[.green]1[.green] Introduction

The symptoms of Britain’s housing crisis are devastating and well-known: 139,000 children in England are in temporary accommodation, rough sleeping has risen steadily since 2010 and more than three million people live in housing they cannot afford.^[1] Ever more adults live with their parents,^[2] as housing has become less affordable in every local authority in England and Wales over 25 years of available data.^[3]

This burden on living standards affects the British economy on both the supply and demand sides. Households strained by housing costs hold back consumption or fail to build up secure savings; workers struggle to move to where the job opportunities are and endure longer commutes.^[4] At the same time, mounting household leverage deepens our exposure to central bank inflation targeting, with spillover effects that jeopardise macroeconomic stability.

Crisis brings the temptation of panaceas. Policy discussion has focused considerably on the need to boost aggregate housing stock by unshackling private developers. Indeed, the UK is an international outlier in the lack of size and quality of the UK’s housing stock, and rectifying this relative shortage could ease housing costs. But there is a danger of serial rhetorical slippage from identifying a supply problem to declaring that the problem is exclusively one of supply (specifically aggregate supply rather than its composition), that planning bottlenecks are the sole cause of this, and that these bottlenecks are exclusively the result of regulatory overreach.

The UK’s housing plight is also a distributive crisis. Despite the promise of widespread home ownership, tenure has become polarised between an ever greater number of outright owners and a growing class of private renters who furnish the rental incomes of a narrow but burgeoning landlord class in whose hands ownership is steadily concentrating.^[5] Overcrowding for renters is rising in tandem with under-occupancy for owner-occupiers.^[6] Amidst wage stagnation and a threadbare welfare state, housing wealth has for many owners become a wellspring of unearned capital gains, but these rewards form a vicious cycle together with the mounting cost of entry into participating in them. Access to the housing “ladder”, to use the ever more misleading metaphor,^[7] is increasingly dependent on access to parental wealth, often itself the result of house price inflation.^[8]  

This essay marks the launch of a new Common Wealth research programme exploring the political and economic effects of the longstanding shift in UK housing towards market coordination, deepening financialisation, and the retrenchment of the public sector, all of which has radically rewritten the social contract. These features underpin the dynamics of this distributive crisis, we argue. If people’s access to housing is distributed on the basis of ownership and the power that confers, then it matters that the transformation of housing from essential service into financial asset has turned the allocation of ownership rights into a question of competing balance sheets, i.e. access to liquidity or collateral. Combined with decades of rampant and volatile asset price inflation, this has created widening political cleavages and also opportunities for new players such as institutional investors.^[9] It is these developments that our research programme sets out to explore.

To this end, this essay begins by briefly recounting the history of housing policies since World War Two, taking stock of the present housing supply situation which is their result. We then explore the consequences of housing financialisation for the question of who is able to own houses and whose access to housing security is at their mercy. We use this analysis to consider the implications of market coordination and public sector retrenchment for whether planning deregulation will deliver the relief that our housing sector urgently needs. Foregrounding the distinction between rents and house prices, we emphasise that while both prices are respectively responsive to the supply of housing, the elastic relationship between the two is primarily financial, requiring policies that address this specific dimension. By understanding the financialisation which governs this relationship, we can make sense of the regressive distributive dynamics allocating the existing stock, and also assess the chances that deregulation of planning laws will alleviate the crisis.

[.green]2[.green] The Retreat of Public Coordination

In the second half of the twentieth century, the UK’s housing sector was characterised by a mixed economy with a strong role for the state in both construction, provision and regulation. The private rental sector (PRS) — still the largest tenure by some margin after the war — was subject to rent controls.

Sustained levels of housebuilding by local authorities kickstarted a construction wave in the immediate postwar years, catalysing private construction that eventually reached scale in the late 1950s and early 60s (see Figure 1). Local Authority housing investment peaked in 1974/5 at £2.2 billion — £23.3 billion in 2023/4 prices.^[10] As with other areas of industrial policy, public housebuilding played a stabilising, counter-cyclical role for its private counterparts, providing those developers with contracting income that smoothed liquidity for their own speculative housebuilding model.

