The UK has housing costs 44% higher than equivalent costs in similar countries. That means instead of fueling growth and providing for children, the younger people who pay these costs are fueling growing inequality. Something has got to give.
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This is the transcript:
Housing costs are harming the UK economy. I always instinctively knew that this was true, but a new report from the Resolution Foundation has made it clear by just how much we are suffering as a consequence of the excess housing costs that are paid by those people who are paying for mortgages or renting in the UK.
Prices in general in the UK are on average 8 per cent higher than those in OECD countries. The OECD is the Organisation for Economic Co-operation and Development. It's based in Paris, and there are, I think, at present, 34 member countries, all of whom you would think of as being amongst the richer countries in the world.
Very obviously, we're a member, and so are all our neighbours inside the EU, plus Canada and the USA, Japan, Australia, and so on. So, we're slightly more expensive when it comes to our base cost of living. But when it comes to housing, the difference is huge. Staggering. We are 44% more expensive when it comes to the cost of housing, and this has an enormous impact.
That impact falls upon the people who, of course, have to pay for their housing. Those are people who are renting, who tend to be younger or on lower income, and those are people who are paying for their mortgages. who tend to be younger and on lower income. This also has a direct effect on children because they are brought up in households that tend to be younger and on lower income.
In other words, housing costs, which have boomed in the UK during the course of my lifetime, are now crushing the economic well-being of younger people and people on lower incomes in the UK in a way that means, as a country, we simply cannot match the prosperity of other places.
If we look at those people who are paying for housing costs, then in the UK, they are 39 per cent worse off than equivalent people in the Netherlands.
They're over 20 per cent worse off than equivalent people in Germany.
This differential has massive impact. First of all, it very obviously feeds into poverty, and that is real poverty because once people have paid for their rent, and they've got no choice but have housing, of course, there is very little left over to actually spend on those discretionary items that make their lives fun, or provide their children with essentials that they need, or which drive growth in the economy.
All of those things matter, of course. Rachel Reeves wants there to be growth in the economy. Conventional economists think it's the only way in which we can deliver well-being. I don't necessarily agree with that. But that's the prevailing narrative. And if you believe in that narrative, housing costs are denying us the chance to do that by being so high.
So why is it that we have such an extraordinary cost of housing compared to everyone else? The answer is quite simple. It's not down to planning constraints. It's not in a sense down to a shortage of housing, because we don't have a fundamental shortage of housing, because people are actually housed. The problem we have is something quite different.
We live in a rentier economy.
Now, you will notice that the word rentier is based upon the word rent. A rentier extracts value from others by overcharging for a scarce resource.
And that is what we've done in the UK. We have overcharged younger generations for access to housing, so that an earlier generation, the boomers of whom I am a part, have been able to live in relative prosperity. There has been a massive transfer of wealth in the UK from the generations who are now younger and on lower income to the generation who is older and has higher income.
This is extraordinary. It probably hasn't happened in such a way ever before. The spread of this wealth across the boomer generation is also exceptional.
Now, those people in the boomer generation say, “But I'm not better off because I've still only got a house and I would only have had a house 40 years ago. So how can I be presumed to be wealthier?” Because you are. Because you could sell that house. Because you could downsize that house. Because you could swap it for an income stream. And, indeed, you might.
The point is this is going on. And the fact that people in the UK have also used housing as a means to fund their pensions has only exacerbated this problem. People from the boomer generation who have become buy-to-let entrepreneurs, as they would call it, are, in fact, simply extracting wealth from younger people.
So, we have a crisis. We have a wealth crisis. A wealth distribution crisis. A wealth distribution crisis that is literally depriving our younger generation of the hope of having their own home, the hope of having a good standard of living, the hope of providing for their children, which is why so many of them now only have one, and the hope of having long term prospects because they can't afford to save, let alone to buy a house, or to provide for a pension.
This transfer of wealth upwards is literally denying us the chance of prosperity. And when that wealth cascades downwards, as of course eventually it will, because if you aren't aware of it, everyone does eventually die - so, I'm sorry to break the news to you - but when that cascade happens, that wealth will also be concentrated in and amongst the children of those boomers who owned those houses that happened to make the biggest increase in value. We are therefore creating a long-term as well as a short-term problem.
How do we deal with it? There is only one answer. We do actually have to begin to redistribute that wealth. We have to take steps to ensure that we can provide social housing to those who need it to compensate for the fact they will not get access to their own homes, paid for out of their own money because they will never make enough to compensate for the rent being demanded by the private sector.
