There is broad agreement that Britain’s housing system is in a deep crisis.
Rents are now at an all-time high. Prospective tenants increasingly find themselves having to bid for properties, pay months of rent upfront, and engage in lengthy “audition” processes to prove they are worthy enough tenants to get a property. Earlier this year, I was lucky enough to get myself a tenancy in South London by having my name pulled out of a hat. Renting, once the fallback option for those who can’t afford a deposit or secure a social tenancy, it is becoming more like a luxury.
Across England, over a quarter of a million people are homeless. The number of people trapped in temporary accommodation is now at its highest point for nearly two decades. Millions of renters are faced with mold and other serious hazards, with 14 percent of homes classified as “non-decent.” Figures from Shelter in 2021 found that the health of one in five renters is being harmed by poor housing and that four million people report cutting back on essentials to pay for housing costs. With rents soaring over the last year, these figures are unlikely to be representative of the peak of the current housing crisis.
At the other end of this polarized system, additional property ownership has doubled in just two decades. Around £1 trillion of wealth is now stored in second homes and Buy to Lets. And, since 2000, the equivalent of three of every four new homes have gone to the private rental sector — despite most people preferring to own their own home or rent from a social landlord.
There are over 250,000 long-term empty homes in England, with more houses empty in the short and medium term and many second homes that lie empty for much of the year. This is a system of housing defined by gross inequalities of almost every conceivable kind.
More Home Ownership Is Not the Answer
In this context, Labour’s decision to center higher levels of debt-financed homeownership and house-building, rather than stressing public housing and renters rights, in the local elections and Starmer’s recent housing speech, was ill-judged.
To meet its target of achieving a rate of home ownership of 70 percent by the end of the first term, Labour would need to support around 5 percent of households to become first-time buyers through its “mortgage guarantee scheme” — around 1.2 million. In the UK, the average mortgage size for a first-time buyer is currently £198,779. With this in mind, achieving the target without enormous state subsidy would involve significant increases in the national level of household debt. To illustrate, at current prices, mortgage levels and population levels, this would involve around £240 billion of extra debt. Accounting for population growth, the figure would be still higher. The split between private households and the debt taken on by the public sector is unclear, but under the most recent iteration of the government mortgage guarantee scheme, households borrow everything. It is, after all, a “guarantee,” not a grant or loan.
Achieving this with massive state subsidies would likely involve handing over large sums to prospective first-time buyers. This would be the predominantly middle and higher-income households who would meet the income-to-loan ratio and can afford to shoulder mortgage payments. While Labour may want large numbers of low-income households to participate in its mortgage guarantee scheme, this seems implausible within the financial system’s current rules, while scrapping rules like the loan-to-income ratio would encourage riskier lending.
Even if this process involved the state providing large loans on top of the mortgage, as was the case with Help to Buy, people on lower incomes would disproportionately struggle to access the scheme — someone on a low wage is going to struggle to borrow even 60 percent or 70 percent of a flat price in their area. An expansion of private household debt at this kind of scale would also present potential risks to the financial system, with ONS and Bank of England figures suggesting household debt is already approaching pre–financial crash levels.
Given Labour’s targets to cut the national debt, large-scale public subsidy seems both unlikely and an odd choice of priority. Building council housing at scale, on the other hand, would provide housing for working-class people with permanent tenure without saddling people with the debt accompanied by mortgage lending, while being genuinely accessible to those on low incomes.
This is no argument against universalism; essential services should be truly accessible and affordable (and ideally free). But means-testing becomes even worse when, by political calculation or flawed design, you exclude swathes of those on the lowest incomes.
Like the Help to Buy scheme, which involved £22 billion of public lending (enough to fund around 220,000 council homes, and the government’s stamp duty cuts) that could have funded over 180,000 new council houses over this decade, this policy approach risks prioritizing public spending that could further inflate house prices while leaving out those on lower incomes. It would be better to fund the public housing we desperately need.
While Labour has also pledged to restore “social housing” (itself including a wide range of tenures and affordability levels) to the second-biggest form of tenure, there are two catches. The first is that the private rental sector is only slightly bigger than the social housing sector. The second is that if Labour achieved its 70 percent homeownership target, it would also likely meet its social housing target by default. This is because expanding owner occupation will most likely involve reducing the size of the private rental sector, as swathes of private renters move on to become first-time buyers.
Fixing the Housing Crisis
If you look across Europe and much of the wider world, there is no correlation between high rates of homeownership and better social outcomes in housing. Many of the places with the best social outcomes in housing, like Vienna and the Netherlands, are characterized by lower rates of homeownership. With this in context, the UK’s obsession with homeownership as a necessity looks increasingly flawed. Instead of a mortgage guarantee, a better alternative might be a “Council Housing Guarantee.” When landlords decide to up and sell, sitting tenants could request that the council purchase the property. A state financial institution, at the national level, could finance the transaction by drawing on the comparatively lower borrowing rates available to government.
Labour has recently centered the government’s target of three hundred thousand new homes a year, recently watered down, as a priority for a prospective Labour government. The government’s own 2018 study undermines this claim, suggesting that building three hundred thousand homes a year for twenty years would only put a dent of 6 percent in house prices. While any cut in house prices is welcome, this suggests that the role of private housebuilding in ending the affordability crisis is overstated.
Recent comments from Starmer also raise questions about the ability of mass house-building under the current system to bring down house prices, with Starmer noting — not incorrectly — that many new homes are “expensive executive housing,” rather than homes affordable to people on ordinary incomes. In London, where this trend is the most acute, around 23 percent of new builds go to buyers overseas, while 29 percent are purchased as second homes, a growing proportion of new houses are sold for use as holiday lets, and a rising number go to institutional investors.
Labour has pledged to prevent more than 50 percent of new builds going to those abroad. But given that the status quo is well below this threshold, this would allow for current practice to continue unabated. While these trends are less pronounced outside London, they are still powerful across the country. At the other end of the scale, only 22.5 percent of new homes last year were “affordable” homes available for renters, and less than 2 percent of new homes were for social rent — the only tenure affordable for those on the lowest incomes.
It is increasingly plain to see that the current balance is dramatically skewed toward homes for better-off households and, in particular, multiple property owners. Labour has shown some limited signs that it is concerned about this. But tinkering with planning rules — without the will to genuinely tilt the balance away from developers or fund council housing at scale — will do little to rebalance the housing system.
Since 2017, the biggest seven private developers alone have handed around £8 billion to shareholders — enough to comfortably fund eighty thousand council homes. According to research from Sheffield Hallam University, these developers make a markup averaging over £60,000 per new home built. Without a major shift in the kind of homes we build, a large uptick in house-building could offer more for the shareholders of the big developers than the housing prospects of people on low and average incomes.
A government willing to confront the housing crisis head-on, rather than focusing on fostering owner occupation and the numbers game of maximizing private house-building, would do better to look at other options. Public borrowing and the money ploughed into tax reliefs and subsidies for home buyers both offer clear routes to building council housing at scale or funding acquisitions from the private sector. Ending Right to Buy, which has robbed the public sector of millions of low-cost homes, should be a given. The inflated price that landowners are legally entitled to when they sell for new house-building, known as “hope value,” should be abolished altogether. This would offer a route to cutting the cost of a new build dramatically and overnight.
The housing writer Vicky Spratt has argued that those without high salaries or help from well-off parents risk becoming just people who are “renting from the bank” when they buy their own homes. But wouldn’t it be preferable to rent deposit-free from a public landlord, an institution you own? Instead of the grim dichotomy of forking over rent to a private landlord or a bank, we could do so much better.