[.fig]Figure 1: Housebuilding by Type of Developer, England and Wales, 1919–2023[.fig]

[.notes]Source: Alan Holmans and MHCLG Live Table 244. Note: Data for 2022 and 2023 counts England only.[.notes]

This settlement effected a radical reorientation of housing tenure. By the end of the 1960s, owner-occupancy had surpassed 50 per cent, while social rent had overtaken the formerly hegemonic private rental sector (see Figure 2). It also caused a radical transformation of the urban environment: gross levels of housebuilding reached their highest level in the late 1960s, though its net impact on stock was offset by demolitions.

[.fig]Figure 2: Housing Tenure, England, 1961-2023[.fig]

[.notes]Source: MHCLG, Dwelling Stock, Table 104: Dwelling stock by tenure, England (historical series).[.notes]

The systematic dismantling of this model was part of a much larger neoliberal counterrevolution. However, its gradual unravelling predates this. The planning and development settlement established after the Second World War was underscored by “low-cost land acquisition, strong plan-making and the power to determine planning applications”.^[11] The first of these ingredients was removed in the 1960s with the reinstatement of the principle that compulsory land purchases compensate landowners for the “hope value”.^[12] This eliminated one side of the settlement, bequeathing the lopsided setup that survives today. The decline of social housing construction — and by extension aggregate housebuilding — that accelerated under Thatcher dates back to the turn of the 1970s (see Figure 1).  

Ownership also began to become increasingly attractive relative to renting with fiscal changes in the 60s, such as the removal of tax on imputed rent, the capital gains tax exemption on primary residences and deductibility of mortgage interest payments (MIRAS). Finally, credit liberalisation (began in the early 1970s) broke building societies’ near monopoly on mortgage lending, unleashing credit surges that would underpin the inflationary boom-bust that is now so familiar. Further financial deregulation would follow with the legislated reconstitution of building societies in 1976 as companies with a vastly expanded remit and consumer offer, and the removal of exchange controls in 1979.^[13] With less restriction on lending, domestic mortgage credit surged from 40 per cent of the UK’s GDP in the 1990s to 60 per cent in 2015.^[14]

[.fig][.fig-title]Figure 3: House Prices Rose Together with Mortgage Credit Until 2008[.fig-title][.fig-subtitle]Mortgage and non-mortgage debt vs house price index (1990=100)[.fig-subtitle][.fig]

[.notes]Source: Common Wealth based on the Jordà-Schularick-Taylor Macrohistory Database. Note: Full sample includes Australia, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, Ireland, Italy, Japan, Netherlands, Norway, Portugal, Sweden and USA.[.notes]

The 1980s saw public sector retrenchment, market coordination and financialisation inscribed into the regime that emerged victorious from the 70s interregnum. Most famously, 1980s Right to Buy (RTB) policy compelled councils to sell social housing to tenants at significant discounts, while additional legislation during that period significantly restricted their ability to use the proceeds or borrowing to build more.^[15] The 1988 Housing Act phased out rent controls, as well as creating the more precarious PRS tenure of Assured Shorthold Tenancy, with easier evictions and tenancies as short as six months. Local Authority housebuilding cratered, with limitations on councils’ use of sale proceeds. Plugging some of the gaps were cash transfers to low-income renters in the form of Housing Benefit.  

Ian Mulheirn and co-authors calculate that rent subsidies — across the three categories of social rent, PRS rent controls, and Housing Benefit cash transfers — fell from 16.5 per cent of housing costs in 1979 to 11.5 per cent (or £31 billion) in 2020.^[16] This was driven by the shrinking of social tenure, the narrowing between social and market rents and the elimination of rent controls — offset by the rising Housing Benefit, which has stayed above £20 billion annually throughout the 2010s. More fundamentally, the shift represents a pivot from subsidising supply to subsidising demand. The composition of housing subsidies flipped from over 80 per cent supply-targeted in 1975 to over 85 per cent demand-targeted in 2000.^[17] In 1975-6, public expenditure on new builds was £21.3bn, and expenditure on housing benefit £1bn (adjusted to 2022 prices); by 2021-2 only £3.7bn was spent on new buildings, whereas the housing benefit bill had ballooned to £26.8bn.^[18] Insofar as RTB was also a policy of state handouts, it represents a set of lump-sum payments granting disproportionately higher-income social renters access into the dynamics of asset price inflation. Taking advantage of these dynamics became more important with the crushing of organised labour and the new monetary orthodoxy that tolerated inflation in assets but not consumer goods.