The government does literally have to disrupt the rental sector by providing an alternative which is affordable, and the government could do this.
We know that well over £100 billion a year goes into pension funds. We know that the vast majority of that money is used for speculative purposes. We know that at best that only increases the paper value of wealth and does not generate real long-term wealth represented by actual productive capacity or new jobs.
What we could do is change the rules on pension saving.
We could require that one-quarter of all new sums saved in pension funds be invested for public purposes.
We could make it a condition of tax relief that this happens - and there is no reason why that should penalise any saver because you aren't legally required to save in a pension. You will have the option of saving elsewhere if you so wish. You just won't get tax relief by doing so. And why should you if you don't cooperate with the state to provide well-being for everyone as a return on your tax relief?
So, we could use pension fund money to build this new social housing.
To create opportunity.
To reduce the cost of access to decent housing.
To provide people with a chance and to disrupt this rental model which exists and which is extracting value and concentrating wealth in a way that is entirely destructive of the UK economy.
We could do that.
I don't see any government doing so at the present.
But unless we change our minds on this issue and take on that consolidated wealth that is represented by the UK's housing stock, which is denying so many the chance to live well, then we're going to be in deep trouble for a long time to come. So, change has to be on the agenda.
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I would argue that there are many costs that we incur, that suck the life out of the economy, because of our reduced disposable income.
❌Highest energy costs in Europe
❌Highest rail fares in Europe
There must be at £1000 per year that I no longer have available to spend into the economy.
“To reduce the cost of access to decent housing.”
Cost of land is a major element in this. Couple this to the Uk addicition to semi-detched housing (usually of very poor quality) and you have the slo-mo disaster that we see. High quality, well-insulated & properly sound-proofed apartments – 3 stories? would be one possible solution. (I see the same in Belgium BTW – it’s not just a “British disease” – utterly inefficient use of land).
Worth making the point of course that the cost of building has risen roughly in line with the RPI since the end of WW2.
My house would cost about as much to build in real terms as it did in the mid 1960’s when it was put up. That alone should cause some real anger.
What has gone up however is the cost of land, if you look at the London ‘Ribbon’ developments of the inter war period land represented as little as 5% of the purchase cost of a house now its heading towards 50
% and over.
Therfe is another story about UK building costs but thats for another day.
If I were to make a few suggestions
The Bow Group, a Right Wing Tory Pressure Group has suggested that the Government set a target for average house prices of 4x earnings which would not only be a clear warning to ‘speculators’ to stay away from housing unless they like losing money and drive the policies needed to achieve this figure.
I suggest that we need controls on who is allowed to buy land and property in the UK AND the use they are allowed to put it to, ie no ‘AirBnB’s’ Buy to Leave, Long Term Emptys, absentee foreign owners etc
Bring back some sort of credit or lending controls as existed of course at the time Richard and I bought our first homes so you dont get banks creating vast amounts of money that they then lend on property – I saw a figure that Mortgage Lending had risen from something like 20% to 80% of GDP
Before anybody complains BTW I suggest that they address George Monbiot’s point that excessive rents and property prices are in effect a private tax on existence see
https://www.theguardian.com/commentisfree/2019/jul/17/housing-britain-landlord-tenants
Oh and have a read of
https://policy.bristoluniversitypress.co.uk/the-property-lobby
To see exactly whats happened with housing in the UK
CHANGE was LINO’s mantra. That CHANGE turned out to be one of personnel only.
LINO didn’t help children living in poverty, they took much needed money from pensioners, they don’t help students who leave universities burdened with debt.
LINO’s now rumoured to be going after those who receive disability benefits.
What’s needed is a massive social housing programme. What we’ll get is inaction and landlords complaining that such a programme will destroy their businesses. LINO will listen to them not those in need.
Expect NO CHANGE.
Too many immoral people living in the UK who need reigning in. How for example can the mainstream media pretend that the UK needs to do its part in tackling global warming whilst continuing to disseminate disinformation about how the country’s monetary system works? Same with the decades old housing crisis, same with health and education services, same with pollution of the country’s waterways and beaches, I could go on and on!
Another point worth making is that Wages as a percentage if GDP have been declining since the mid 1970’s. funnily enough when we joined the EU and were after the Scandinavians economically one of if not the most equal nation in Europe ANFD the distribution of those wages has become more unequal.
