I am firmly of the belief that housing is a human right and something that is essential for a happy and healthy life. States should do their best to ensure secure, safe, and affordable housing for their citizens. Unfortunately, the neoliberal shift in the late 20th century has left us in a situation where housing is unaffordable for so many, regardless of whether they are renting or buying. The explosion in private landlords and the normalisation of housing as an investment has ratcheted house prices over recent decades; for most this has seen their assets increase in value, but we are reaching a precipice now where younger generations are unable to get in on the market. There will come a time when prices simply cannot continue to rise, what then? Why have prices risen so fast and so reliably for so long and what can be done?
The Economics
The housing crisis is upon us now. Some will lead you to believe the housing crisis is born simply of a lack of supply and to solve it we just need to build more houses. I can understand this somewhat, there’s definitely a shortage of properties in certain areas. Given the hands-off approach from the government when it comes to funding , and frustratingly unfavourable planning legislation , house building numbers are way below targets.
This supply-side theory may hold some water, but it begets a solution centred around a vast house-building program. This is a problem on a number of fronts, firstly that house building is incredibly carbon intensive and ecologically damaging. Secondly, it is in the interests of the housing developers to restrict demand and keep prices high. There is no incentive for them to build at the scale asked for by the government, so why should they? They can hoover up land, get planning permission and sit on it as the price rises before deciding to build or sell the plot. Handing out incentives to the builders seems economically irresponsible when the housing they are providing is already of a terribly poor standard , and they are raking in ever higher profits. At the same time, there are few incentives for local communities to accept new housing developments with NIMBYism a key tenet of so much local politics.
If a lack of supply puts upward pressure on prices, then the financialisation of our economy since the 1980s has been the fuel to the rocket. Thatcher’s drive to deregulate the housing market and, in Michael Heseltine’s words, “transfer… so much capital wealth from the state to the people” began early into her premiership. The theory sounded good on paper; in an effort to shrink the size of the state, the government would sell off masses of social housing owned by local authorities, allowing millions to get their first step on the housing ladder. In practice, it has lead to social housing waiting lists expanding and the decimation of the state’s housing stock.
Thatcher’s choice to remove rent controls while at the same time offer up social housing, on the cheap, through her Right to Buy scheme lit a fire under the housing market. These circumstances set in motion an economic revolution that only accelerated as interest rates plummeted to historic lows in the early 2000s and owning property became a reality for millions. As the liberalisation of the housing market expanded, people saw the benefits of rising house prices. Buy a second property on cheap credit with a buy-to-let mortgage and rent it out to cover the monthly payment, then as prices continue to rise, you’re set for a windfall when you decide to sell. This is why the number of private rental properties has more than doubled in 20 years.
Like any financialised commodity, potential future returns will have a great sway on prices today. In the context of housing, these future returns can be seen through rental yield for landlords. The higher the potential yield for the landlord, the greater the house price will be because the promise of greater returns in the future is high. In Marxist economic theory, this is known as capitalisation . The value of an asset becomes detached from the underlying rental value thanks in part to the monopoly rents that housing can demand; as yields increase, so do prices . And this is the case for all properties, not just those being rented, as properties will be priced with a potential future rental value in mind regardless of intended use.
Some of the natural controls within free markets are almost non-existent in the context of housing. There’s next to no supply-side competition in the rental market, as land is in limited supply, and it is difficult to construct new properties quickly. When choosing a property, tenants must balance distance from work and social interactions, the size of the property, proximity to essential infrastructure, and properties that allow kids or pets. Given the physical constraints on building and space, there will be few properties that tick the most important boxes of a prospective tenant, and even less should their chosen property disappear from the market. This leads to perfect monopoly rent conditions. Tenants are ill-equipped to negotiate on price because the natural controls within a market, such as competition, are non-existent. They are then forced to accept properties that do not meet their needs just because the price is at a point they can afford, or so they thought.
