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Here we go again
Published 18 February 2024
As the UK rides out its fourth housing slump since the Second World War, Alan Holmans puts the current downturn in its historical context.
The housing slump which began in 2008 will make it hard to fulfil the target of two million more homes by 2016 – even if the goal of building 240,000 homes a year by 2016 is met. This is the third set of government housing targets, and the housing slump is the fourth, since the Second World War. So how do the current targets and the slump compare with their predecessors?
The 1977 housing policy Green Paper published assessments of the demand for additional housing, but it explicitly denied that they were targets. We have to go back to the 1950s and 1960s to get a clear idea about the causes of the current slump.
The target in the 1950s was the ‘300,000 houses a year’ associated with Harold Macmillan when he was minister of housing and local government. It was reached in 1953 (in Great Britain) and new building continued at this level up to 1957. There was un-met demand for housing almost everywhere, so the supply was certain to be taken up.
Two-thirds of the homes built were for local authorities and new towns. Their numbers in the years from 1952 to 1956 were higher than in any other five-year period, before or since. When higher interest rates would have raised the cost to the rate fund of more house building by local authorities, central government subsidies were raised to match – the only occasion when this has happened. Sufficient money and materials were made available for the target to be reached.
Ample Mac: Harold Macmillan’s target for 300,000 new homes a year was met in 1953. Between 1952 and 1956 more new homes were built than in any other five year period before or since. Photo: Getty Images.
The target in the mid-1960s was 500,000 homes a year, to be reached by 1970. Initially much of this would be to make good shortages and allow slum clearance. But after that, there would be large-scale replacement of housing built before 1914 that was considered worn out, though not legally unfit.
How replacing more than 200,000 old houses a year could be carried out was never investigated. Area clearance of unfit houses ran into growing resistance, so the large-scale replacement of legally fit houses lapsed. What happened to the older housing stock was large-scale renovation and upgrading, mostly privately financed.
Although more houses and flats were completed in 1968 than in any other year, the total never came anywhere near 500,000 a year. Demand for that many new dwellings simply did not exist.
Since the Second World War there have been four housing slumps: 1973–74, 1980–82, 1990–93 and now since 2008. The slumps in the early 1980s and 1990s were mainly caused by mortgage interest rates of 15 per cent and even higher. Finance for house purchase was not scarce. It was just too expensive for many potential buyers.
In contrast, the slump in 1973–74 was caused by a shortage of funds, with the supply of loans being less than the demand. The cause was a steep rise in interest rates for investible funds, which building societies (providers of 90 per cent of house purchase loans) could not match.
The current slump resembles that of 1973/74 rather than the early 1980s and 1990s. Its main feature is a shortage of house purchase loans rather than high interest rates. In 1974 the government took action to mitigate the shortage of mortgage finance by lending the building societies £100 million a month for five months from April 1974. That £100 million is equivalent to more than £800 million now, so the amount in total was equivalent to between £4 billion and £4.5 billion today.
‘The current slump resembles 1973–74 rather than the 1980s and 1990s’
The target of 240,000 more homes a year by 2016 and three million by 2020 is closer to the 1950’s goal of 300,000 a year. In the 1950s, there was no doubt about demand. That is not the case now.
How many of the 240,000 dwellings a year will be provided by private enterprise, and how many at prices or rents at below market levels with assistance from public funds or cross-subsidy is now an open question. Private enterprise provides housing in response to market demand, and a target implies that publicly funded agencies will provide the rest. Shelter’s recent Homes for the Future report estimated market demand for additional housing at 145,000, which leaves 95,000 a year to be provided on affordable terms.
An average of 145,000 is higher than in the past 30 years, excepting the boom years of the late 1980s. There is a significant risk that it could prove to be on the high side, in which case publicly funded agencies would have to provide way over 100,000 new dwellings a year.
It is hard to be as sure now as it was in the 1950s that there will be takers for everything that housing associations (and local authorities?) are funded to build, even with 1.7 million on council waiting lists. A survey of who is on these lists, why they are there, and what kind of housing they are looking for is required to answer this question of demand.
Alan Holmans is senior research fellow at the Centre for Housing and Planning Research, University of Cambridge.
