Podcast: Tackling the UK Housing Crisis

Transcript

Voiceover: 

This is a podcast from the Bartlett Review, sharing new ideas and disruptive thinking for the built environment, brought to you by the Bartlett Faculty of Built Environment at University College London.  

 Pete Gladwell:  

Working out ways where the government can channel pension savings to address this problem is really vital not least because it makes sites viable. 

Stani Milcheva:  

You mentioned NIMBYs.  Not in my backyard. I've been seeing more and more YIMBYs among social media. Yes, In My Backyard.  

Priti Parikh:  

Hello, I'm Priti Parikh. I'm a Professor of Infrastructure Engineering and International Development, Director of Bartlett School of Sustainable Construction and Vice Dean International for the Bartlett Faculty of Built Environment. In this episode of the Bartlett Review podcast, we are talking about housing and specifically the fact that the UK is not building enough homes. The rate of new building has not matched the increase in population and the consequences are serious for both our economy and more widely in terms of social mobility and homelessness. At the Bartlett, we have great experience and expertise in researching this issue and advising a range of partners from government and planners to house builders and architects. With me in studio, I'm delighted to be joined by my colleague, Professor Stanimira Milcheva, who is an expert in real estate finance and a Director of the Affordable Housing Centre. Welcome Stani. 

Stani Milcheva: 

Thanks for having me. 

Priti Parikh: 

Also with me is Pete Gladwell, who is Group Managing Director for Public Investment with the financial services group, Legal and General. Pete is a board member of Legal and General's, Affordable Homes Registered Providers, and an Honorary Professor here at Bartlett School of Sustainable Construction. Pete, welcome. 

 Pete Gladwell: 

Thank you. Great to be here. 

 Priti Parikh: 

So frankly speaking, the big question everyone has is how did we get into this situation and what is the scale of our housing challenge? 

 Pete Gladwell: 

Yeah, so I think it's really interesting if you look back over the decades, particularly since the Second World War, Britain has had some fantastic years where we were building in the 1960s, we were up at 3.6 million homes in that particular decade and in 1968 we built 425,000 homes in one year. So the nation has shown it can do this in the past, but its declined pretty steadily since then, particularly in the 1980s. I mean, there's lots of reasons we could go into to what's caused that decline, but I think some of the key ones are a lot of these homes used to be built by the public sector and by local authorities, and that scale of house building from the public sector just isn't there anymore. There's other things we should go into, I'm sure, and we will, around things like planning, the right types of funding, which have been steadily withdrawn since then. But it really is fascinating to see how many homes we could produce in recent, not so distant history. 

 Priti Parikh: 

And Pete, what is the scale of the problem? What is the gap? I mean, is this a problem or a crisis? 

 Pete Gladwell: 

I mean, from my perspective, it is a crisis. There's a real kind of human cost to not building enough homes that it's really important that we remember whether that's people stuck in temporary accommodation, and we'll come onto that later emergency accommodation, tens of thousands, I think it's over a hundred thousand children in emergency overnight accommodation because they don't have the right homes. But also, lots of people who just can't buy a home or are stuck in really sub-standard rental accommodation. The government set a target of one and a half million homes by the next election, and that's widely considered to be extremely ambitious. But it does give an idea of the scale of the issue and the numbers we need to get to; it would be ideally up in the mid 200 000s a year. And as I say, we were at one point right up at 400,000. So it shows we've really fallen off our perch. 

 Priti Parikh: 

That's a huge challenge. And Stani, I'm going to come to you. You recently completed a policy fellowship with the Ministry of Housing Communities and Local Government and you gave evidence at the House of Commons. What do you think has led to this problem? 

 Stani Milcheva: 

Thanks Priti. Just to give you some more statistics, adding to what Peter already said. So we measure housing unaffordability in several ways. One way to measure housing unaffordability is by comparing house prices in a given area to incomes of the people that live in this area. So this is the price to income ratio. And what we see, for example for London is from 1997 to 2025, the unaffordability increased from four times the price to income ratio. So you need four annual salaries to buy the average house to 11 times. This is across the whole of London. If you zoom in London, you see huge differences by local authorities. So the most expensive, the most unaffordable local authority is Kensington and Chelsea, which an average home costs 35 times the average salary of the people living in this borough in comparison in the North-East unaffordability increase from three times to five times. 

