Evaluating UK Housing Policies to Tackle Housing Affordability
Introduction
For decades, the UK housing market has been defined by two persistent and problematic characteristics. First, house prices have risen dramatically over the long term, far outstripping both consumer price inflation and household income growth. Between 1969 and 2010, UK house prices grew 47-fold, while incomes grew 33-fold and consumer prices only 12-fold. This relentless climb has made homeownership increasingly unattainable for many. Second, house price growth is highly volatile, with annual rates swinging from over 50% to minus 12.5% since the early 1970s. These twin features directly feed into housing affordability concerns, which the authors break into two dimensions: attainability (the ability to purchase a home) and sustainability (the ability to keep up with mortgage payments).
The paper focuses on the period from the early 2000s onward, a time when UK housing policies underwent a significant shift. This era saw the “rediscovery” of housing supply as a policy issue, largely driven by the influential Barker Reviews (2004, 2006). The authors evaluate how Labour government policies both supply-side and demand-side affected affordability in the owner-occupied sector, and draw lessons for the post-2010 Coalition Government.
Measuring Affordability: Attainability vs. Sustainability
Before assessing policies, the paper clarifies how housing affordability is measured. A common metric, used in the Barker Review, is the ratio of lower quartile house prices to lower quartile earnings. This captures attainability. A second approach, the residual income method, measures disposable income after mortgage payments, thus capturing sustainability.
Using these measures, the evidence is stark. For first-time buyers, the house price-to-income ratio rose across all UK regions between the 1970s and 2000s. The deposit-to-income ratio for first-time buyers doubled from 0.4 to 0.8 over the same period. By 2010, the typical first-time buyer needed a deposit equivalent to more than a year’s salary, pushing the average age of first-time buyers to 38. Regional segmentation is pronounced: buyers in southern England face far higher deposit and advance-to-income ratios than those in the North. The financial crisis of the late 2000s worsened attainability further, as lenders demanded larger deposits.
Why Does the UK Have an Affordability Problem?
The authors argue that the root cause lies in the dynamics of housing supply and demand. UK housing supply is highly price inelastic meaning it does not respond strongly to rising prices. According to Meen (2005), the price elasticity of new housing supply in the UK is less than 1.00, compared to about 3.00 in the US, and fell close to zero in the 1990s. This inelasticity is driven largely by the land-use planning system.
The Planning System and New Build
The UK planning system, while protecting green belts and countryside, severely limits land availability for new homes. Policies encouraging brownfield development and urban regeneration, though well-intentioned, often involve long procedural delays. Local authorities may also extract contributions for infrastructure and housing affordability from large developments, further slowing planning permission. The result is a chronic undersupply of new housing. Since the late 1960s, new build volumes fell from over 400,000 per year to around 200,000 by 1989. This downward trend in supply, combined with rising demand from demographic, social, and economic changes, has systematically driven up real house prices.
The Housebuilding Industry and Mortgage Market
Consolidation in the housebuilding industry has raised concerns about oligopolistic behavior, but the authors side with Bramley (2007), finding the sector remains fairly competitive. Local uncompetitiveness usually reflects local planning constraints rather than national market power.
On the demand side, financial deregulation and mortgage innovation have cut both ways. While they expanded access to homeownership, they also introduced riskier products like interest-only and long-term annuity mortgages. Crucially, UK households are highly sensitive to interest rates. Mortgage debt as a percentage of GDP reached 88% in 2009, far above the EU average of 52%. With most households on variable-rate mortgages, even small rate changes severely impact repayment gearing. Over the 1990s and 2000s, first-time buyers typically spent a fifth of their income on mortgage servicing.
UK Government Housing Policies Since 2000
The paper categorizes UK housing policies into supply-side and demand-side measures, with a focus on the Labour government’s approach (1997–2010) and early Coalition initiatives.
Supply-Side Policies
The major turning point was the Barker Review of Housing Supply (2004). Commissioned against a backdrop of worsening housing affordability, Barker argued that increasing new housing supply and making it more responsive to prices would reduce both the long-term trend and volatility of house prices. Key recommendations included:
A stronger role for regional planning bodies with independent executives to set housing affordability targets and housing numbers.
Alternative routes to planning permission to speed up local construction.
A “carrot and stick” approach to encourage supply.