This new settlement reversed much of the tenure trends of the previous settlement. The retreat of the public sector has led to lower overall supply thanks to permanently lower levels of aggregate construction (see Figure 1). Social renting has been in terminal decline, and its composition has pivoted drastically from Local Authorities — who are subject to central government-imposed borrowing restrictions — to Housing Associations. This tenure is primarily funded by Section 106 agreements with private developers or grant funding, exposing sub-market rental housing to the uncertainty and cyclicality of the private sector and hence reversing the sub-market sector’s erstwhile counter-cyclical role. The introduction of buy-to-let mortgages in 1996 advantaged existing landlords in purchases by letting them borrow against both work and rent-related incomes — including expected rents on the property being purchased — as well as on an interest-only basis. Buy-to-let accounted for between 10 and 15 per cent of all mortgages granted in the decade to 2022 (see Figure 4) and since it was introduced the private rental sector has nearly doubled in size, encompassing 41 per cent of the council homes sold under Right to Buy. Even owner-occupancy of former council homes has declined over time.^[19] Outright ownership continues to grow but mortgaged owner-occupancy has waned since the late 1990s and especially since the Global Financial Crisis, when lending criteria were tightened in favour of those with existing capital. House prices-to-income ratios swing dramatically but have surged on average since the mid-1990s (see Figure 5).

[.fig]Figure 4: Gross Mortgage Advances by Purpose of Loan[.fig]

[.notes]Source: Common Wealth based on Bank of England Mortgage Lenders and Administrators Statistics.[.notes]

‍

[.fig]Figure 5: Median House Price-to-Earnings Ratios, 1997-2023[.fig]

[.notes]Source: ONS.[.notes]

[.green]3[.green] Taking Stock: UK Housing Supply

The above history provides context for the present situation of the UK’s housing stock. Comparing housing stock over time and between places is problematic, since the formation of both dwellings and households adapt to each other: people co-habit, houses are split into flats. Caveats aside, however, the UK is an international outlier, underperforming the vast majority of peer countries in both the low level and low-growth trajectory^[20] of its housing stock. This is true whether measured in terms of stock per capita, vacancy rate,^[21] or floor space.^[22] The same holds for more granular comparisons between UK cities and their European peer set.^[23]  

As a result, focusing exclusively on the supply issue may often help to explain house price variation in the cross-section but not in the time series. That is, it may illuminate differences between countries at a given time, but not price changes over time. Looking at the UK housing stock over time complicates simple supply-and-demand heuristics because, excepting some post-recession downturns, the general trend is towards an improving stock of dwellings relative to population (see Figure 6).^[24] Relative to household formation, this is true even of London,^[25] although the per capita picture here is more ambiguous.^[26]  

[.fig]Figure 6: Total Dwellings per Capita, England, 1991-2023[.fig]

[.notes]Source: Common Wealth based on MHCLG Live Table 109 and ONS.[.notes]

It is uncontroversial that increasing the aggregate supply of housing will, all else equal, put downward pressure both on rents and on the house prices that capitalise those rents. In the long-term, a one percentage point increase in the housing stock is estimated to lower rents and house prices by two per cent.^[27] (Labour’s target of 1.5 million homes amounts to a five per cent increase, implying 9.6 per cent lower rents than otherwise, and potentially greater if high-demand areas are well targeted.) Planning refusals also increase the elasticity of house prices with respect to household earnings.^[28] An emerging literature suggests that even the construction of only high-end housing can relieve demand pressure at the lower end, with deflationary effects, by creating “filter chains”, whereby higher-income households are diverted away from lower-end housing for which they were previously competing with poorer households — although low-income households can be even better served by the construction of new social housing.^[29]

A question to bear in mind is supply of what? We should not conflate the stock of units with the flows being released onto respective purchase and rental markets at any one time. Policies like rent controls that might arguably stymie the private rental market do not reduce the aggregate housing stock, only the propensity of owners to use it for one purpose over another. Concentrating ownership into the hands of the already-propertied can increase scope for would-be long-term dwellings to be repurposed for Airbnb and other short-term rentals, restricting the supply of longer-term rentals and pushing up rents accordingly. Equally, demand for housing services should be distinguished from demand for housing assets, in which credit is an enormous component.

