14 Apr 2022

Our housing system - how did we get into this mess?

Academics often refer to housing as being the “wobbly pillar” of the welfare state.

Health, education and social security are believed to form the more robust pillars. Health and education approach universal coverage, and are predominantly provided by the state. Whilst social security is more dependent on means-testing than was envisaged by Beveridge, it retains (near) universal elements, notably the state pension.

In contrast, housing is almost always provided primarily by the market. State interventions often take the form of correctives - focusing on needs that the market does not provide, but never seeking to supplant it.

One of the paradoxes of housing policy over the 30 years since the UK Housing Review was first published, is that whilst (most) governments have been profoundly suspicious of state provision of housing, they have themselves become ever more embroiled in the housing market.

Local authorities were, argued the Secretary of State in 1988, simply too big. Managing 50,000 or more homes was “an enormous administrative and management task” resulting in “tenants feel[ing] like supplicants.”

It was this suspicion that led Conservative Governments to promote housing associations over local authorities as social landlords - a policy pursued with even more vigour by New Labour governments which used stock transfer as a condition for financial support for upgrading the stock.

The convenient - and seemingly merely technical - justification that borrowing by housing associations did not score as public expenditure was exposed as nonsense when the OBR moved housing associations into the public sector until the necessary regulatory tweaks were made.

Government debt rose for the period that associations were counted as being in the public sector, but the Treasury said it mattered not a jot.

Even as capital subsidies have been reduced in England, housing associations are effectively controlled by government that, for example, ordered them to reduce their rents.

The rise of homeownership, too, at once symbolised independence from the state, but was heavily reliant on it. Helped along by Right to Buy and favourable tax treatment, its rise represented a social revolution.

But like so many revolutions it devoured its children.

It did so because it became conflated with wealth accumulation through rising house prices. Making a virtue of this, governments began to talk of “asset-based welfare.” Certainly, an important attraction of homeownership is that those who retire having repaid their mortgage will experience lower housing costs - a compensation for the UK’s rather ungenerous state pension.

But at its high point, governments took asset-based welfare a stage further, hoping that the greater “liquidity” of housing wealth that meant it could be turned into cash without moving. Some commentators characterised this as a way of “compensating” workers for lower and middle earnings that were beginning to lag behind; even a form of privatised Keynesianism.

If this were a strategy, then it was doomed to fail as the rising house prices that were needed to create the wealth to boost consumption increasingly priced out younger people, who became dependent on the private rented sector, locked out of the wealth machine.

And so the stage was set for housing to become a V8 engine of inequality.

We moved into an era of ultra-low interest rates after the Global Financial Crisis, but access to cheap finance was limited to those who offer a substantial deposit. And these were increasingly the people who already owned houses, and who joined the growing numbers of buy to let - and later Airbnb - landlords.

The response to this predicament took the form of Help to Buy, which injected over £21 billion into the housing market. Evaluations demonstrated that the scheme mostly helped people who could already afford to buy a house, to buy a bigger one. It also pushed up prices still further in tight markets.

Now that the state has become a major owner of housing equity, it also means that it has a direct interest in maintaining house prices.

How did we get into this mess? And, more importantly, how do we extract ourselves from it?

A good starting point is to understand housing as a system with distinct institutional elements: consumption, production and finance that interact with one another.

It is also important to understand that how these interact with macro-level phenomenon such as monetary policy, and with the way in which labour markets, taxation and social security systems distribute cash income in the first place.

A system-wide understanding of housing should be drilled into policy makers, wherever they sit. As Bob Dylan sang (though without reference to the housing system!): “How can you criticise what you don’t understand?”

This would open the door to a more strategic view of the state and the market.

The experience of the last 30 years is that there is not - and cannot - be a functioning housing system without the state playing an active role. It is equally naïve to assume that the state can run everything: markets emerge in one form or another even in state dominated systems.

In production (land supply, planning, subsidy, provision), in consumption (tenure, taxation, subsidy) and in finance (regulation) the state can play a role in shaping market institutions for social good. 

This was once understood - perhaps implicitly - across western Europe and North America.

It is time to relearn it, fast.


CIH members can download a free copy of the UK Housing Review from the CIH website publications listing.

If you’re not a CIH member, you can view the executive summary. Alternatively, you can purchase a PDF copy of the UK Housing Review from the CIH Bookshop.

Written by Professor Mark Stephens

Mark Stephen's is a Professor of Property and Urban Studies at the School of Social & Political
Sciences, University of Glasgow. He is also the lead author of the UK Housing Review.