The TUC suggested it was a loss of about £6000 per family from memory
Might I suggest that that also has a lot to do with our poor economic performance especially if you are a follower of the Kevin Bridges school of economics
Aditya Chakrabortty in the Guardian today says the problem is too many zombies in the UK:-
https://www.theguardian.com/commentisfree/2025/jan/16/labour-liz-truss-zombie-economics-britain-cuts
How much of a mainstream journalist zombie though do you have to be though not to start asking questions when you get the following statement from one of the world’s most powerful central bank governors? (Note the statement was a response to American journalist Scott Pelley of the “Sixty Minutes” TV programme)
https://www.youtube.com/watch?v=hiCs_YHlKSI
That is very good by Aditya.
Zombie-ism may well be evident but let us not forget that the biggest threat is from the Vampire-like blood sucking of Capital on the economy’s assets which includes the Kinnock’s ordinary human beings in it.
When studying housing in the 1990’s at degree level the narrative was that Thatcher’s deregulation of private rents (to encourage investment and supply) had had a huge impact on working people – for example trainee nurses in the NHS who relied on lower rents in the early stages of their careers. It made a career as a nurses somewhat unaffordable; obviously caused problems in nursing recruitment.
After the deregulation of private rents came the tracking of those rents in the social sector using an 80% market rent model as apposed to the previous target or social rent which was lower (came in under Major’s government, not rescinded by Blair). The message from the 80% model is simple and can be seen in the counter balance of actual reduced capital investment by the state for new housing. Clearly new social housing is being paid for through the 80% market rent whose tenants maybe or not maybe on housing benefit at some rate determined by their income – the capital subsidy now being limited. Thus the line between social housing and private is blurred. Imagine being a ‘working person’ with a social tenancy paying 80% markets rent that have been tracking the rent rises recently.
Those here who know me know that I work housing development. Without the 80% market rent I would need much more capital subsidy. Thank goodness for right to buy (RTB) receipts but they will be spent. Without the 80%, without the RTB I would not be able to do my job. Yet the RTB subsidy is simply local authorities hemorrhaging their unit supply; 80% market rents is me knowing that the houses I am supplying are close to unaffordable and creating misery.
I have had grant subsidy levels as low as £11K per unit for newbuild through what used to be called the Housing Corporation (currently called ‘Homes England’).
Now, lets look at what grant rates there are for purchases/acquisitions from the wonderful UK housing market into the social sector. What if I told you there were grants rates of £65K per unit I have been getting (this is factual) when purchasing existing stock from the housing market?
What would one make of that? I’ll spell it out to you again in black and white: More State subsidy available into the existing housing market; less subsidy for new supply (and when I say new supply, the houses we purchase are new to my organisation, but already counted in the total stock figures for the country – they are not additions to the base numbers of stock we apparently need? We are merely playing chess with the units – moving them around from one sector to the other. Only new build for any sector is new supply – in reality).
Two conclusions I think.
1. Housing policy in the UK is totally fucked up.
2. Housing policy is quintessentially Neo-liberal. The bias towards the housing market – any market in broad Neo-lib terms – reifies what Neo-liberalism is and was all about: the preservation of the status quo, a bias towards dominant established actors helping to entrench their position. It is not about market entrants and creating competition. Pardon me, but it’s a big fucking lie and always was.
To its supporters I’d say ‘See you around, sucker’.
To its adherents I’d be less than kind and they deserve it.
Thanks
From 1980, Scotland haemorrhaged nearly 500,000 social housing units under the Right to Buy scheme.
In 2016, RTB was abolished.
Excellent post Richard, but could I suggest that the 326 Local Planning Authorities (LPA) are the principle enablers of the rentier economy. City AM reprised the following, authored by the late Professor Alan Evans from 37 years back.
“The increase in house prices that had taken place in (from his perspective) recent years was almost entirely attributable to increases in land prices. But it was not the price of “land” per se that was increasing. It was, specifically, the price of land with planning permission. Land without such permission was – and still is – cheap as chips. Britain has an abundance of land. It just denies itself the ability to use it.” https://www.cityam.com/back-to-the-80s-to-fix-the-housing-crisis/
Imagine. A Westminster Parliament consisting of 326 MPs: one for each LPA. They could argue all day about which built the most houses and/or increased the GDP per citizen in an LPA 😉
So you would allow building anywhere, without regulation?
No, of course not.
The problem is excessive lending.