 

So the problem is not so big. So where the biggest problem is really is London and the South-East property development is a procyclical business. It's highly risky. Mostly it's based on speculative development because developers are trying to sell this. And so whenever we have an economic slowdown, we see property development slowing down, up until prices pick up again, and then development follows. So following the global financial crisis in 2009 and ‘10, we saw really low levels of construction of a hundred, 110,000 homes a year. The most recent figures show that we're building around 200,000 homes a year, and about one third of those homes are classified as affordable housing. 

 

And what is affordable housing? So what most people think of is social rent, which is a very highly subsidised tenure, which is linked to the income of the household. In 2010, we saw a big shift away from social rent to affordable rent, which is about 80% of market rent in the given area. And one of the main reasons why we saw this drop in the new supply of social rent is that social rent requires much higher subsidy per unit as compared to affordable rent. So if you play this numbers game that you want to build as many affordable homes as possible, you would prefer affordable rent because then you can meet for the same amount of money, more homes, which of course improve statistics, but they're very, very different tenures and cater to different people. And the other third tenure is called a shared ownership, which is part rent and part own. And the subsidised element, again, is the rental element on it. One of the main challenges is to do with we are not supplying enough homes. There are issues with the planning process. 

 

Which is very much on a case-by-case basis. A lot of the policies that we have seen in the last few years have been on the demand side. For example, the help to buy policy, which was very popular, is the demand side policy, which essentially wants to foster demand increasing house prices. So inevitably any demand side policy will increase house prices. Now you can say, is that a good thing or a bad thing? But I think it's important to distinguish that, okay, if you want to increase affordability, you can either lower the house price or you can increase the income of the household. But also that confines with the other objective, which is increased home ownership. Because increasing home ownership does not necessarily mean increasing affordability. Once you become a homeowner, you have a vested interest in house prices rising in a way.  I think it's not necessarily that if the objective is increasing home ownership, that you should decrease affordability. I think it's important to mention and see these things as separate objectives. 

 Pete Gladwell: 

And then it's probably just, Stani’s mentioned the issues around affordability in London, but obviously those affordability issues make social rent and London affordable rent even more important. And that is really where in recent years, the bottom has really dropped out of that provision as well. So in 2021, 2022, there were 11,000 social housing starts in 2023 to ‘24, that 11,000 had dropped down to 2000. London has a real significant issue around not providing enough social and London affordable rent homes. And it's really needed because of the affordability issues that Stani’s referred to. 

 Stani Milcheva: 

I would like to just add this very, very popular policy in 1980 when Margaret Thatcher introduced the right to buy scheme, which is essentially allowing people living in social rental accommodation to purchase the home at a sub-market price. These policies estimated to have led to the loss of more than 2 million social rental units up until 2019. 2 million social rental units. Of course, you can argue that, okay, they entered into the open market rent because a lot of these units were bought by investors and then their use is rental accommodation. But yeah, I think we lost a lot of social rental units. We have not managed to replace those. 

 Priti Parikh: 

And I guess the drastic reduction in social housing, increase in emergency housing becomes a taxpayer burden, doesn't it? 

 Pete Gladwell: 

Absolutely. People can present themselves as homeless to a local authority, and the local authority is obliged to find them homes. And so that is typically called temporary accommodation, emergency accommodation. So the cost of the taxpayer of that is currently 2.8 billion pounds every year. 2 billion of that is in London. And effectively this situation has arisen because the government doesn't have the right affordable and social homes to put people into. So it's forced to put people into unsuitable accommodation that's both very expensive and often very low quality and use bed and breakfast hotels because it doesn't have the right type of social infrastructure. Of course, what that doesn't include is all the cost from people who you can imagine. If you're living in a hotel room with kids, you are going to use the NHS more, you're going to have more health issues. There's lots of indirect costs to government that come about from this unsuitable accommodation as well. So that's not included in the 2.8 billion. It's a real problem that we need to address. 

