The history of housing in the 20th century demonstrates that building rates – including speculative private-sector building rates – were highest and prices most stable when public-sector housebuilding was highest. When state investment in bricks and mortar declined rapidly from the beginning of the early 1970s, private-sector building failed to pick up the slack (indeed it too went into decline for many years). As total housing output slumped, house prices became much choppier and prone to inflation. The rate of housebuilding is not the only variable to impact on house prices, of course, but a degree of correlation between the two is evident nonetheless.
There were two periods during the 20th century, each spanning about two decades, when housebuilding output was sustained at a level higher than any rise in demand and shortages were steadily overcome. Central to both periods was a major state housebuilding programme that topped up private-sector output to ensure that the country's housing needs were met. First, between 1921 and 1939, local authority housebuilding rose from negligible levels in the pre-war era to an average output of about 70,000 a year, with peaks of 121,000 in 1929 and 1939.[1] Combined with even higher levels of private production, by the outbreak of the Second World War there were felt to be enough homes for the number of households.[2] The pre-war housing shortage, worsened by the damage of the First World War, had been largely overcome.
A similar story can be told of the decades following the Second World War, which left Britain short of 750,000 homes in 1945.[3] Between 1948 and 1972, local authority completions never dropped below 100,000 per annum and in 1953 and 1954 they even rose above 200,000. By the 1970s, ministers were able to point to a crude surplus in housing.[4] Once again, the combined efforts of the public and private sectors had ensured that enough homes were built to accommodate the population adequately (although localised shortages remained) and so averting house price inflation.
Once the state began to withdraw from housebuilding overall output levels fell and prices became much more susceptible to speculative bubbles
In both periods – the 1920s and 1930s, and then the 1950s and 1960s – private-sector output was for the most part higher than local authority building. But the council provision was critical. Once the state began to withdraw from housebuilding, a process set in train in the very late 1960s, overall housebuilding levels fell and prices became much more susceptible to speculative bubbles.
Pre-1914: 'The housing question’
Before considering the successful housebuilding strategies of the 20th century, it is worth reflecting on what had preceded them and how they came about in the first place. The idea of funding housebuilding from the public purse had been altogether out of the question just a few decades before the first exchequer subsidies were introduced in 1919. This was a watershed moment in housing policy, and the war doubtless served as a catalyst for such an approach. But the principle of state finance for the provision of homes had been gaining ground before 1914 as politicians grappled with how to improve the housing conditions of the poor.
Throughout the 19th century the business of housing provision had been left entirely to speculative builders, property ownership was the almost exclusive reserve of the small capitalist landlord, and living conditions in Britain’s towns and cities were grim if not appalling for much of the working population. The challenges faced in adequately accommodating the new industrial working class was what came to be known as ‘the housing question’.[5] A series of legislative advances by the reforming ministries of the late 19th century had tackled only the worst excesses of unsanitary conditions and slumdom, and the statutory requirements that were placed on landlords to ensure minimum standards of ventilation and lighting, sewerage and water supply did nothing to improve affordability for those on the lowest wages; if anything they rendered housing more expensive. Working-class households would spend up to 50 per cent of their income on rent.[6]
The result was that overcrowding continued to worsen in the late Victorian period as poorer families crammed into shared properties in order to share the burden of the rent.[7] This was partly the result of huge population growth in towns and cities caused by the Industrial Revolution. The urban dwelling residents of England and Wales grew from 9.9 million in 1851 to 28.5 million in 1911.[8] But the failure to provide anything like enough homes for this population reflected two problems.