[.green]4[.green] Two Prices

Keynes and later Minsky spoke of the economy being a two-price system, distinguishing ordinary consumer prices from asset prices. Rent is an instance of the former, house prices the latter. Asset ownership confers claims on the proceeds from the sale of the resulting goods and services produced with that asset. Crucially, assets are overwhelmingly bought with credit. And the supply of credit will always be more elastic than the supply of housing.  

While consumer prices are easily understood in terms of supply and demand, the price of an asset — theoretically — is the net present (i.e. discounted) value of the sum of all future cash flows from that asset (including both its “organic” income flows — dividends from shares, coupons on bonds, rent from homes, etc. — and its speculative resale value). Assets thus embody futurity, and discounting regulates this relationship: the less we discount future cash flows, the higher the asset price. Financial theory grounds this discount rate in counterfactual: the higher the return to the risk-free asset, the less one would willingly pay for a riskier alternative.  

With this in mind, we can think of house prices as depending on:

[.green]a.[.green] expected rent payments,

[.green]b.[.green] expected selling price,

[.green]c.[.green] the distribution of risk attending those expectations, and crucially

[.green]d.[.green] the discount rate applied to those future cash flows.

Fundamentally, falling interest rates may inflate house prices even while leaving rents unchanged. We will return to this. (This model is a simplification: there are considerable frictions between renting and buying, and credit constraints are decisive,^[30] but it illustrates the parameters that come into play when something becomes a financial asset, capable of being sweated and collateralised.)

The long-term secular trend of falling interest rates has been accompanied by asset values —spanning both real and financial assets, not merely housing^[31] — swelling relative to incomes, alongside liabilities and net wealth. The “Big Balance Sheet Economy”, as the Jerome Levy Forecasting Center has termed it, is one in which valuation gains (fuelled by credit conditions and animal spirits) have ever larger influence on the economy relative to ordinary income flows, including the “organic” flows that those valuations are capitalising.^[32] Capital gains take on more importance relative to operating profits for businesses and relative to wages and other income for households.^[33] Symptoms include increased short-termism and financial recklessness as well as the embedding of distorted unrealistic expectations of what constitutes “normal”. Rising prices lead less to falling demand — as with ordinary goods — than to leveraged demand.^[34] Swings in asset prices have become not only larger relative to income but more closely aligned with the business cycle, increasingly influencing the business cycle, of which investment is the most cyclically volatile component — with implications for sustaining construction activity.^[35]  

With privatised housing occupying such a large place within both cause and effect of this dynamic, the two prices jointly make sense of both central pillars of our housing crisis — its ever more perverse distributive dimension, and the comparatively lacklustre rate of new housebuilding. Under market coordination, both the construction of new supply and the distribution of existing stock are determined by how different actors’ balance sheets and liquidity constraints are positioned relative to the path of interest rates and asset prices, including house prices.

The distributive effects of credit-fuelled asset inflation

An alarming feature of the 2010s was the sudden proliferation of a large class of petty landlords owning relatively few properties each,^[36] as a result of the greater ease with which existing homeowners could leverage their capital gains into further property purchases relative to would-be first-time buyers relying almost exclusively on wage income.  