 Priti Parikh: 

And I was thinking, can we bring the private sector into this to address the challenge? 

 Stani Milcheva: 

Clearly when we bring investors on board, there are different types of investors. So we can have the pension funds, the insurance companies, which we often call patient capital because of the way their kind of balance sheets work, they're looking more for long-term investments, steady returns, steady cash flows, steady income over time, which matches their liabilities. On the other hand, we have these other investors, you can call them funds or private equity funds, which have a totally different business model. They have limited partners which invest in them, and they're looking for higher returns. So normally you see a difference in terms of the expected returns. So pension funds would be looking for less, well for lower returns as compared to private equity funds. So there are major differences across investors, and then there are of course other kinds of investors. 

 

So basically they're looking for very different types of properties, very different types of cash flows. So I think from my experience, you mentioned that I did policy fellowships and gave evidence across different local authorities. There is no understanding between the different kinds of investors. And there is also a very simplified view of putting all investors in one basket. And often by investors, people mean actually developers, but developers are not really necessarily investors. So I think just understanding the ecosystem of the investors and the stakeholders is already a step forward and clarifying this is very important. I'll probably look to Pete to explain this better. 

 Pete Gladwell: 

Yeah, I mean it's really well summarised. And the other thing I think that's not really well understood, but some of the recent government initiatives are really kind of tapping into this dynamic is that government can lower the returns that investors need to receive and pension funds Stani has alluded to, need to receive. So if government chooses to enter into a longer-term contract to provide income over a longer period of time, for example, or reduces the risk around that income, then a pension fund can receive a lower return. And that of course can immediately be passed on in terms of a lower rent, which addresses some of the challenges we've discussed here. So there are real levers that government can pull and local authorities for that reason, and combined authorities like the GLA could also choose to pull to address some of these issues. But for me, the main rationale is, look, we've got a big problem here. We need to be crowding people's pensions and savings in to address that issue because it's clearly a huge requirement for capital if we're going to get the amount of homes and the type of homes that we need. 

 Priti Parikh: 

And I'm really glad that we are beginning to unpack potential ideas and solutions for the housing crisis. I know, Stani, that you have also looked into stamp duty breaks as part of your research. 

 Stani Milcheva: 

Yeah, absolutely. I think, I guess before we move to the stamp duty, I just wanted to add a little bit more from my experience. We know that government borrowing costs, so yields on government bonds are high, the government is looking for alternative ways to attract institutional private capital, and they have set up the National Housing Bank, which will be under the hat of Homes England. And the idea is to, as Pete mentioned, to look for innovative funding models. The main things that are proposed are guarantees on debt. So if the government guarantees the debt, the cost of debt, the cost of borrowing is lower. So that is one of the benefits if you enter into this partnership.

Another way the government can help is by providing equity, whether it's a subsidy, so you can provide a subsidy and then the government doesn't get a subsidy back or equity meaning provides some capital and then take a return on this capital. So there are different ways how you could do it. Of course, being an equity partner in a deal, this is a public private partnership, is more risky for the government, but of course the return is also higher. So there are these kind of models that have been explored, discussed with the investors, and it boils down to whether it's profitable, sufficiently profitable in the end, of course, every investor needs to achieve the required rate of return. 

 

Now on the stamp duty, I think there has been a lot of research, and we have done some research on two stamp duty changes. One was in 2015, 16 when they increased the stamp duty on second homes, they added 3% surcharge on second homes. And so then we look how 'the buy to let' investors were affected, and we see that as a result, rents went up because second homes became more expensive to be purchased, the tax increased, the investors offloaded these second homes to first time buyers. Prices dropped by around 1% if I'm not mistaken, but rents increased by about 6%. 