Firstly, the housebuilding market was volatile, as were house prices (the two variables each impacting on the other). Building came in cycles, reaching a peak for the Victorian period in 1876, then declining until the mid-1890s, when there was a short-lived rise in output which in turn petered out around 1903, when building activity entered the ‘long Edwardian slump’ which was not reversed until after the First World War. Concurrent to this, it appears that prices were rising and falling in line with building rates. While house price data from the 19th century remains sketchy, recent research by Luke Samy has documented trends in London during the two decades before the First World War. He finds that there was ‘steady house price inflation between 1895 and 1903, followed by rapid deflation from 1903 to 1914 and stagnation during the First World War’.[9] These building cycles, with construction evolving in long swings influenced by other features of the economy than the need for housing, have been traced back at least as far as the early 18th century.[10]
It was unprofitable to build homes for those on the lowest wages. Decent housing came at a price the poor could not afford
Secondly, it was unprofitable to build homes to cater for those on the lowest wages. Decent housing (by the standards of the time) came at a price that the poor could not afford.[11] The Sanitary Record observed in 1884 that ‘no practical plan has yet been devised by which dwellings can be built, which… can be let at these low rentals, and prove remunerative to builders’. The London County Council, one of the early pioneers of municipal housing, pointed out that the problem with relying on private enterprise was that it would naturally cater for the better off but would not address the demands which were less profitable:
'…there is one serious danger in relying wholly upon private enterprise. The provision of the better rented accommodation suitable for the artisan with a regular income is a more profitable enterprise than building for the poorer section of the working class… there is not much provision made for families which can only afford to pay for two or three rooms.'[12]
Attempts by philanthropists and model dwelling companies to provide decent housing and lower than market rents – the forerunners of what we would today call social landlords – made a small but ultimately indecisive impact on the wider situation. They sought to demonstrate it was possible to provide accommodation at rents the working man could afford and still make a modest return. But their rents were still too expensive for the poorest workers and so tended also to accommodate the better off artisan class.[13] Moreover, even these modestly reduced rents rendered them uneconomical as an investment for builders and the associations found themselves outbid for developable land.[14] By 1914, in London they had still provided no more than 100,000 rooms in a city of seven million people.[15]
What finally enabled the major council building programmes of the inter-war and post-war decades to take place was the availability of finance, including central government subsidies but also mechanisms for raising money on the capital markets and the issuance of local bonds. Local authorities had been given the power to build homes in 1851, but there was no compulsion and, crucially, they received no central government funding (the Public Works Loans Commissioners assisted with finance but at non-preferential rates of interest). Consequently, council housebuilding was minimal; by 1914, less than one per cent of the country’s housing stock was local authority-owned, perhaps amounting to about 24,000.[16]
'If a certain number of houses are not built at a non-economic rent, the present housing evil is irremediable and the problem must be given up in despair. If those houses are to be built, some state encouragement to local authorities will have to be given' - Tory pamphlet, 1913
Lord Salisbury, later to become prime minister, was in 1883 possibly the earliest front-rank exponent of subsidies for housebuilders; he only advocated preferential rates of interest on loans, but even that was enough to alarm many of his Westminster contemporaries and the press, The Manchester Guardian denouncing his plan as ‘state socialism pure and simple’.[17] Over the years ahead, however, support for such ideas grew steadily and not just among the new breed of Labour MPs that were winning representation in parliament for the first time. It was a Conservative MP, Arthur Griffith-Boscawen, who took up the cause most vigorously, proposing a series of bills to introduce state aid for local authorities in the years before the First World War.[18] In 1913, a Conservative Party pamphlet expressed the practical rationale of such an approach:
'If a certain number of houses are not built at a non-economic rent, the present housing evil is irremediable and the problem must be given up in despair. If, on the other hand, those houses are to be built, it seems clear from experience that some state encouragement to local authorities will have to be given.'[19]
In the same year, a Land Enquiry Committee set up by David Lloyd George recommended that local authorities should have a statutory duty ‘to see that adequate and sanitary housing accommodation is provided for the working-class population’ and suggested Treasury grants as one way of ensuring this.[20]
1919-1970: Building for the needs which only the state can meet
The first large-scale exchequer subsidies for municipal housebuilding were introduced under the 1919 Housing and Town Planning Act (the ‘Addison Act’), as Lloyd George sought to deliver on his promise of ‘homes fit for heroes’.[21] The Act required local authorities to survey the needs of their areas for houses, and then to make and carry out plans for the provision of those houses, subject to approval by the Ministry of Health. All substantial losses would be borne by the Treasury.[22] In addition, the subsequent Housing (Additional Powers) Act offered lump-sum subsidies to private-sector builders for the construction of homes not exceeding a certain size, but which could be for sale or rent.[23]
This legislation was the culmination of a gradually rising acceptance that private builders alone would never cater to the housing needs of all of the population; while they would respond to demand in those parts of the housing market that were profitable, there would always be a substantial section of the working-class population for whom the provision of decent accommodation could not be provided profitably at the levels of rent they could afford. On the eve of the First World War, Lloyd George, then chancellor of the exchequer, told the House of Commons:
'You cannot provide houses in this country by private enterprise. I do not care what party is in power, whatever party it may be I predict it will have to realise the fundamental fact that the builder for years has gradually been passing out of the field in the building of houses [for the poor] — he has been passing on to something which he finds more profitable.'[24]
It was this understanding that underpinned support for the introduction of state-funded housebuilding; not ideological fervour for statist solutions but a pragmatic acknowledgement among those instinctively against such approaches that private enterprise alone would not build all of the homes the country needed.
