dominate house construction.

A zoned planning system would help small developers and self-builders that do not have the time or resources to get caught up in red tape that can stretch out for years. Such operators have been increasingly squeezed out in the UK. Just 7 per cent of homes in Britain are self-built, while in Austria it is 10 times that number. In Germany and Italy, more than half of new homes are self-built.

The UK’s planning system is ripe for a reset. And the certainty of local resistance to change means this should be a national conversation – ideally with all the main political parties on board. A cross-party parliamentary commission would be a good place to start. 

Expecting cooperation in the run-up to a general election may be fanciful. But there will be opportunity to regroup once the ballot has been held, probably next year. It is an issue that is too important to be left to cheap point-scoring. BLOOMBERG

Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure out of London. Marcus Ashworth is a Bloomberg Opinion columnist covering European markets