 

And the other research we did on stamp duty is around 2020 when the stamp duty holiday was introduced for a few months and we see that the stamp duty holiday increased house prices, but the beneficiaries of the stamp duty holiday were the sellers. So the buyers did not benefit. And so the sellers took all the benefit because they were in the better negotiating position. But what in general taxation does is taxation. The role of taxation is to relocate money. It's to relocate money from one group to another group if that is the aim. And the other thing that changes to stamp duty did in the stamp duty holidays that of course it increased activity on the market. We sell much more transaction volume, so people started transacting much more. So yes, if that is the objective that was achieved, but if the objective is to reduce house prices, that was not achieved. 

 Priti Parikh: 

So what are the levers that governments can pull in order to address the housing crisis? 

 Pete Gladwell: 

Yeah, well, I think it's been really interesting. Labour even before they were elected, were very keen on the need to address the housing crisis. And since they came into power, they have been very focused on planning. So there's a planning and infrastructure bill going through at the moment, and that is really, really welcome from my perspective because as Stani mentioned earlier, a lot of the previous measures have been focused on the demand side, and there's a real need as we've discussed, to focus on the supply side. So planning is the big focus, and that has been about putting mandatory housing targets in place, reforming the green belts to try and bring more of that forward for development, and then accelerating sites that have been stalled and setting up a task force and a new homes accelerator to do that. 

 

And then one thing, again, I think is a good idea is boosting planning capacity. Because we've had the situation where planning committees were, from my perspective too, found it too easy to turn down planning permissions, but also there was a lack of capacity in the system to bring schemes forward quickly enough. The other thing that government has focused on has been around boosting the supply of social and affordable homes. And so Stani alluded to the government's housing bank and within Homes England, there's also a big pot of £39 billion of grant. Then they've also said they'll review right to buy the policy Stani you mentioned earlier, which I personally, I need to stress everything I say on this is not related to UCL or officially UCL or Legal and General line, but personally I think is a good idea to review that policy. 

 

So there's a couple of really interesting levers they're already pulling. There's really a way you can go further here. And for me a lot of that, I mean I work in the financial sector, so I'm very interested in how we create the right financial infrastructure to enable more of pensions and savings to come and address the supply side issue and also reduce the cyclicality of housing supply. London for example, was relying on these two sources, house builders and housing associations and both have dried up and suddenly we aren't seeing any affordable homes being built in the capital or very little, as I alluded to earlier. 

 

So working out ways where the government can channel pension savings to address this problem is really vital and a really important lever from my perspective, and not least because it makes sites viable, fundamentally viable. If we're expecting every housing site has to produce 15, 20% profit, developers will just say, I can't sell homes for the amount that I need to sell to cover the costs, so I'm not building anything. Actually, if we bring more of this as Stani alluded to, lower cost capital that needs to make a return of five, six, 7%, suddenly the numbers stack up because you're only needing to make five, six, 7% per annum, not 15, 20%. So things actually work again, and we can get building again. 

 

 Stani Milcheva: 

To add to that, as you said, the government in June announced that they will continue with the Affordable Homes programme, there will be a new round of this programme and the money will be doubled, but for twice the duration. So instead of five years, the programme will last ten years. And we have been advocating for this. We have produced a report with the National Housing Federation, the G15, the 15 biggest housing associations and around London and Shelter called Double and Quits, where we argue that based on industry research housing associations really value certainty and predictability. When it comes to development, housing associations buy a ready to go land already with the planning permission. But the problem is that they need to stick to this planning permission and what it allows to be built, what RPs registered providers would value is to, they said in our report is to have longer period of time that they can use this subsidy, even if it's the same amount of subsidy in order to buy land cheaper, go and auction the land, et cetera, et cetera. So I think this was done, which is great to see.  

 

But I think easy fixes that the government can do is just provide certainty and commit to things longer term when it comes to house building. Another very important aspect is the rent settlement because social rent and affordable rent have kind of a fixed or settled rent, which grows with the inflation, you can model your rent in your financial modelling will add a lot of certainty for investors. So anything the government do to de-risk it is very helpful. And often it's not associated with money, it's associated with guarantees and providing certainty, which probably will in many cases not materialise. 

