The house that Jack didn’t build

Paul Wallace examines whether the UK government’s pledge to ease the housing crisis by building hundreds of thousands of new homes can actually be met

Labour’s 2024 election manifesto played it safe, avoiding the trap of too many explicit pledges. But the party’s tight lips made one specific target stand out: to build 1.5m new homes in England over a five-year parliament. How achievable will this be in practice? The answer to that question matters not only for current and prospective homeowners, landlords and renters but also for the financial sector that will play a crucial part in funding so many more new homes.

One reason to doubt whether an average 300,000 homes a year is feasible (which given a slow start will require the rate to rise to 370,000 later in the parliament) is that Keir Starmer is not the first prime minister to make such a promise. (It should be noted that the commitment applies only to England because housing is a devolved responsibility.) At the December 2019 election, Boris Johnson committed to building 300,000 homes a year by the mid-2020s. In mid-2007, Gordon Brown declared an impressive-sounding, though more modest, ambition to build 3m new homes by 2020. Both pledges bit the dust.

The last decade in which there were 300,000 dwellings a year built in England was the 1960s. A lot of these made up for those lost through slum clearance. For England and Wales, 3.2m new dwellings were built in 1961-70, but the net increase was 2.3m. It has been downhill for new building since that high point. In the 2000s, just under half the number of new-builds seen in the 1960s was completed in England. That fell further in the 2010s to just 135,000 a year, even though ultra-low interest rates invited a construction boom. More recently, the homebuilding rate has picked up to around 165,000 a year.

Although official statistics stretch back to the late 1940s, the government now focuses on an alternative count. This starts in the early 2000s and is higher because it includes changes of use, such as from offices to residential, as well as picking up some small-scale builds. Yet, even this more flattering series paints a dismal picture, with fewer than 230,000 additional dwellings a year in England between April 2020 and March 2023, of which barely 200,000 were actual new-builds. In the meantime, the population has grown and so has the number of single households. In the ten years to 2023, the number of people living alone (in the UK) grew by 8%, faster than the 6% increase in households.

If Starmer is to succeed where Brown and Johnson failed, it will be because his government has worked out what went wrong with their plans and drawn up a realistic strategy. Labour does at least have a clear if unoriginal diagnosis: it blames planning restrictions for holding up development. It follows that they must be removed. While still in opposition, Starmer summoned his inner Boris to promise to “bulldoze” through such rules. Just days after taking office in early July, Chancellor Rachel Reeves announced an overhaul of the regulations, declaring that the government was grasping “the nettle of planning reform”. Her prompt move contrasted with the long delay until the Budget in late October.

The planning system was complex, unpredictable and slow-moving...and was failing to provide for housing need

Labour’s approach chimes with the findings of an inquiry into housebuilding by the Competition and Markets Authority (CMA), which reported in February 2024. The CMA concluded that inadequacies in planning were “a key driver of the under-delivery of new housing”. The planning system was unpredictable, complex and slow-moving. It was failing to provide for overall housing need, including those who could not afford to buy properties as well as those who could.

But much of that complexity stems from ministers using the planning system to achieve other worthwhile, especially environmental, goals. What happens when they clash? A revealing case study was in autumn 2023 when the Conservative government was trying to get 100,000 extra homes built by 2030 through abandoning an EU-era regulation designed to reduce water pollution. In opposition, Labour managed to get this proposal scrapped. Now in office, it is having to grapple itself with this hindrance.

Awkwardly, strict environmental rules are becoming more rather than less essential for planners to heed. As well as cutting carbon emissions, we need to prepare for the extreme weather events already associated with global warming, such as more frequent and heavier downpours. That should mean ending the folly of building on land vulnerable to flooding. Extraordinarily, more than 100,000 new homes were constructed during the past decade on high-risk flood plains.

Even if planning can be simplified – a big if given the political pressures for more rather than fewer regulations – there is a further obstacle: there aren’t enough planners. According to the Royal Town Planning Institute, the number working in the public sector fell by a quarter during the 2010s. A shortage that emerged during the long period of austerity will itself take several years to remedy. Many more planners will be required than the 300 extra ones that have been promised.