Items (b) and (c) of the schema outlined in the previous section — expected selling price and the risks around it — were enhanced by the 1997 update to Assured Shorthold Tenancy, which kickstarted the UK’s buy-to-let mortgage market by speeding up eviction, reducing the notice period for British tenants to two months. This made rental properties easier to sell with vacant possession, which made the mortgage collateral more attractive to lenders who did not wish to take on the operational function of landlord.^[37] Mortgage liberalisation in the 1980s has also made house prices more sensitive to changes in interest rates (as well as income expectations).^[38]

Older generations enjoyed cheaper house prices at the cost of interest rates. A striking feature of the last couple of decades has been the emerging gulf in regular housing costs between tenures, with home ownership looking increasingly preferable to private renting even by the limited metric of gross monthly cash outflows — leaving aside the fact that, unlike rent, mortgage payments contribute to one’s equity in the asset. That is, monthly rent within the private rental sector has far outstripped monthly mortgage payments (plus associated upkeep costs) for comparable owner-occupied dwellings. Theory demands that enterprising arbitrageurs should eventually close such disparities. Instead, access both to the dynamics of asset inflation and to the lighter liquidity demands of owner-occupancy is guarded by the requirement for large mortgage downpayments. In 1997, the average would-be first-time buyer (FTB) would need to save five per cent of their income for three years in order to put down a deposit on an average FTB home. By 2009 this figure had reached 23 years, edging down to 19 years in 2016. Prior to 1997 it had never exceeded five years.^[39] (1997 is incidentally when the buy-to-let mortgage market really took off.) Hence the growing importance of parental wealth —often itself the result of asset inflation — referred to colloquially as “bank of Mum & Dad”.^[40] “Inheritance”, in Adkins, Cooper and Konings’ seminal account, “is no longer a simple transmission of property titles, but increasingly a strategically timed transfer of funds that need to be leveraged and put to work in the speculative logic of the asset economy.”^[41]

Tighter credit conditions during downturns reward those with liquidity, presenting acquisition opportunities for cash buyers and institutional investors with sufficiently large balance sheets to ride out turbulence and scoop up distressed assets during fire sales.^[42] Such an approach during the US housing crisis helped turn the private equity behemoth Blackstone into one of the world’s biggest residential landlords.^[43] These dynamics have been in overdrive since the Global Financial Crisis, as wealth-driven housing dynamics have supplemented the existing debt-driven ones.^[44] These dynamics have manifested in the decoupling of the association between mortgage credit and house prices (the former having stagnated or fallen during the post-crisis era of meteoric appreciation), which emerged in the 1980s to replace the long-standing erstwhile association between mortgage credit and residential construction.^[45] Post-crisis, first-time buyers are disproportionately excluded by tighter lending criteria favouring those with existing capital – reflecting both macroprudential regulatory restrictions and the heightened aversion of lenders to interest risk and credit risk.^[46]  

Fundamentally, additional housing supply can subdue both of the two prices relative to counterfactual, but the relationship between the two is determined macro-financially.

Building out of housing financialisation?  

Can the added ingredient of significant supply increases alone — restoring bargaining power to the asset-poor through improved outside options — remedy the system’s distributional and other dysfunctions without any departure from market coordination? Some commentators are sanguine.^[47] There is surely some truth to this: reducing rents and prices will at least reduce both the absolute value of price swings and the extent to which capital gains can bias transactions against first-time buyers; and supply elasticity can somewhat dampen the negative relationship between real interest rates and the rising share of housing capital income in national income. ^[48]

But as Hochstenbach and Aalbers note, “even in countries with more elastic housing markets, where new construction outpaces household growth, we see rising house prices, which result primarily from low interest rates and expanding mortgage credit”.^[49] Bank of England modelling suggests that a greater price-elasticity of housing supply — for example, if we more than doubled it to levels nearer that of Japan, Canada or Scandinavia^[50] — would certainly have dampened UK house price growth relative to counterfactual, but that the effect would be very small compared to the “substantial decline in real risk-free interest rates” that “more than account[s] for” the observed price-to-income growth.^[51] Given the UK’s observed 5.6 percentage point secular decline in real interest rates over the 33 years from 1985 to 2018, such a supply response would still only spell the difference between 149 per cent price growth and the 173 per cent growth predicted by the UK’s actual elasticity.^[52]  

Perhaps these other markets too are simply not elastic enough, but then what level of supply elasticity is a reasonable target? Would the removal of regulatory obstacles be sufficient to achieve this target, or would market forces need even more lubrication, perhaps in the form of government support for private housebuilders? Indeed, the National Housing Federation and the Home Builders Federation have already called for the government to provide support.^[53]

Given the magnitudes involved, the relevant question is to what extent additional supply ought to substitute for additional policies targeted directly at distributional issues — especially given the time lags involved in new construction, the extent to which it will compete with other infrastructure priorities for scarce resources (labour, materials, capital and carbon budget space),^[54] and the already disastrously unlevel playing field on which future transactions will play out.  