 Pete Gladwell: 

And that's a really important point, not because it doesn't just help the quantum of investment, but also means if an investor sees a lower risk asset, then an investor can expect to receive a lower return because it's a lower risk investment. So the lower return means that we can value that property more highly for the same rent, we can effectively receive a lower yield. So you're increasing the value of social affordable housing, which of course makes it more viable to build in the first place. So the certainty leads to lower yields, which actually means increased value, which means more homes are built.  

 Priti Parikh: 

As someone who lives in London, I know there's a perception that there are empty houses, investment properties floating around, but what I'm hearing from both of you that the problem is much more complex and the solutions need to be grounded in reducing risks, planning processes in providing access to low cost finance. 

 Stani Milcheva: 

I mean the question is how do you measure empty home? It's very hard for councils to monitor these. A lot of these empty homes are very expensive homes and the price is not going to drop of those homes because the land underneath that home is very, very expensive.  

 Pete Gladwell: 

The UK has a particularly bizarre set of property taxes. You've got council tax, which is far from logical in terms of the most expensive areas are not where you might expect the most expensive areas, the people who pay the most council tax. So I mean, I have to say I would be in favour of a proper drains up on the whole property taxation system Council tax, Stani’s alluded to stamp duty, and obviously as we discussed, there are things you could do around empty homes within that. But it is fair to highlight that the property taxation system in the country is far from ideal and could do more to stimulate supply. 

 Priti Parikh: 

Well, we are in the Bartlett School of Sustainable Construction. So there is a question in my mind on sustainability, can we build more houses sustainably and can we achieve our government's net zero goal? 

 Pete Gladwell: 

Yeah. So I think this is really exciting and achievable actually. But again, the question is interesting around how we do it and what we mean by sustainable homes and net zero homes. So there's been a bit of a trend towards passive house homes which are incredibly airtight and therefore require very little energy to heat. Now, those are obviously extremely costly as well because you're putting in huge amounts of insulation and it's very expensive to retrofit homes to that standard as well. So I'm far more in favour personally of moving to net zero through electrification, batteries, solar, targeted insulation, but not aiming to get down to a passive house standard So there's a lot to actually really think through in this. And I have to say, my gut feel is it's not about throwing money at reducing energy usage to a minimum. It's about getting to net zero through targeted measures. 

 Stani Milcheva: 

I would just throw in here service charges because often any sort of sustainability measures, energy efficiency improvements are reflected then in service charges. Service charges are high. Sometimes we see in London service charges 6,000, 10,000 a year, which can be half of the rent. So we need to be very careful of how do we consolidate energy efficiency improvements, retrofitting buildings with service charges. 

 Pete Gladwell: 

And it's a real social justice issue as well, because often those costs are put on those in social or affordable homes who don't have a huge amount of money to start off with. And we end up with fuel poverty. And again, it's for me why targeted measures can really, I mean if we're doing things like solar batteries, creating mini power plants, you can actually generate income as well as saving people's fuel bills if you do the right things on the homes.  

I have seen market research by YouGov that points to people being willing to spend more in rent and pay more for net zero homes, interestingly, but it'll be interesting to see if that comes through in data in future. 

 Priti Parikh: 

I live in North London where there is a huge housing development happening as we speak, and there's mixed views from the community on that, and there's a bigger piece thinking about sustainability and where are we building, do we have land to build? What are the planning processes? I'd be interested to hear your take on that. 

 Pete Gladwell: 

Yeah, I think there's two really important elements to this. I mean, the first one is just to be clear that there are some things a nation needs that no one wants built next to them. Power stations, for example, everyone loves the idea of having power. No one wants the power station next door to them. And it's inevitable that homes and large housing developments are one of those things. We as a country need to build more, and everyone obviously hopes it's going to be round the corner next to someone else. And so the need is very much there to take a more strategic view. And that's why I think some of the government's moves in that direction to create things like new towns are a step in the right direction. But there's a really important element as well where part of it is that strategic overview, but the other one is making new developments contribute more to the local area and to the people who live in them. 

