Downloading PDF. Please wait... Issue 2055

The crisis in Britain’s housing

This article is over 14 years, 7 months old
The decade long surge in house prices is undermining the ideology of a "property owning democracy", writes Anindya Bhattacharyya
Issue 2055
Abandoned homes in Benwell, Newcastle. Ordinary families have been priced out of new developments in the city (Pic: Ray Smith)
Abandoned homes in Benwell, Newcastle. Ordinary families have been priced out of new developments in the city (Pic: Ray Smith)

The lack of affordable housing has become a political crisis for the main parties. For over a quarter of a century, the policies of British government have been geared towards a single goal – encouraging private home ownership.

Ever since Margaret Thatcher introduced the “right to buy” for council tenants in 1980, both Tory and Labour governments have promoted the idea of a “property owning democracy” where housing is decided by the market rather than the state.

But today this policy is in crisis. The past decade has seen house prices spiral upwards, while real wages have been held down. The result is that increasing numbers of people simply cannot afford to buy a house, and have little prospect of ever getting onto the “housing ladder”.

Combine this with the chronic shortage of council housing and you can see why millions of people – especially young working class families – despair of ever having access to a secure and ­settled place that they can call home.

The average household now spends some 36 percent of their earnings on housing costs. The last time this figure was that high was 1990, just before a housing crash which saw tens of thousands of homes repossessed.

Even right wing newspapers now acknowledge that there is a serious problem. “The future of house prices: ten times pay” ran a front page headline in the Times last week.

It noted that in 1995 the average price of a house was around three times average yearly earnings. Today it is six to seven times average earnings – and if current trends continue, this ratio is set to rise to ten by 2026.

The fact that it is becoming increasingly difficult for people to afford to buy a home is reflected in other figures. In 1993 some 55 percent of people buying a house were “first time buyers”. Ten years later this had dropped to 29 percent.

Today some 4 million people in England believe they will never own their own home, and 74 percent believe that sky-high house prices in their local area are a “problem”.

These figures prompted the government last week to launch an “advice unit”. But its proposed solutions involve little more than tweaking regulations in order to make the market “work” properly – rather than taking on corporate interests or offering an alternative to private home ownership.

In particular, the government insists that ever-rising house prices are fundamentally caused by a “lack of supply” of new private homes for sale and by “obstacles” to the development of an even larger and more complex mortgage market.

The solutions it offers are, on the one hand, to water down existing planning regulations in order to encourage the building of more private homes, and on the other, further deregulation of mortgages to encourage financial institutions to lend larger sums of money to people.

But these market oriented solutions are unlikely to have any serious effect. Private house building in Britain is dominated by a group of five or six companies, who are unwilling to dilute their revenues by building more houses.

Many of these companies already own land with planning permission to build on – they choose not to, since they stand to make more money in an environment of ever rising prices.

Moreover, there are already hundreds and thousands of privately owned properties up and down the country that are currently lying empty – some 291,000 private homes in England have been empty for more than six months, on top of over 75,000 in Scotland.

If you include second homes in the figures, then there are at least 680,000 empty properties in England.


It is the irrationality of the housing market that is responsible for this state of affairs. The long running boom in housing prices has encouraged property speculators to buy up houses and then just sit on them, in the hope of making a killing by selling them off at a higher price at some point in the future.

If “lack of supply” was the problem and “free markets” the solution, these empty properties would come onto the market – but they don’t.

So what has caused house prices in Britain to spiral upwards to historically unprecedented levels?

Ever since the Second World War, the ratio of house prices to annual earnings has hovered between three and five – it is only since the mid-1990s that they have climbed up to current record levels.

The crucial reason for this relates to the relationship between housing and other aspects of the economy.

One of New Labour’s first acts on getting elected in 1997 was to hand control of interest rates to the City and to deregulate financial services. This further fuelled the explosion of cheap consumer credit, which in turn has kept the economy afloat for the past decade.

The fact that interest rates on loans have been relatively low has encouraged people to borrow larger and larger sums, which in turn encourages those selling houses to put prices up. But this is a dangerous game.

If interest rates were to rise by just a few percentage points, many people would find themselves unable to make ends meet. This could trigger a crash in the housing market – leading to homes being repossessed – which would in turn burst the consumer credit bubble that the economy relies upon.

The ideology of home ownership also has a part to play in encouraging an unsustainable housing boom. Typically, papers like the Daily Mail and Daily Telegraph present rising prices as a good thing, since it means their presumed readership of “middle class” home owners are getting richer – on paper at any rate.

The other factor driving house prices upwards is the buy-to-let craze. Just as the number of people who can afford to buy their first home has been dropping, the numbers of people who already own a home but now want to buy a second or third to rent out has been increasing.


In 1999, financial institutions signed some 59,000 buy-to-let mortgages totalling £3.6 billion. Last year they signed 850,000 such deals totalling £94.8 billion. The number of people remortgaging their houses in order to get into the buy-to-let market, or to gain access to the value of their houses, has also shot up.

The overall picture, then, is of a housing bubble fuelled by cheap credit and rising numbers of private landlords – and this is all happening in a context of widening inequality and a freeze on people’s real wages.

New Labour’s dogmatic insistence on “market solutions” will do nothing to halt this vicious circle, since it is the market that is responsible for the mess in the first place.

Instead of producing ever more complex schemes to encourage people into the private housing game, the government should be taking on the vested interests in the City and the property industry that have allowed this chaos to fester.

These measures could include punitive taxes on second homes to discourage buy-to-let speculators and racketeers. The government could also crack down on the tax loopholes and breaks that encourage the rich to snap up private properties and leave them empty.

But ultimately we have to recognise that the whole notion of a “property owning democracy” is a mirage. It ­perfectly understandable why people want to own their own homes – we are relentlessly told that we should aspire to this status, and that it is the only means of gaining the security and personal space denied to us elsewhere in our lives.

Nevertheless, the private housing market has never been able to provide affordable housing for the bulk of people in this country.

The pro-market dogma currently embraced by all mainstream parties has been tried in the past – and it failed, leading to nothing but homelessness and exploitative private rents. That is why subsidised and council-owned housing was introduced in the first place.

Subsidised housing is the only serious means of housing people fairly and rationally, and council housing – which is democratically controlled by tenants – is the best means of doing that. Until the government recognises that fact, the misery and insanity caused by a boom-and-bust market will only intensify.


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