Competition is rife on the demand side, however. The process of renting a property has turned into some sort of horrid battle between large numbers of tenants vying for a single property. Landlords are then in a position to choose who they want to live in their property. They will ask tenants for information about themselves, a CV of sorts, so that they can read through and hand-pick the best choice for them, a situation that is clearly open to bias and bigotry. They will even ask tenants if they are willing to pay an increased rent to secure the property, turning the hunt for somewhere to live into a humiliating and uncertain minefield. Should you look at properties at your budget limit? What if the landlord asks you to increase the price before you’ve even moved in? What is the landlord looking for in a perfect tenant? Housing shouldn’t be this difficult . People shouldn’t have to compete with each other in this way.
The Policy
In an attempt at making housing more affordable, successive governments have launched various schemes that sound, on the face of it, beneficial to all. While on paper, schemes like MIRAS Mortgage Interest Relief at Source and the various guises of Help to Buy sound like a great idea; who wouldn’t want government funded interest relief or hefty equity loans? Unfortunately, these schemes only serve to subsidise demand and drive up prices . They’re an obvious choice for governments that want to avoid a fundamental reorganisation of the housing market, but ultimately they do more harm than good. When large portions of the price of a house are backed by the government, the impacts of price increases are not felt so acutely by buyers. As such, sellers can inflate the price of their houses almost in line with the government funding while still attracting the kinds of buyers they would have done previously. Besides this, these schemes work to make the initial barriers to the market for first time buyers less daunting; in doing so they are essentially manipulating the market so people can get mortgages to own houses they can’t really afford , making them more susceptible to interest rate hikes or prices drops.
A lack of controls within the private rental sector means that prices are effectively free to rise without barriers. Adam Smith surmised that “The rent of land, therefore… is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give”. This holds true even today. With nothing to limit landlords from hiking rents as they please, the prices will continue to rise regardless of the condition of the property or lack of improvements made to them. This is why the quality of rental housing in the UK is so poor yet so expensive , not to mention small. There is no incentive for landlords to improve properties if they hold all the power.
To make this situation even worse, renting is incredibly precarious thanks to Assured Shorthold Tenancies introduced in the Thatcher years. These tenancies last for a fixed term, after which they revert to a monthly rolling contract. Around 60% of all ASTs in the UK have a fixed term of just 12 months, and 28% for just 6 months. When these fixed terms end, the door is opened to no-fault evictions Otherwise known as Section 21 notices, these give tenants two months’ notice to leave a property before court proceedings can begin . No-fault evictions are a travesty that cement insecure housing for millions of people. Tenants can never truly be secure in their properties with eviction on the horizon at any moment. This exposes a fundamental power imbalance that lies at the heart of the landlord-tenant relationship. Tenants seek leases from landlords in order to have somewhere to live; landlords are looking to get the highest price they can in the exchange. There are vast legal powers that landlords can exercise over their tenants to ensure the status quo continues, not to mention the lack of understanding among tenants as to their rights. The Tory promise to ban Section 21 evictions died a death with the 2024 general election announcement. With the writing on the wall and the law likely changing in the next parliament, landlords will be racing to remove their tenants and hike their rents before the law changes.
The Result
A menagerie of policy and economic factors have driven us to crisis point. Cheap credit and state discounted housing alongside a promise of a consistent return in the form of rent and an ever-increasing asset price are attractive for anyone looking to invest for the future. We can see the mechanisms by which the private rental sector has ballooned over the past four decades, and how this has a direct impact on house prices. The average house price to income ratio in the UK has risen from a little over 4 in the early 1980s to a little over 8 last year. It turns into a vicious cycle, housing is too expensive, so more turn to the rental sector, which further fuels the very investment in the market that has driven these problems.
For decades, steady price rises have fuelled the belief that they will continue to do so. As a nation, we have backed ourselves into a corner; we are heavily reliant on a ballooned housing market for the future wealth More than 50% of wealth in the UK is tied up in property . Any big shock to prices will have a devastating impact on the nation’s wealth. of our citizens. The government encouraged property investment boom leaves vast swathes of the nation in a precarious position, heavily mortgaged and unable to afford interest hikes or price drops for fear of negative equity. Ultimately, the conditions that allow for affordable housing and rampant investment in the housing market cannot co-exist. The two ideas are fundamentally at odds with each other.
