Yes, supply is the cause of the housing crisis – and we do need to build more homes in successful cities

How much? Image: Getty.

It was interesting to see the economics commentator Simon Wren-Lewis pick up on a theory pushed recently by Ian Mulheirn of Oxford Economics: that the issue of unaffordable housing in the UK results not from a lack of housing supply, but the availability of cheap credit. While there is undoubtedly some truth in this theory, it doesn’t tell the whole story.

Yes, lower interest rates make borrowing more affordable. And just like most other goods and services, if you lower the price of something, people will be prepared to pay for it. In the housing market, cheaper borrowing means people have got a bit more money to play with, allowing them to bid a bit more for a house, and so pushing up its price (assuming the supply of houses doesn’t increase). This likely explains why house prices have more than doubled in every English and Welsh city in the last 20 years.

Yet if this was the only driver of house price growth, then we’d expect to have seen similar house price growth across the country – but we haven’t. The map below shows changes in house prices across UK cities since 2009, when the Bank of England base rate was cut to the historic low of 0.5 per cent. 

It shows that there is a very clear geography to house price changes – despite a much more uncertain housing market and pretty shocking income growth after the financial crisis, cities in the Greater South East have seen very large increases. However, further north, rises have been much more modest.

Cambridge leads the list of rising house prices, which were 76 per cent higher in 2017 than eight years earlier. Meanwhile Burnley is at the other end of the scale, with an increase of just 2 per cent. In real terms this means that houses in the city are cheaper today than in 2009, despite historically low interest rates. (This data is for whole dwellings. If it was sale price per square metre, the divergences would likely have been even wider.)

Click to expand. Source: HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

In theory, this geographical divergence could result from the fact that housing in some cities are seen as a better investment than in others. In London, for example, the prestige of owning in the capital may be a bigger draw, with property there seen as a luxury good. This would mean that we would expect to see lots of empty homes in the city, as investors buy them purely as an asset.

But again the available data does not back this up. The map below shows the share of properties that are empty across the country. There are fewer empty properties (defined as being empty for six months or longer, identified through council tax records) in our least affordable cities. On this measure, there are not swathes of empty houses being used only to store wealth.

Click to expand. Source: Ministry of Housing, Communities & Local Government. Data available for England only.

A further argument put forward by Mulheirn is that the number of new houses being built has outstripped the number of new households formed in recent years.

But once more, the geography of these patterns is very important. In 2001 (the earliest data available), there was an average of 2.37 people living in a property in London, compared to an English average of 2.33. Fast forwarding to 2016 shows that, while the English average remained at 2.33, it had risen to 2.51 in the capital.

If more people are living in a single dwelling – for example through flat sharing – this again points to a shortage of houses in particular parts of the country.


Even if the number of people in per dwelling in London was to fall to the British average, an extra 360,000 homes would be needed in the capital. And that’s before any considerations of how high prices in the capital may have deterred people from elsewhere moving there.

All these factors point to the fact that there is no single national housing market – instead we have a series of separate housing markets in different places across the country. This makes comparisons of national house prices with national supply and almost meaningless: building more homes in Burnley, the most affordable city, does nothing for Bristol, one of the least affordable. Digging beneath the national level shows that housing markets across the country face very different challenges.

The greatest economic challenge facing our most successful cities such as Reading and London is unaffordable housing. Future interest rate rises may slow the pace of increase of house prices seen in these cities recent years. But they don’t address the underlying challenge of an undersupply of housing in them.

In any market, increases in demand without any increases in supply mean that prices increase. The same applies to housing. If we want our most successful cities to continue to prosper, then we need to build more homes in and around them.

Note: we use house prices here as data on rents, which removes the asset value wrapped up in house prices, is not availabe at a city level. The data that is available at a regional level shows a consistent story to house price data shown in this blog.

Paul Swinney is head of policy & research at the Centre for Cities, on whose blog this article first appeared.

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As EU funding is lost, “levelling up” needs investment, not just rhetoric

Oh, well. Image: Getty.

Regional inequality was the foundation of Boris Johnson’s election victory and has since become one of the main focuses of his government. However, the enthusiasm of ministers championing the “levelling up” agenda rings hollow when compared with their inertia in preparing a UK replacement for European structural funding. 

Local government, already bearing the brunt of severe funding cuts, relies on European funding to support projects that boost growth in struggling local economies and help people build skills and find secure work. Now that the UK has withdrawn its EU membership, councils’ concerns over how EU funds will be replaced from 2021 are becoming more pronounced.

Johnson’s government has committed to create a domestic structural funding programme, the UK Shared Prosperity Fund (UKSPF), to replace the European Structural and Investment Fund (ESIF). However, other than pledging that UKSPF will “reduce inequalities between communities”, it has offered few details on how funds will be allocated. A public consultation on UKSPF promised by May’s government in 2018 has yet to materialise.

The government’s continued silence on UKSPF is generating a growing sense of unease among councils, especially after the failure of successive governments to prioritise investment in regional development. Indeed, inequalities within the UK have been allowed to grow so much that the UK’s poorest region by EU standards (West Wales & the Valleys) has a GDP of 68 per cent of the average EU GDP, while the UK’s richest region (Inner London) has a GDP of 614 per cent of the EU average – an intra-national disparity that is unique in Europe. If the UK had remained a member of the EU, its number of ‘less developed’ regions in need of most structural funding support would have increased from two to five in 2021-27: South Yorkshire, Tees Valley & Durham and Lincolnshire joining Cornwall & Isles of Scilly and West Wales & the Valley. Ministers have not given guarantees that any region, whether ‘less developed’ or otherwise, will obtain the same amount of funding under UKSPF to which they would have been entitled under ESIF.


The government is reportedly contemplating changing the Treasury’s fiscal rules so public spending favours programmes that reduce regional inequalities as well as provide value for money, but this alone will not rebalance the economy. A shared prosperity fund like UKSPF has the potential to be the master key that unlocks inclusive growth throughout the country, particularly if it involves less bureaucracy than ESIF and aligns funding more effectively with the priorities of local people. 

In NLGN’s Community Commissioning report, we recommended that this funding should be devolved to communities directly to decide local priorities for the investment. By enabling community ownership of design and administration, the UK government would create an innovative domestic structural funding scheme that promotes inclusion in its process as well as its outcomes.

NLGN’s latest report, Cultivating Local Inclusive Growth: In Practice, highlights the range of policy levers and resources that councils can use to promote inclusive growth in their area. It demonstrates that, through collaboration with communities and cross-sector partners, councils are already doing sterling work to enhance economic and social inclusion. Their efforts could be further enhanced with a fund that learns lessons from ESIF’s successes and flaws: a UKSPF that is easier to access, designed and delivered by local communities, properly funded, and specifically targeted at promoting social and economic inclusion in regions that need it most. “Getting Brexit done” was meant to free up the government’s time to focus once more on pressing domestic priorities. “Getting inclusive growth done” should be at the top of any new to-do list.

Charlotte Morgan is senior researcher at the New Local Government Network.