 

And a lot of that comes down to, from my perspective, the type of developments we build. So making sure there are green spaces, making sure the social infrastructure is in place, there are enough doctor surgeries, schools, things that contribute to a community rather than adding a burden on the existing community. But that comes about through, again, from my perspective, through thinking about the right funding models as well. Because a house builder has a very limited amount of capital. I mean, often they've borrowed a lot of the money they have, and their aim is to turn over their money as quickly as possible. So wait till the last-minute investor build their homes, sell them, turn the money and maximise their ROCE, their return on capital employed. Now that fundamentally sits at odds with creating social infrastructure.  

And ironically also say affordable homes because you have to sink money into a school that will sit there for decades, whereas longer term patient capital actually loves it at infrastructure because it can generate long-term cash flows from a doctor surgery, leasing it to GPs, for example. So there are various models, and we could go into things like land value capture, which really enable these and supercharge these kind of patient capital models. But if we're going to see the type of new developments built that we need as a country, I would argue that we also need to revisit the funding model that creates them and find capital that is more aligned with the kind of social outcomes and environmental outcomes that we want to achieve. 

 Stani Milcheva: 

Yeah. You mentioned NIMBYs.  Not in my backyard. Yeah, it's a major issue and I've been seeing more and more YIMBYs among social media. Yes, In My Backyard. I think what we haven't said is that actually people, the younger generation, people in their mid-thirties, in their late twenties are really struggling to afford to buy a house. And it's especially in London in the southeast where the average house price is 500,000. And if we look at the loan to income ratio, so the maximum loan that is allowed for your income is around 4.5 times on average maximum, maybe six times, right. So this means unless you have a deposit of 200 or more for a single person, it'll be very hard to afford any anytime soon. So more and more people on social media are advocating, yes, in my backyard, let's build more. Let's build more. And absolutely, yes, I support that. 

And what you have in some countries is instead of having the planning system we have here, you have zoning, which means you automatically approve planning permissions for some standardised developments. That means you don't have to go through all these consultations that take really long time and associated with a lot of uncertainty. 

 Priti Parikh: 

Stani, you're one of our leading experts in Bartlett Faculty. What is the Bartlett doing to help address this issue? 

 Stani Milcheva: 

One thing I noticed through my different engagement with policymakers is that often we're looking for quick solutions and also quick research. I'm an empirical researcher, so I work with data. It takes time to just access the data. I think it’s very, very important to say is that policy needs to be informed by academic research rather than policy consultancies or reports, because often they kind of lack the rigour we can add as academics to identify very accurate specific things. 

 

And from my experience doing the policy fellowship is that we really, even if I think my research is simple enough, I need to simplify it even more so that it can be taken on board. So since I've moved to UCL, I've engaged way more with policy than ever before. I think UCL is amazing at policy engagement. It has really, really great support, both financial support but also great success stories. And a lot of my colleagues are doing policy engagement, but we have room to improve and policy makers as well have room to pay more attention to academic research. 

 Pete Gladwell: 

I think Stani's maybe being a bit self-deprecating because I know her work when she was in the department directly led to the government setting up the National Housing Bank, and she played an important role in that. And the other thing I'd just give a kind of shout out for is the role of housing and addressing health equity as well. And that's something UCL has done a huge amount of work on and really leads the field in. So something I'm really proud to be a part of. 

 Priti Parikh: 

And academics can undersell themselves precisely the point you allude to Pete, and that's precisely why podcasts like the ones we do at Bartlett Faculty is so important because the point is we need to take good science and very quickly relay it to the breadth of audiences we need to influence policy and practice. My thanks to Professor Stani Milcheva and to Pete Gladwell. It's been fascinating talking to both of you today on the housing crisis.  

 Pete Gladwell: 

Thank you. Thanks for having me. 

Stani Milcheva: 

Thank you, Priti.

 Priti Parikh: 

For more information about the Bartlett Faculty of the Built Environment, you can visit our website ucl.ac.uk/bartlett, or find us on LinkedIn at the Bartlett UCL. From me, Priti Parikh. Thank you for listening and goodbye.