This is why there is no simple answer. Whichever route is taken will lead to devastation for huge parts of society—either the side of homeowners is taken, or the side of renters. I believe the choice should be made in opposition to the status quo; this situation cannot continue as it has. We are already at crisis point and it will only get worse, with wealth being ever accumulated in fewer and fewer hands, siphoning off the income of millions of renters into non-productive investments. The political classes tell us time and again that we should be aiming for economic growth. What else would prohibit growth more than millions of tenants transferring upwards of 30% of their monthly income to their landlord’s pocket to hoard in other investments? Those on lower incomes spend more of their weekly income than those at the higher end, as well as more of their spending going towards taxes. Holding all of this income in assets is not economically productive. Houses do not spend money.
The Ideas
The housing market needs to be reformed with a more human centred view in mind. Regardless of how this is done, it will eventually lead to the decimation of the private-landlord as we know it. As the power balance is shifted towards tenants and landlords’ investments become unprofitable, they will look to leave the market in search for pastures new. Reform of this kind is not a quick process and one that will need plenty of planning and understanding of the interconnected nature of the economy; something, as a state, we struggle with . These ideas are focussed mostly on the rental market as it currently exists, and do not touch on the extensive changes to planning legislation that must happen in this country to reduce the power of local communities to block new-builds and greatly add to the time and cost of building.
In an ideal world, reform might look something like this: The first step should be to provide more security of tenures for tenants. No-fault evictions should be banned at the earliest opportunity. This will give tenants much-needed security; freed from surprise evictions based upon the whims of their landlord, they will be able to make longer-term plans for their lives and live without fear. Housing security is essential for mental and physical wellbeing , and it cannot be overstated how important it is for children to have a steady base from which to grow up. Strengthening tenures will inherently limit landlords’ freedom to raise rents. Without the ability to evict for the purpose of raising rents, landlords will be forced to negotiate.
Rent controls should follow, limiting the ability of landlords to increase rents mid-tenancy. Controls of this type were a part of the UK’s housing picture from the early 20th century up until Thatcher came to power and were instrumental in nearly eradicating private landlords in the 1970s. They are an effective break on the monopolising tendency that rents have, preventing landlords from exploiting increases in tenants income. These controls should be binding across tenancies so that if a tenant leaves a property, the previous prices must continue, to prevent situations where tenants are ’encouraged’ to leave a property to allow landlords to hike prices. If implemented poorly , rent controls can lead to poorer housing conditions. This is because if landlords are limited in their ability to rise rents, any maintenance costs are taken from their rental yield, meaning landlords are less willing to undertake maintenance that they are not required by law to do.
This leads us to the next suggestion, strengthening housing standards and enforcement mechanisms. The UK’s housing stock is in a dire state thanks to weak standards, the fact that enforcement lies with local authorities who are already under-funded and over-worked, and no mandatory registration of landlords. The UK should strive for the highest quality housing, which will not only improve tenants’ lives, but also go a long way to helping the UK’s environmental goals. To enforce these standards, the Department for Levelling Up, Housing and Communities should be given powers to inspect and prosecute landlords for substandard properties. Take housing cases away from the already stretched local authorities and out of the justice system, and instead send them to a dedicated institute with expertise in these matters and easily accessible representation for tenants. Ensure a system of registration exists so that tenants can check if theirs is legitimate and to give local authorities access to better data.
As their profits are reduced, costs are increased, and penalties are handed out, there will be few alternatives for landlords but to sell. To prevent a hugely damaging free-fall in the housing market when landlords start to sell up, central government should provide local authorities with favourable, low interest loans. This will allow them to purchase housing at cheaper prices and slowly replenish their social housing stock with the aim of tackling the abhorrent waiting lists that currently exist. Not only will this provide freedom and security for some of the most vulnerable people in our communities, but it will halt the transfer of government funds to private landlords that currently happens via housing benefit. More than £9bn in housing benefit is passed from the state to the pockets of private landlords every year. And for what long term benefit? The quality of housing is substandard, which leads to long-term health impacts, costing the NHS billions and putting children on the back foot from their early years. Spend that money on buying social housing and providing the much-needed maintenance needed.