'We have to face the fact that private enterprise did not nearly solve this problem before the war and will not solve it in the near future…'
This had been the view of Griffith-Boscawen, who felt that private housebuilding would still need to provide the bulk of new homes,[25] and was later echoed by the industrialist Sir Alfred Mond, minister for health (with responsibility for housing) from 1921. Mond, a Liberal MP who later crossed the floor to take the Conservative whip, made clear he would not have supported state housebuilding if an alternative had been on offer:
'If I saw any real prospect of any general resumption of the building of true working-class houses by private enterprise, I should not consider any prolongation of state assistance... We have, however, to face the fact that private enterprise did not nearly solve this problem before the war and will not solve it in the near future…'[26]
Whitehall guidance was at pains to stress in the years ahead that the state should not fulfil any functions that the market would conduct itself. The first annual report by the Ministry of Health indicated that the 1919 Act required local authorities to determine the housing needs of their areas after ‘deducting houses likely to be built by other agencies’;[27] councils would only build the difference between what was needed and what the speculative private developers would build. Section 6 of the 1923 Housing Act stipulated that local authorities would only be allowed to build if they could convince the minister that it would be better than leaving it to private enterprise.[28] In 1929 the tenth annual report of the Ministry of Health reiterated that council housebuilding activities had to be ‘cooperating but not competing with private enterprise’.[29] What the speculative private developers did not build, the state would.
Some 3,998,000 homes were built in the 20 years before the outbreak of the Second World War, an average of almost 200,000 a year. Just over a third of the output had been aided by the state
Little of this output had been for the very poorest families, however. Council housing during this period catered by and large for the better off working-class household, the clerks, tradesmen and semi-skilled workers, usually on an above-average wage;[30] meanwhile, private-sector building for owner-occupation catered for the growing middle class. It was not until the 1930s that slum clearance projects were set in train and even by 1939 only 245,000 slum houses had been demolished, replaced by 255,000 new houses or flats.[31]
Nevertheless, housebuilding output in the inter-war period reached levels higher than at any previous time in the country’s history. Some 3,998,000 homes were built in the 20 years before the outbreak of the Second World War, an average of almost 200,000 a year. Of those, 1,112,000 were built by local authorities, although another 430,000 of the homes built by the private sector also benefited from public subsidies, so just over a third of the output had been aided by the state.[32] Prices, meanwhile, settled down after a period of rapid growth: in London, for instance, after real-terms inflation of 127.6 per cent in the 1920s, they then fell by 3.2 per cent in the 1930s.[33] The ratio between average earnings and average house prices also went into decline during the 1930s.
In the immediate aftermath of the Second World War, facing materials and labour shortages as well as a renewed shortage in housing, the principle of using local authority output merely to top up private-sector output was breached for a short while by Clement Attlee’s 1945 Labour government. With the concept of central planning in vogue, housebuilding was to be coordinated principally around local authority output - only one-fifth was to be private enterprise. The same government introduced for the first time, under the Town and Country Planning Act 1947, the requirement for new developments to have planning permission from the council.[34]
The planning regime from this period remains with us to this day (and is the focus of some debate, as will be discussed in the following section), but the focus on local authority building did not last. And while construction rose impressively in the years immediately following the Second World War, from just a few thousand in 1945 to more than 200,000 in 1948,[35] Britain’s peak housebuilding years came a little later and only once the Conservative government in the 1950s began to unleash private enterprise construction once again. The 1953 white paper, ‘Houses: the next step’, marked a decisive return to the principle that local authority housebuilding was only to build that which the private sector did not; at this point using the government’s new 300,000 annual target as the threshold.[36] It was a target which was hit, more or less, for the next decade. Local authority output dipped, but nevertheless remained well above 100,000 per annum.
