Retro Politics: Only More Council Flats Will Fix Britain’s Housing Crisis

More than 70 years ago William Beveridge identified the “Five Giants” that society needed to vanquish: want, disease, ignorance, squalor and idleness. His report paved the way for the modern welfare state.

Back in then, people expected the government to intervene when something was going wrong. After World War II there was a bipartisan agreement on the need to build new homes to replace both bombed streets and slum housing to house the returning soldiers, sailors and aircrews and their families. This may not have led to the best quality housebuilding but in the decade from 1945, 1.5 million homes were completed.

Today, a constrained market decides what homes get built and where and that market is simply no longer working. Almost 1.37 million families are waiting for a council home, prices of private homes are going through the roof and a growing number of young people are unable to find a place to buy or rent.

One not yet built studio flat in Battersea recently went back on the market for £1.5m after being sold for £1m

Economists call it a market failure when the quantity of a product demanded by consumers does not match the quantity offered by suppliers. There is strong demand for homes from a large number of people but there is limited supply of the wrong type of product.

If there was ever a clear case for government intervention where a market failure is taking place it’s here. And no, it’s not the George Osborne-style interventions to help people buy an over-priced homes. All that does is push prices higher.

There’s no shortcut. We have to build more homes, of the right type, at the right price and in the right location. Private house builders — often held back by the state planning permission system — aren't doing it.

The three-decade old dogma of “private good, public bad” that even the Labour Party has adhered to must go. And the main area where the government currently intervenes — the archaic planning system and outdated greenbelt — needs urgent reform.

That’s because, especially in London, supply is mostly aimed at luxury end in developments such as Earl’s Court and Battersea Power Station. One not yet built studio flat in Battersea, recently went back on the market for £1.5 million after being sold for £1 million.

The Financial Times has recently reported that 54,000 homes are either planned or under construction in the priciest areas of the capital even though just 3,900 homes worth more than £1m were sold in these areas in 2014.

Many of the homes that are being built are in the right place but at a very wrong price. If there is a glut in supply and these homes remain unsold they are unlikely to be converted into use as affordable housing. The real loss will be the opportunity to use that same land for new housing that better meets the need of the non-oligarch population.

It is now the turn for the humble home to feel central government’s love

There is a need for as many as 245,000 or 300,000 new homes to be built every year for the next couple of decades, and current housebuilding is only reaching 100,000. The private sector is giving us too many posh penthouses and not enough homes for the rest of us to live in.

The answer is for central and local government to intervene to build homes at genuinely affordable rents. If this sounds a bit like a council home, then that’s because it is. Private companies can build them, but the government needs to take charge.

It should set out a target to build at least 200,000 homes a year. Labour leader Ed Miliband has already proposed such a target. To make sure homes get built, the government will need to oversee the allocation of sites and resources for new projects.

It may sound Stalinist to modern ears but it is how we solved crises in the past. The government has already shown that when it wants to, it can intervene: the High Speed 2 rail link, the £15 billion Crossrail project through London and the delivery of nuclear power stations are just a few examples. It is now the turn for the humble home to feel central government’s love.

It has never been cheaper for the government to raise the money it would need to finance the projects. The Treasury borrowed from the bond market at 2.6% over a 53-year term and it shouldn’t be too challenging to convince the markets that borrowing for long-term investment in housing makes financial sense. Investors such as pension funds and life insurers actually need the government to borrow from them.

A targeted long-term programme to build homes will also create thousands of construction jobs. Most importantly, it will make Britain a better place to live. The government needs to state that it will build homes for those who need them and get on and do it.

Phil Thornton is an economics journalist and author of Brilliant Economics and Great Economists.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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