Volatility and speculative construction  

The same conditions facilitating these distributional landgrabs also restrain supply growth, with developers less able to finance construction and reluctant to sell into a bear market where sale prices are falling.^[55] To quote the Office of Fair Trading, “homebuilders deliver new homes as fast as they can sell them, not as fast as they can build.”^[56] The CMA, the OFT’s successor, has echoed these concerns 16 years later (our emphasis): “market cyclicality and the speculative housebuilding model may mean that private housebuilders do not collectively have the necessary incentives to build houses to the rate required to meet policymakers’ objectives.”^[57] In the more candid words of Vistry’s CEO: “All housebuilders can build quicker than they currently are. But they are only currently building to the level they can sell.”^[58] Bank researchers have posited that fears of a market bust have made US developers less price-responsive than before the Global Financial Crisis, noting that those housing markets hit hardest have since seen steeper declines in price-elasticity of supply than elsewhere.^[59]

Hence the cyclicality characterising both planning application submissions,^[60] and, once successful, the propensity of developers to build on those plots.^[61] The cyclicality of housing construction reflects factors determining both the propensity of developers to make planning applications in the first place, and to follow through with construction once permission has been granted. As Figure 7 demonstrates, the level of planning refusals tends to be small relative to the fluctuations in planning application submissions (with the caveat that the level of applications is lowered by the anticipation of rejection). Even once granted, “around 10% to 20% of consented homes typically fail to be built” according to Savills.^[62] As of 2021, 1.1 million homes with approved planning permission were yet to begin construction.^[63]

[.fig]Figure 7: Planning Decisions for Major Dwellings, England[.fig]

[.notes]4-quarter trailing averages. Source: Common Wealth based on MHCLG.[.notes]

This volatility further chronically undermines cost efficiency by discouraging investment by the supply chain in construction product manufacturing.^[64] Thus, unleashing speculative private developers will not only fail to tame financially fuelled volatility; such a housebuilding programme threatens to become undone by it. To this end, a public master developer — with powers over the planning system, land value capture, and financing — could enhance social welfare and distributive justice but macroeconomic stability, both by managing the business cycle and improving construction productivity through ensuring more stable and robust demand.^[65]

[.green]5[.green] Permission to Plan

The built environment has profound consequence for those who navigate and inhabit it, and changes to it are long lasting. Planning is thus a necessary part of ensuring a coherent built environment that works in the interest of communities. This includes democratic scrutiny. Objections to developments are inevitably heterogeneous: the objection of Elephant and Castle’s longstanding Latin American community to the replacement of their community pillars by student accommodation can be meaningfully distinguished from the opposition of Buckinghamshire homeowners to the construction of HS2.

Planning and development departments have been the single biggest casualty of cuts to local government funding, which in turn has been at the sharp end of austerity. Real-terms per capita spending by these departments fell by 58 per cent between 2010 and 2020.^[66] The proportion of this dwindling expenditure born by applicants themselves (in the form of sales, fees and charges)  has grown significantly, from ~18 per cent  in 2009/10 to ~33 per cent in 2017/8.^[67] Multiple affected bodies — from the Local Government Associations’ Planning Advisory Service to the trade union representing employees of the Planning Inspectorate — have attributed increased planning delays to resource issues.^[68] A 2019 Royal Town Planning Institute report complained that “[i]n England, in particular, deregulatory planning reforms have weakened planners’ ability to ensure development is coordinated and of a high quality.”^[69] If we care about our ability to overcome regulatory hurdles then policy should pay attention to both sides of that equation: not just to the height of those hurdles but also to the resources allocated to clearing them.  

