When I was younger, I loved waterparks. My favourite ride – at Splashdown in Poole, where I went for my summer holidays – was in the shape of a downwards spiral. You jumped in, giggling with anticipation, and spun faster and faster through the vortex, before dropping with a satisfying splash into the pool below.
Housing in the West of England – and the UK more generally – reminds me of this water-ride. For decades, it has been going steadily, rapidly downhill. In the past couple of years, the pace of decline has accelerated, taking us towards a dangerous, unpredictable precipice.
Let’s start with the basics. Housing in the West of England has been getting more unaffordable for decades. The graph below shows the average house price in the South-West of England. It starts in 1997 at £60,000 – about four times the average income at the time. In 2021, it’s just short of £300,000, now ten times the average income.
A decade of low interest rates and cheap mortgages has made it easier to buy a house, despite the eye-watering price increases. But not easy enough. The proportion of renters in the UK has doubled, from a low of 9% of households in 1992, to 18.5% today.
Unfortunately, renting in the West of England is an expensive nightmare. Average market rent across the UK has shown a steady rise over the last few decades – from around £40 in 1994 to around £160 today. Some 23% of rental homes are classified as ‘non-decent’, meaning that they are in disrepair, dangerous, or uninsulated.
So far, we’ve seen the housing market spiral round and round the vortex. A combination of the pandemic, inflation, and an ever-more extreme housing shortage threatens to tip us over the edge.
When the pandemic hit, an immediate concern was that it would lead to a fall in house prices. With an enthusiasm reserved for economic crises that might affect the pockets of the wealthy and powerful, the government sprang into action, cutting stamp duty on house sales at a cost of £6.4bn, and sending house prices soaring.
That was the start of the boom times. Rents in the South-West of England have increased by 20% in two years – the second-highest increase in the UK– and costing private renters an extra £185 per month. Sky-high demand has led to bidding wars over properties, with renters forced further and further away from where they want to live. Similar chaos reigns in the housing purchase market, where prices have increased by 10% this year alone.
What does this mean?
Where does the vortex lead us? It might be that, as interest rates increase, mortgages get more expensive and the housing market crashes. A recession could throw renters out of work, reducing demand for rental properties and leading to overall reductions in rent prices. But neither of these are exactly cheerful scenarios. If unemployment, deprivation, and homelessness count as a positive vision for the housing market, something has gone badly wrong.
Moreover, house prices have risen for a reason: there are not enough homes in this country for the people who want to live in them. Decades of under-investment in housing, cheap mortgages allowing more people to afford homes, the fire-sale of our council housing stock, and the introduction of new forms of demand, from foreign investors to AirBnB, have put unsustainable pressure on our housing stock.
Consequently, the situation is unlikely to improve by itself. The vortex leads to a world where the only people who can afford homes are those who have an inheritance or top income. More and more people will spend ever-increasing proportions of their income on rent. Inequality and homelessness will increase, and economic growth will slow.
Is there a solution?
There is a solution, but it requires taking on those who benefit from our broken housing market. Affordable housing won’t be delivered without government support, both to build affordable homes and to restrict some sources of demand. No change is possible without radical increases in housing supply – building more, better houses, where people want to live. This is anathema to many – perhaps including many readers of Bylines – who fight new developments in their local areas.
But if you want to fix the housing crisis in a broken Britain, the only option is to build.