Following Barker, Planning Policy Statement 3 (PPS3) – Housing (2006) aimed to deliver a “step-change” in housing delivery through more flexible local land supply. The Housing Green Paper (2007) set tangible targets: 240,000 additional homes per year by 2016, 2 million by 2016, and 3 million by 2020. Regional spatial strategies were to be implemented by 2011, and a Housing and Planning Delivery Grant was introduced to reward high-performing councils.
Barker’s second review (2006) focused on land-use planning, recommending that development documents be delivered in 18–24 months and appeals completed within six months.
Critiques of Supply-Side Reforms
Despite these efforts, the authors note several shortcomings:
Heavy reliance on the private sector to deliver new housing. Private housebuilding is notoriously cyclical, and the 2008 financial crisis exposed the fragility of this strategy.
The push for high-density building (minimum 30 dwellings per hectare) and mixed communities, while sensible, may not address the core demand pressures, especially if housing is highly income-elastic. An oversupply of apartments does little to ease family housing demand.
Barker’s focus on aggregate supply was criticized by some (e.g., Bramley and Leishman, 2005; Meen and Andrew, 2008) for ignoring market segmentation. However, the authors defend Barker, noting that the reviews did advocate regional planning bodies aware of local needs.
Demand-Side Policies
Parallel to supply reforms, the Labour government introduced demand-side initiatives to help specific groups, particularly “key workers” (teachers, nurses, etc.) in expensive southern regions.
Starter Home Initiative (2001–2004) aimed to help 10,000 key workers into homeownership but fell far short.
Shared equity schemes (e.g., HomeBuy Direct): buyers purchase the whole property but receive an equity loan covering the deposit gap.
Shared ownership: buyers purchase a share (minimum 25%) from a housing association and “staircase” to full ownership over time.
The Housing Green Paper (2007) planned over 25,000 shared equity and shared ownership homes per year.
The Capitalisation Problem
The authors raise a serious concern: demand-side subsidies risk being capitalised into higher house prices. When supply is inelastic, increasing the number of potential buyers simply bids up prices. The subsidy ends up benefiting sellers, not improving housing affordability. This problem is less severe in countries like Australia or the US, where supply is more responsive. The UK’s small, densely populated geography and planning constraints make capitalisation a major risk.
The Coalition Government’s Shift: Localism and the Post-Barker Era
Following the 2010 general election, the new Coalition Government abandoned Labour’s top-down targets in favor of localism. Key changes include:
Abolishing regional spatial strategies and housing affordability targets.
Introducing the Community Right to Build, allowing communities to proceed with development without planning permission if they secure overwhelming local support.
Replacing targets with financial incentives: the New Homes Bonus matches additional council tax revenue from new homes for six years.
While philosophically appealing, the authors question whether localism can deliver the scale and consistency needed to tackle housing affordability. Abandoning regional coordination risks an unstructured, inconsistent approach across the UK.
Conclusions and Future Research Directions
The paper concludes that the long-term rise and volatility of UK house prices are no surprise given the interaction of inelastic supply and elastic demand. The Barker Reviews made a vital contribution by applying simple economic logic: to improve housing affordability, you must increase supply and make it responsive to prices. However, post-Barker policies had three major failings:
Over-reliance on new build and the private sector. The financial crisis showed the vulnerability of this model.
Neglect of the existing housing stock. New build accounts for only 13% of transactions (2006–2009 average). The other 87% involve existing homes. Yet there is little policy discussion on how to renovate, convert, or better utilise vacant properties to meet demand. In 2003, 3.5% of private housing stock was vacant, with half vacant for over six months.
Counterproductive demand-side subsidies that risk capitalisation without addressing supply constraints.
Two Suggested Areas for Future Research
Policy development for existing housing stock. Since most transactions are second-hand, policies facilitating turnover and modernisation of existing homes could alleviate housing affordability pressures, especially in land-constrained regions like London and the South East.
Evaluation of Coalition policies. The localism agenda is novel but untested. Comprehensive research is needed to assess whether community-led planning and financial incentives can achieve housing affordability goals without central coordination.
Finally, the authors lament that UK housing policies have often been characterised by sudden shifts, inconsistencies, and contradictions. A more re-energised, evidence-based, and evaluative approach is essential if the country is to break the cycle of poor housing affordability.
Also Read: 10 Year's Affordable Housing Delivery and Financial Strategy