The government’s new mortgage plan is misguided. Only building more houses will nip the housing crisis in the bud.

This article was written by Lucas Blascos Argullós, Policy Fellow 2023-2024, and originally appeared in the blog of PricedOut. The views in this article are the authors own.

For decades, the dream of home ownership was not merely an aspiration but a tangible and reachable goal. However, it is being put increasingly out of reach by a planning system that prevents homes from being built, and by political leaders championing short-term political goals rather than long-term sustainable solutions to the housing crisis. All this occurs whilst rent prices spiral out of control and deposits become insurmountable. NIMBY attitudes and misguided demand-oriented policies like the government’s 1% deposit mortgage plan are destroying the home-owning aspirations of millions. Instead, the government should focus on reforming the planning system to, once and for all, meet the housebuilding targets that this country needs to allow the economy to grow and people to prosper.

The housing market is in crisis, and no other city is in a more precarious situation than London. The average London house price in 2023 was £536,000, compared to £264,500 in the rest of the UK. UK house prices relative to earnings have never been this high since 1876 and now are almost 10 times larger than earnings. And whilst the problem of unaffordable housing is one that affects all segments of society, young people and first-time buyers are disproportionately affected. First-time buyers account for 40% of movers, yet they also face unique challenges to do so. Between 1985 and 1995, the years needed to save for a deposit was around 4 years for UK houses and around 5 for properties in London. This number has since skyrocketed, with 13 years of savings needed for a deposit for an average UK property, and almost 30 years for London houses. This has created a crisis in emancipation and has deepened the social divide. The exorbitant housing prices and scale of deposits have forced many first-time buyers to rely on the “bank of mum and dad”, with now over 50% of first-time buyers receiving financial help from their parents. The reliance on parents to afford a home thus creates an important shift in home ownership opportunities between those with affluent parents and those without. Now, an average 35-year-old with home-owning parents is three times more likely to be a homeowner than their peers whose parents rent. Housing wealth is becoming entrenched, increasing inequalities and depriving a whole generation of the dream of home ownership.

This policy failure stems from the draconian and overly bureaucratic nature of the UK’s planning system, which dates back to the Town and Country Planning Act (TCPA) of 1947. The TCPA was drafted as a solution to regional inequality by devising planning policies aimed at reducing the population of urban centres. The resulting planning system regulated land development to the point where land exploitation would only be allowed if it was considered by local authorities to comply with local rules. 

Nowadays, developments must be approved by local authorities and can be appealed, meaning that decision-making on land development follows a case-by-case basis. Too often, appeals come from a minority of local stakeholderswho wish to maintain the prices of their properties artificially high, or who are concerned about the change in the nature of their neighbourhoods if new developments are approved. To all effects, this means that an application for a development project can be refused permission despite complying with local plans. As the Centre for Cities (2023, 33) soberingly explains, the consequences of the UK’s land development and planning system are that “instead of all land being available for development unless it is prohibited, development is prohibited on all land unless a site is granted a permit”. This renders decision-making on land development projects unpredictable, de-incentivising private developers from submitting housing plans, or rejecting them when they do despite complying with local rules.

This draconian planning system has created a housing shortage of 4.3 million homes across the UK, according to the Centre for Cities. The UK is facing a severe lack of supply, whereas demand has steadily increased throughout the past decades. Between 1970 and 2022, UK house prices increased in real terms by 441%, but construction rates fell by 46%. Inadequate supply is driving housing prices upwards. Thus, measures targeting demand rather than facilitating supply are ill-equipped to solve the housing crisis. This is why the government’s rumoured plan to introduce 1% deposit mortgages is bound to fail. Short-term, demand-oriented measures are counterproductive when addressing a supply-driven crisis. Demand-inducing measures have already been tested and have consistently failed. The Government’s Help to Buy equity loan scheme, for instance, only added fuel to the fire. Intended as financial aid to first-time buyers, Help to Buy resulted in a property price increase in real prices in places where supply was constrained and housing was already unaffordable, such as London. The government’s 1% deposit mortgage plan would have the same effect.

A supply-driven crisis necessitates supply-oriented solutions. Since 2009, Minneapolis has reduced minimum parking requirements, permitted housing to be built near transit corridors, and established minimum height requirements for high-density areas. These pro-housing initiatives have delivered results, especially compared to the rest of the state. Between 2017 and 2022, Minneapolis has added 21,000 new homes, resulting in a 12% rise in housing stock, compared to a 4% increase in the state as a whole. Additionally, average rent has only increased by 1%, and homelessness has fallen by 12% – compared to a 14% rise in both across the rest of the state. The evidence consistently shows that building homes works.

Britain must build again. Squeezing demand without addressing supply has only made the housing crisis more severe, and the government’s 1% deposit mortgage plan is bound to have the same result. Policymakers should instead acknowledge that the single best remedy for the housing crisis is reforming the planning system to facilitate homebuilding. A country cannot prosper when segments of its society, especially the youth, spend up to 47% of their income on rent. The worsening housing crisis and Britain’s decade-long lacklustre economic growth are harrowing, but we must realise that we have the necessary policy tools to turn the tide. Housing affordability is a policy choice, so it is time for our leaders to have the courage to turn their backs on NIMBYism and embrace pro-housing reforms.