Unused residential and commercial spaces are littered throughout cities and towns in the country. If high rents are not attracting tenants, owners will sit on the properties for years as the price rises before selling. These properties are perfect for retrofitting and developing, turning unused space into affordable and eco-friendly housing. Expanding compulsory purchase powers for local authorities will mean they are able to buy up these often abandoned and unprofitable properties on the cheap. Landlords will inevitably work to get their properties on the market, or refurbished for their own profit, rather than allow local authorities the opportunity to do so. It is a win-win. With these properties generally well positioned in town centres, it offers some unique opportunities to improve run-down areas.
New buy-to-let mortgages should be phased out, removing the tools so many landlords use to afford their portfolio. These mortgages have limits on the length of tenancies and strict rules on the minimum amount landlords must charge above their monthly payments. It is not hard to see how these products exploit all the mechanisms discussed above to increase house prices. If the availability of credit is reduced, new landlords will have a harder time entering the market. Yes, it will see rental properties become affordable for only the already wealthy, but with the other ideas I have floated, even these become difficult to justify.
As landlords leave the market and properties are purchased by the state, house-prices will decrease. This fall in house-prices will allow for new entrants to the market, but it will also, inevitably, lead to negative equity for so many that have bought properties at inflated prices and are mortgaged beyond their abilities. Careful and close negotiation with banks will need to follow to prevent destitution for those victims of a brutal system caught up in its undoing. Ensuring mortgages are negotiated to be non-recourse so home-owners that fall on difficult times will lose just their house and are not chased for funds long into the future will be essential. Perhaps a system similar to MIRAS, whereby interest relief was funded by the government for a number of decades, could help settle interest shocks for those with little equity. But as I stated above, this will need to be done with some care, as a blanket interest relief policy can put upward pressure on prices.
Utopia
The housing crisis does not have a simple solution, and anyone that tries to say we just need to build more is wrong. Anything done in earnest to improve things will lead to problems on a whole different scale. I will say, though, that we must do something. If we do not work to stop this cycle, we risk pricing whole generations out of affordable living. It is not even about the ability to buy a house, but even somewhere affordable to rent.
We must rethink our housing market and understand the damage that landlords are doing to it when they are left to run free. Housing is a human right, and we should limit the ways in which it can be exploited for gain. Unfortunately, given how much of the nation’s wealth is tied up in housing, any party contemplating implementing changes of this scale would be doing so with their own demise in mind—it would be political suicide. Given the short-termism in our political landscape, we won’t see anything like this anytime soon; but hopefully we can see the end of the rampant inflation of house prices and start work to control the unruly private landlordism that we have come to accept.
Update 12/06: With a general election just around the corner, parties are releasing their housing plans in their manifestos. I’m happy to see some positive suggestions from the Green Party including rent controls, and end to right-to-buy, and expanding on compulsory purchase for local authorities.
The Tory suggestions are a little less ambitious. They are promising to build 1.6m new homes, with no indication of planning reform to allow that kind of scale. They intend to expand the Help to Buy scheme, which we know just hikes prices. There is no indication of their intent to end Right to Buy or increase funding for new social housing.
The Lib Dem offering gives some hope that the consensus among other parties is changing. Alongside planning reform and incentives for communities to allow building, they intend to strengthen rental property standards and roll out a warm-home improvement scheme. They will ban S21 evictions and make three year tenancies the minimum.
Update 13/06: Labour launched their manifesto today which included some very interesting housing focused ideas. Mostly on the theme of house building, they’re promising to overhaul planning regulations to encourage more building, alongside introducing mandatory building targets. They promise to abolish S21 evictions and improve rental property standards.