Framing the debate in terms of NIMBYism versus YIMBYism^[70] — the notion that the excessive veto power of those opposed to development is the sole obstacle to housing supply — potentially obscures a more fundamental ideological divide between those who see the gutting of state capacity as the illness, and those who consider it the cure. And insofar as desirable development truly is impeded by vested interests concerned only with inflated property values, it is instructive to consider how such a potent political bloc came to cohere.

[.green]6[.green] Forging the Antisocial Contract

The demand for housing as a financial asset is closely related to the hollowing out of the welfare state and the squashing of organised labour. Over the course of the 70s and 80s Anglophone economies struck a political economic bargain sacrificing the previous settlement of robust wage growth and secure pensions for the working class in exchange for the promise of asset welfare, whereby (selective) entry into asset ownership would assure prosperity through valuation gains and perpetual income flows.^[71]  

Core to this promise was owner-occupancy of one’s home. Yet the dynamic this unleashed — large capital gains and weak alternative forms of social security — has tended towards the concentration of ownership, with landlordism a key symptom. 40 per cent of private landlords in England cited the need to contribute to their pension as their reason for originally becoming landlords, while 54 per cent viewed their role as a “long-term investment to contribute to their pension”.^[72]

While the Thatcherite promise to give people a “stake in society” clearly failed with respect to share ownership, it succeeded with respect to the most cyclical, illiquid and supply-inelastic asset possible: housing. Implications for the formation of political subjectivity are profound, extending even into the social and sexual realms, reinforcing what Melinda Cooper has described as the disciplinary function of debt at the level of the political subject, as opposed to the corporation.^[73]

These implications also vary widely by location and cohort; those who got in at the ground floor have fared better than those who got in later. Yet even this diminishing prize is often worth the leverage new entrants can throw at it, especially in light of their children’s opportunities for wealth accumulation. Adkins et al: “[f]ew governments can resist policies that reflated the housing market, thereby fuelling the growth of asset-led inequality even as it appears these instruments are losing some of their effectiveness and require more firepower with each round.”^[74] This firepower’s effectiveness diminishes precisely because each round of crisis-induced rate cuts generates ever more highly leveraged asset reflation, in turn further lowering the rate ceiling above which further crisis will be triggered.^[75]

The politics of home ownership has helped shape our fiscal-monetary policy mix thanks to a large electoral bloc far more invested in loose money than in generous public spending (except perhaps insofar as landlords indirectly benefit from Housing Benefit). Thatcher’s Right To Buy (RTB) was the turning point in growing and consolidating this bloc.^[76] With a plausible claim to being fiscally the largest voter acquisition scheme in modern British history, no other housing policy better epitomises what Adkins and co-authors describe as the “[embedding] of the ‘rentier function’… across social life as a whole.”^[77] As Stuart Hall said of Thatcher’s 1987 election victory, “politics does not reflect majorities, it constructs them”. 41 per cent of council homes sold under RTB are now privately let.^[78]  

The new (anti)social contract is one in which the stakes of home ownership are high, and existing and aspiring homeowners are a practically unassailable political constituency. In the words of Josh Ryan-Collins and co-authors, “under the new liberal settlement the problem of [economic] rent would not be tackled directly at all, but the ability to be on the winning side of the equation would be offered to a greater proportion of society than ever before”.^[79] Much of Conservative housing policy in the 2010s revolved around ferrying a narrow sliver of marginal would-be home owners over that line — through demand-juicing measures that themselves widen the gulf, chiefly in the form of Help To Buy — whilst blocking social housing construction because “all it does is produce more Labour voters”.^[80]  

Housing played a role in both of the UK’s last two electoral earthquakes. House price growth since 1996 was a powerful (negative) predictor of the strength of a Local Authority District’s Leave vote in the 2016 EU Referendum, including when controlling for demographic and labour market characteristics.^[81] More recently a political wedge emerged between outright owners and mortgage holders, who drove the collapse in Conservative support when mortgage rates spiked following Liz Truss’s notorious “Mini Budget”.^[82]  

Over time, this variously selective fortune has carved a deepening political cleavage between generations that has increasingly defined election outcomes in the UK and other Anglo-capitalist economies.^[83] The peculiar cultural superstructure around this partly epiphenomenal age skew at times overshadows inequalities within generations, without which the asset economy would have struggled to gain momentum. But this dimension will soon unravel with the gradual passing of the cohort of first-order beneficiaries of this system, precipitating an unprecedented intergenerational wealth transfer.^[84] The distribution of that inheritance will partly scramble our age-based political coordinates, reflecting the interaction of the geographical unevenness and the initial intra-generational class divisions that the asset economy has widened.  