By the 1960s, policymakers were looking forward to a time when there would not be a shortage of homes
The 1961 white paper, ‘Housing in England and Wales’, spelt out again that, while the government’s aim was that there would be houses built ‘in sufficient numbers to keep pace with rising demand’, the role of the local authorities was to ‘build for the needs which only they can meet’.[37] When Labour returned to power in 1964 they adopted the same approach, that council building was to cater for those that the private sector failed to reach.
By now, however, policymakers were beginning to look forward to a time when there would not be a shortage of habitable homes. Correspondingly, a 1965 white paper envisaged a point at which council housing provision would be wound down:
'…once the country has overcome its huge social problem of slumdom and obsolescence, and met the need of the great cities for more houses let at moderate rents, the programme of subsidised council housing should decrease.'[38]
A few years later, in 1968, the government started to do just that, announcing that public-sector housing would be reduced.
The 1970s to the present: the decline of housebuilding
After the 1969 Housing Act, public-sector housebuilding went into steep decline for the first time since the Second World War. The number of local authority housebuilding completions almost halved from 196,180 in 1967 (public-sector land purchases peaked in the first quarter of this year)[39] to 101,430 in 1973, the lowest annual public-sector output since the 1940s.
Crucially, this decline in state housebuilding translated almost directly into a decline in overall housebuilding levels. As Figure 1 illustrates, while local authority housebuilding dropped off, private enterprise output continued more or less along the same trajectory it had been on. As a result, the total number of new homes fell from 415,460 in 1967 to 304,640 in 1973, and while there was also a fall in private output during that time, that accounted for only 13,000 of the drop-off.[40]
These are still large numbers by today’s standards, and yet a quarter of the UK’s housing output had been lost in the space of six years. Given that the goal of housing policy for most of the period since 1918 had been to build those homes the private sector would not this is hardly surprising. But by the 1970s it was felt that there was a surplus of houses for the needs of the population. Indeed, the 1976 ‘Housing Policy’ white paper claimed there were 500,000 more homes than households.[41] Despite a modest revival in council building output in the late 1970s, it continued on its downward trajectory thereafter, falling by more than 100,000 per annum in a decade, from 175,550 in 1969/70 to 67,450 in 1979/80.[42]
'By the mid-1980s everything in housing pointed to the need to roll back the existing activities of government. The state should be withdrawn as far and as fast as possible' - Margaret Thatcher
Margaret Thatcher equated council housing with the ‘socialism’ she was trying to eradicate from Britain and saw no need for the state to invest in bricks and mortar any more.[43] She noted in her memoirs:
'By the mid-1980s everything in housing pointed to the need to roll back the existing activities of government. Although the country’s housing stock needed refurbishment and adaptation, there was no pressing need now - as arguably there had been after the war - for massive new housebuilding by the state… as regards the traditional post-war role of government in housing - that is building, ownership, management, and regulation - the state should be withdrawn from these areas just as far and as fast as possible.'[44]
Thus her government reformed council housing funding arrangements, introducing ring-fenced housing accounts designed to force local authorities to put up rents and dispose of their stock. By the time she left office in 1990, Thatcher recorded approvingly, ‘councils had almost completely stopped building new houses’ and nine had already disposed of their entire stock.[45]
Annual local authority completions were in the low hundreds during the last Labour government (1997-2010). Housing associations became the preferred recipients of state funding for social housing in the 1980s, because as private providers their borrowing would not count towards the public-sector net debt. They have been building about 20-30,000 a year for the past decade, but this is well short of the levels that councils reached half a century ago.[46]
With the dramatic decline in council output, total annual housebuilding has struggled to reach 200,000 per annum in recent decades. Since the financial crisis in 2008, new homes figures have languished in the low 100,000s – lower than at any time since the Second World War. Consequently a shortage has re-emerged and is worsening now with each passing year.
