UK Housing Market in Crisis-Mode with Homeowners Desperate for Development
By Alexander Reed @ Real Estate Daily
May 8, 2018

The UK housing crisis has been a long-time coming. Homelessness levels are rising every month, and young homeownership is plummeting to record lows. Although many experts have made proposals to help “fix” the housing problem, including London mayor Sadiq Khan, most fail to address the crux of the crisis.

Larry Elliot, the economics editor for The Guardian, says the issue is a systematic flaw in the housing system. Elliot refers to legislation from 1961 that allow landowners, in the event of a compulsory purchase, to be reimbursed for its standing value as well as potential future value. This legislation has created a housing environment that incentivizes landowners to hold onto property, and home-builders to build more expensive properties.

Key Takeaways

  • The UK housing crisis is worsening every month as homelessness levels rise and young homeownership plummets
  • London mayor Sadiq Khan wants to increase the supply of lower-cost homes by expediting private development proposals with at least 35% affordable units
  • Many proposed solutions to the housing crisis are misguided because the problem is more deep-seated than it appears
  • Both the Labor party and Conservatives said the current system is weighted too heavily in favor of landowners


Theresa May is right. Britain’s housing market is broken and needs fixing. Homelessness and rough sleeping are rising and owner-occupation levels for the young have collapsed because homes have become unaffordable.

The average private rent in London accounts for more than a third of household income. The bill for housing benefit has risen eight-fold since the early 1980s after inflation is taken into account. House building has risen since the lows reached during the financial crisis of a decade ago but needs to almost double to hit the government’s target of 300,000 new homes a year by the middle of the next decade.

Yes, the housing market is broken all right and for the Conservatives, a party that sees itself as the party of the homeowner, it is a serious political headache.

A crisis has been brewing for decades – and left unattended the problem can only get worse. Britain has a rising population and the trend is for smaller households, both of which mean demand for housing will keep on rising. The weak growth figures for the first three months of 2018 will keep borrowing costs on hold for now but sooner or later the Bank of England will raise interest rates. That will make it still harder for people in their 20s to get a foot on the housing ladder.

The problem is so big, however, that changes have to come. London’s mayor, Sadiq Khan, wants to increase the supply of lower-cost homes in the capital, so under City Hall guidelines private development proposals where affordable units make up at least 35% of total will be fast-tracked through the planning process. Under 35%, and developers can expect a much tougher time.

But as Daniel Bentley argues in a new pamphlet for the thinktank Civitas, the problem goes deeper than the planning system. Forcing councils to grant more planning permissions in high-demand areas doesn’t guarantee that the supply of new homes will markedly increase.

The reason for that, Bentley says, goes back to the 1961 Land Compensation Act passed by Harold Macmillan’s government. This enshrined in law the right of landowners, in the event of compulsory purchase, to be reimbursed not only for the value of their land as it stood but for its potential value if it were used for something else in the future.

A system so heavily weighted in favour of landowners had two consequences. First, it provided them with an incentive to wait, often for years, before selling their land for development because they would get a higher price. Second, house-builders had to recoup the costs of buying the land and did so by building more expensive properties that were drip-fed into the market to keep selling prices high.

Reforming the 1961 act so that public-sector bodies can purchase land at less than its prospective residential use value makes sense because it would enable developers to get hold of land more cheaply and so build more affordable homes. Nor would it be an especially controversial move politically.

Judging by their 2017 manifestos, Labour and the Conservatives think the current system is weighted too heavily in favour of landowners, who see the value of their holdings increase not through their own efforts but through those of others.

View the original article at The Guardian