Future Common Wealth research will further explore how housing informs political subjectivity and facilitates the making and breaking of political coalitions. Using bespoke polling, we intend to probe how receptiveness to policy varies according to people’s relationship to the asset economy, including not only their own tenure but their kinship network.

[.green]7[.green] Institutional Investment

Despite the preponderance of petty landlords, a professionalisation of landlordism is underway. Institutional investors, such as asset managers (including private equity), pension funds, university endowments and sovereign wealth funds, have become growing players in the global real estate market. Despite their still very small share of total global real estate (less than one per cent), they have over a short window made significant inroads into strategically important urban geographies, accounting for 20 per cent of new home construction in England (27 per cent in London).^[85]  

Global real estate assets under management (AUM) for these players grew from $385 billion at the end of 2008 to $1.7 trillion at year-end 2023.^[86] The recent emergence of this distinct class of owner — marked primarily by the acquisition of existing stock rather than new construction — owes much to the macrofinancial and regulatory conditions of the post-Global Financial Crisis era. Macroprudential regulations favouring asset managers over investment banks, leverage opportunities provided by ultra-low interest rates, and a wave of fire sales from distressed owners lacking adequate government support, allowed firms like Blackstone to hoover up distressed housing assets at the bottom of the market. The hand of the state was present at each stage of this.^[87]  

The UK has historically been less attractive to these players than the likes of the US, Germany and Spain, where the abundance of apartment blocks has made large-scale transactions easier to manage, compared to the UK’s heterogeneous, less easily aggregated stock. This is now changing; the UK was in Q1 2024 the world’s top destination for overseas investment in real estate assets in both absolute terms and (alongside Belgium and Ireland) relative to GDP.^[88]  

The spectacle of fiscal discipline creates an opening for institutional investors to front the capital for the UK’s long overdue reinvestments in housing and infrastructure, and the new government has flaunted its eagerness to “crowd in” private capital. Understanding these players’ modus operandi will prove important.  

A study of Fidere — a subsidiary of the most important such player Blackstone — identified six strategies in their capture of social housing units in a working-class Madrid neighbourhood: displacement by under-maintenance; increase utility costs; contractual uncertainty; atomisation of tenants; selected evictions; and tenant replacement through contract renegotiation.^[89] Tactics vary by locale but studies have observed rent-raising strategies in Berlin, Copenhagen and Stockholm, the latter experiencing rent increases of 43 per cent following acquisition by Blackstone.^[90]  

Forthcoming Common Wealth research will examine the entry of institutional investors into three housing categories: build-to-rent (BtR), single-family rental (SFR) and purpose-built student accommodation (PBSA).  

Institutional investors have invested a cumulative £52 billion in PBSA, eyeing the opportunity posed by a transient and potentially price-inelastic population, especially the UK universities’ disproportionate reliance on cash-rich international students. Meanwhile a cumulative £35 billion has flown into the UK’s nascent BtR sector, of which £3 billion has been in the SFR subset. BtR developments now loom large over the skylines of inner city boroughs, but cater primarily to young professionals rather than families, who count for barely five per cent of BtR tenants compared to nearly a quarter in the larger PRS.^[91] In the context of school closures due to London’s exodus of children, this raises serious long-term concerns about the demographic implications of the sector’s growing influence over the built environment.^[92]  

The UK opportunity, emphasising new construction over old acquisition, is in some respects novel for this class of investor. As such their exact tactics to maximise their internal rate of return — and protect against risk^[93] — may differ from elsewhere. But the broad array of precedents suggests an urgent need for scrutiny, especially as they seep further into our everyday lives at the request of our governments. Common Wealth intends to monitor the developments.