How Government Wrecked The London Housing Market

Struggling to find an affordable house in London? Don’t blame rich Russians, blame the State.

London faces a housing crisis, probably the worst since the effects of the Blitz were felt. House prices are rising, fast. Between August 2012 and August 2013 prices increased by 8.1% on average, and rents rose in a similar manner.

There are plenty of reasons for this: institutional investors treating Prime Central London property as little more than a tradeable commodity; an international elite desirous of metropolitan life; welfare reforms of various kinds; the continued reduction in household size; and massive population expansion in the capital.

Of course, all of these things could be manageable if it weren’t for one colossal problem, which is by far the biggest reason for rising prices – simply not enough houses are being built. Not nearly enough in fact. According to the last census an estimated 40,000 houses need to be built per annum just to stay still. Yet in 2010-2011 the number actually built was less than half of that. The cumulative number is also getting worse, precisely because the housing deficit is not a new phenomenon.

The effect this is having is disastrous. Housing is an unavoidable expense, and when it rises more people are pushed into poverty. In their 2013 Profile, the New Policy Institute observed that ‘housing costs turn London from a place of average levels of poverty to a place of high poverty’. And if people can’t stick it they are forced out of the city altogether.

Worse, higher rents mean higher levels of housing benefit. This is particularly unhelpful when one considers that housing benefit goes straight from the government to the landlord. In effect the taxpayer is subsidising the very rentier class who are part of the problem, to say nothing of the damaging fiscal effects higher housing subsidies have.

Another of the unfortunate ramifications of this ruinous period of higher house prices is to reduce the levels of homeownership, probably for the first time in recorded history. Fewer than 50% of Londoners are now homeowners, down from almost 60% a decade earlier. Even leaving aside the idea that home-ownership is a self-evidently good thing, this could well be very damaging for the small-government cause. Imbuing someone with their own land can help frame their thinking in an individualist manner. By comparison subsistence on a variety of benefits just to be accommodated with a place to sleep can make people reliant on a larger state to protect their immediate perceived interests.

What then is the solution? Well, it is submitted that the bulk of the blame can be placed squarely on the government’s shoulders. There is a very constrictive greenbelt around London. Within the capital there are extremely onerous planning laws determining height and size of potential property developments. Additionally, the regulations around residential construction are supremely onerous. All of this has served to restrict supply at a time when demand is rising strongly – hence the high prices. In short, the government has broken the housing market.

Now, the greenbelt is a good thing, preventing the spread of the Great Wen into the surrounding Home Counties, none of which would be likely to welcome (further) urbanisation. The better solution therefore is to reduce restrictions within London. Should market failure continue to occur, the government should step in.

The state’s record on house-building in Britain is abominable, one only needs to look at all the ghastly 70s tower blocks to get confirmation of that. Instead it should adopt a somewhat more capitalist-friendly technique: creating an independent property company injected with several billions of capital, laid down by Royal charter, with a specific remit to construct affordable houses. If it works, it could then be privatised when its job is finished, or if it is stable. Such an action would increase supply, and increase affordable supply, and deflate prices over time.

On the face of it this is anathema to small government types. But if something isn’t done, and done soon, then the left will begin to suggest more radical solutions, which could well catch on, much as has happened with Ed Miliband’s ludicrous energy pledges. On housing it is better to take a pragmatic approach than become vulnerable to genuine redistributionism.

It is wrong therefore to think that a government housing scheme is a highway back to big government. Instead it is doing nothing that makes it more likely that Britain will be put back on the road to serfdom. And a few more homeowners might even be created in the process…

Lucius Winslow


  1. this websites opinion generally seems to be simplistic and behind the times. ‘the left will begin to suggest more radical solutions, which could well catch on, much as has happened with Ed Miliband’s ludicrous energy pledges..’ wow you are SO far behind…..


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