Critics of the building industry say it deliberately restricts the supply of new homes, for fear of pushing down prices and squeezing profit margins

A more fundamental doubt about the government’s approach is that its central diagnosis – a dysfunctional planning system – is simplistic. True, big infrastructure projects can take an unconscionable amount of time to be approved, such as the Lower Thames Crossing, a planned road and tunnel link across the estuary first identified as a national priority in 2011, which has stacked up more than 350,000 pages of planning applications. Ironically, the latest delay has come from the new government itself, which has postponed a final decision until May this year.

Bt in the less high-stakes sector of homebuilding, planners have been more productive than builders. During the 2010s, English local authorities issued planning permissions for almost 2.8m homes – more than 1m more than those built. A striking chart in the CMA report shows the widening gap between new permissions and new homes constructed during that decade.

The shortfall points to a different guilty party, with builders rather than planners in the dock. Critics of the industry say that its business model deliberately restricts the supply of new houses, for fear of pushing down prices and thus squeezing profit margins. A more convincing explanation is that builders are cautious because of the vagaries of a property market that can cost them dear with unsold homes when boom turns to bust. The main reason why homebuilding was so low in the 2010s was the protracted impact of the 2008 financial crisis, which continued to depress activity in the first half of the decade.

Moreover, need is concentrated among households that cannot afford to buy in the private market. In the past, they would have had access to council-built homes. In the 1960s, local authorities contributed around 120,000 new homes a year – two-fifths of the total. In the 1970s, they provided the same share: just over 100,000 out of an annual average of almost 260,000. Tellingly, the CMA noted that rates of 300,000 a year were reached only “in periods where significant supply was provided via local authority building”.

All that changed under Margaret Thatcher in 1980 when council tenants got the right to buy their homes at a hefty discount. After that it made little sense for local authorities to build new homes, and they were in any case subject to increasingly stringent spending restrictions. Housing associations and private developers (through so-called section 106 agreements) have since been unable to build affordable homes on anything close to the former scale of councils.

Deputy Prime Minister Angela Rayner, in overall charge of housing, has said she wants to build more council homes. But she is up against harsh budgetary arithmetic. Although Reeves set aside more funding for capital projects in her Budget, this will do no more than hold net public investment at its pre-election level of 2.6% of GDP rather than falling to 1.7% in 2028-29 as planned by Jeremy Hunt when he was the Tory chancellor. Rayner will be competing with other ministers also clamouring for investment, such as for hospitals, schools and prisons. The chancellor dispensed an additional £500m for housing in her big boost to next year’s spending – enough to support only an extra 5,000 affordable homes.

Local residents often oppose new homes being built, ‘particularly if the housing is poor quality, aimed purely at increasing numbers’

What this signals is that there will not be a return to the fully state-financed council-home model. The government will continue to try to bolster the supply of affordable homes by helping housing associations and trying to squeeze more out of private developers. But it is difficult to see why this approach would succeed in the coming years where it has repeatedly failed in the past.

There is also a further barrier to the goal of building more homes in a hurry: along with the lack of planners, there is a shortage of builders: the more so since there are so many other demands on them to modernise Britain’s ageing infrastructure. Expanding the capacity of a construction industry already beset by skills shortages can’t be done overnight. New workers will have to be hired and trained, and that takes time even if many end up being recruited from abroad.

Increasing the number of skilled workers in the construction industry was one of more than 30 recommendations made by economist Kate Barker two decades ago in a review of housing supply for Tony Blair’s government. It would make sense for Reeves and Rayner to revisit her report and to reflect upon why so little progress has been made. One point that Barker acknowledged (but did not adequately address) is why residents so often oppose new homes, “particularly if housing developments are poor quality, aimed purely at increasing numbers”, and which can more generally lead to “increased pressure on infrastructure and local services”.

Addressing these local fears is vital if there is to be a sustainable rise in new homes. Setting an arbitrary top-down goal of 1.5m during a parliament, which could in any case be shorter than a full five years, is not the right way to go about it.

Paul Wallace is a former Britain and Europe Economics Editor at The Economist and author of four books, including Tanked: Why the British economy is failing, which was published last year by The Bridge Street Press