Who's to blame for the Housing Crisis?

The UK has a housing crisis, consistently failing to build enough new stock in line with government targets. With house prices, social housing waiting lists and rent charges continuing to rise, in this short series of posts published over the next week, we’ll run through the numbers and what can be done about it.

Home ownership has been the UK’s post-war dream, but it’s a goal that has become increasingly difficult to achieve over the last 30 years. It’s become such a critical issue that it’s impact, in some way shape or form, will touch nearly everyone, regardless of age or financial situation.

As the number of households grows and the nature of work changes, a fluid housing market is essential to support social mobility. That means the supply and demand of homes need to stay in sync. However, when we compare the growth of the average UK salary to the rise in average home prices, a serious problem becomes clear…

In the mid-1990s, the average home cost x3 the average annual UK salary. Today, that home costs over 8-times the average [1]. Put simply, every time house buyers cleared the price/affordability bar over the last 30 years (thanks in no small part to cheap mortgage deals in the 1990s and early 2000s), the bar moved higher.

And the bar is delicately balanced. When demand begins to outstrip supply causing prices to rise, other factors - such as the slower growth in earnings, a rising interest rate for borrowing, more stringent lending criteria - begin to make ownership an unaffordable option for an increasing number of people. 

Those who can’t afford to buy must look to the rental market, but rental prices are now at an all-time high - because the supply of rental accommodation, both private and social, has decreased [2].

The generally-agreed solution is to build more houses. It seems obvious that with a greater supply of housing, prices will gradually fall into line with earnings and rents will also reduce, making everything - home ownership and renting - more affordable. But it hasn’t happened at the rate required.

Annual targets for building new homes were first estimated in 2004 with the number put at 120,000 per year (read our brief history of the New Homes Target here) and they have been continually missed. It’s since become an intensely political issue, but when mapped against the output of successive governments since the end of the 1980s, it looks like a collective failure.

The government’s official target is now fixed at 300,000 net additional dwellings per year (although many in the sector believe that even this number is a denial of reality). In this series of posts, we look at the data to understand where it’s gone wrong and whether the new government’s target of 1.5million new homes by 2029 can be met. Next - the change in home ownership.

notes & sources

1. In 1997, the average salary in England & Wales was £16,885 and the average house cost £59,950. By 2023, it was £34,998 and £285,000.

2. In 2023, there are 1.29m people on the waiting list for social housing in England.