In other areas I have extolled the virtues of a State owned competitor to discipline the private sector (banking and energy supply). In housing this must mean state owned housing available at affordable rents – “council houses”…. and you rightly put this at the centre of housing policy.
Now, that is a 20 year project and it needs to be started straight away but in the meantime we need other policies.
(a) Policies to make the existing housing be better used. So, council tax needs to…
Be more progressive
Penalise empty/second homes (and possibly under occupied homes – a variant of the “bedroom tax”!?)
(b) Policies to control rents directly…. much more tricky.
I bought my current ‘house’ in Utrecht (basically the ground floor of a previous 3-story house that were split in the 1970s to create extea housing without building anything) in 2007, during the financial crisis. I worked for a huge Dutch bank and got the mortgage easily, but the feckers did miss-sell me a worthless wage-guarantee insurance just like all their customers (they ended up being fined €700million for that).
Because I’d had a previous house with an ex on variable interest rates, and our mortgage doubled in a year, I wanted security, so I set the interest for 15 years at 4.7%
My mortgage was about €800 per month but those with a mortgage in NL get tax relief, so I got €175 psr month back from the government. Total debt was €165,000
Now, 17 years on, I was able to set the interest at 1.3% for the next 5 years, my mortgage dropped to around €300 per month.
We have had a glut of buy-to-lease mortgages of late, lack of building and extreme speculation. So whilst my interest rate is nice and low, and my investment half of my hybrid mortgage is now worth €42,000, the rises in house prices in the big cities has priced just about everyone out of the market (unless you habe 2 buyers together).
Last month the unit next to me (57m², 1 bedroom plus small garden) sold for €400,000
Staggering. And dangerous.
And the universality of this suggests this is not just a UK issue, as some like to claim.
A huge of changing tax signals and incentives around savings and investments is the impact can be immediate, massive, behavioural and systemic.
The longstanding financial narrative that has fuelled house prices and asset values has eaten up huge amounts of capital but without adding to the capacity and capability of the country.
I agree, I went on a camping holiday in the Netherlands last summer and noticed house prices were as ludicrous there as in the UK.
I note in a Novara Media article, there are 3 million “landlords” in the UK, essentially using renters to pay off their mortgage.
Aaron Bastani wrote another article about a friend of his who’d paid over £100k in rent, and in that time the property increased in value by £400k. The owner sold up. There is no justice in that situation.
I read once that any similarity between the law and ethics is purely coincidental, that the two are not the same. To allow landlordism for private gain is unethical. To know why it is also not illegal, one only needs to look at who sits in parliament and the Lords.
The law needs to change. I know someone who has a holiday home, and no qualms about this whatsoever, even as so many have none. As George Monbiot, Mark Fisher and Wolfgang Streeke have noted, the freedom we enjoy is unfettered consumption, consumption without consequence. To restrict people to just one home, in that scheme, sounds like some kind of major attack on an essential freedom – to buy whatever you can pay for. To say that the system we live in is sick, is something of an understatement. Currently the desires of the few outweigh by far the needs of the many.
“People from the boomer generation who have become buy-to-let entrepreneurs, as they would call it, are, in fact, simply extracting wealth from younger people.”
Don’t forget the amount of housing benefit paid by local authorities to these people.
With council housing, the rent went back to them.
I suppose the price rises become self perpetuating.
Evidence suggests that many properties (eg mine) are being bought with an inheritance the bulk of which is the deceased’s home
And for most of the last 40 years the BBC and other mainstream media reported soaring house prices as good news
The problem youve got is if you turn this into a generational blame game, ordinary people are divided and ruled and the 1% will clean up.
It’s pretty obvious from reading the mood music that the state pension will soon come under fire. It’s not difficult to forsee in the event of a major conflict with Iran, Russia or China (or all three) really serious inflation taking hold. The “boomers” would burn through their savings, pensions may collapse and then what? A huge sell off assets – and it wouldnt be the young buying them.
HMO’s. Turning a two bed family home into a 5 bedroom home. Or a three bed to a 7/8.?
I live in Portsmouth which is one of the most densely populated in Europe. The council used to have rules with regard to HMO’s, which they can no longer contest. Quite simply the developer goes to arbitration, outside of the council remit and it is approved. It seems that single cellular homes are part of the remit of home and house building. Whilst we are losing family homes on a huge scale(here) our prices become inflated.. Richard that comes down to governance!
what about removing tax relief for any interest on lending linked to residential properties to dis-incentivise landlords?
It could be done…