More than a decade ago, in 2004, the Barker Review of Housing Supply recommended the building of 245,000 private-sector homes a year, in England, to keep house price inflation at the European average of 1.1 per cent per annum (it also suggested 17,000 new social housing units were required to keep up with demand, and possibly another 9,000 on top of that to make inroads into the backlog that existed even then).[47] The Town and Country Planning Association calculated in 2013 that England needed 240,000 to 245,000 new homes per year.[48] The 2014 Lyons Review suggested that by that point a backlog of one million homes had built up and that up to 260,000 homes a year would be needed as the population continues to grow.[49] Kate Barker, the former Bank of England policymaker who conducted the 2004 review, has recently suggested that this figure may now need revising upwards to 300,000 homes a year.[50] The Royal Institute for British Architects has also called for 300,000 homes a year.[51] The government’s official forecast is for 220,000 households to be formed every year in England (not the UK) between 2012 and 2022.[52] However, those figures are based on the population projections of the Office for National Statistics, which frequently underestimates future immigration levels.[53]
Conclusion
Public-sector housebuilding was introduced out of the acknowledgement that speculative private-sector builders had not and would not construct all of the homes the country needed. It came in the aftermath of the First World War, when the need to take care of returning soldiers and their families was high on the political agenda, but the argument had been taking hold for several years prior to 1914. If living standards among the working class were to be held above a certain threshold, then the economical, profit-making side of housing provision would need to be supplemented by less lucrative, perhaps loss-making, housing provision by the public sector. In effect, the state would be simply topping up private output – not taking over housebuilding but making up the gap that was left by private firms. Since the 1970s, and the decline of public-sector housebuilding, the same shortage of housing supply, and many of the same associated problems, have begun to re-emerge.
This is Chapter 1 from my Civitas report 'The Housing Question: Overcoming the shortage of homes'. You can read the report in its entirety as a PDF here. But I will also be publishing it chapter by chapter here in the slightly more digital-friendly format of Shorthand Social. If you've any thoughts or just want to get in touch on the subject, you can email me at daniel dot bentley at civitas dot org dot uk
Introduction: The Housing Question: Overcoming the shortage of homes
Chapter 1: A Practical Plan: Housebuilding in historical perspective
Chapter 2: From Slums to Slums? The property boom and its consequences
Chapter 3: Why Don't We Build More Homes? Barriers to housebuilding today
Conclusion: A National Housebuilding Strategy: What should be done?
[1] Stephen Merrett, State housing in Britain, Routledge & Kegan Paul, London, 1979, p.61 and p.320.
[2] Stephen Merrett, Owner-Occupation In Britain, Routledge & Kegan Paul, London, 1982, p.15.
[3] Merrett (1979), p.237.
[4] Peter Malpass and Alan Murie, Housing Policy and Practice (5th edition), Palgrave, 1999, p.58.
[5] Anthony Wohl, The Eternal Slum: Housing and social policy in Victorian London, McGill-Queens University Press, Montreal, 1977, p.ix.
[6] Luke Samy, ‘Indices of House Prices and Rent Prices of Residential Property in London, 1895-1939’, University of Oxford, April 2015, p.3: http://www.economics.ox.ac.uk/materials/papers/13922/number-134.pdf
[7] Merrett (1979), p.24.
[8] Samy, p.13.
[9] Samy, p.15.
[10] J. Parry Lewis, Building Cycles and Britain’s Growth, Macmillan, London, 1965, p.186.
[11] Wohl, p.xvii.
[12] Merrett (1979), p.24.
[13] Wohl, p.170.
[14] Merrett (1979), p.17.
[15] Merrett (1979), p.16.
[16] Merrett (1979), p.26.
[17] Wohl, p.228ff.
[18] Wohl, p.337.
[19] Merrett (1979), p.28.
[20] Merrett (1979), p.28.
[21] Merrett (1979), p.32.
[22] John Burnett, A Social History of Housing 1815-1970, David & Charles, 1978, p.221.
[23] Burnett, p.222.
[24] Hansard, February 17th, 1914: http://hansard.millbanksystems.com/commons/1914/feb/17/debate-on-the-address-sixth-day
[25] Wohl, p.337.
[26] Merrett (1979), p.42.
[27] Merrett (1982), p.5.
[28] Burnett, p.227.
[29] Merrett (1982), p.11.
[30] Burnett, p.233.
[31] Burnett, p.238.
[32] Burnett, p.242.
[33] Samy, p.22.
[34] Merrett (1982), p.21.
[35] Merrett (1979), p.239.
[36] Merrett (1979), p.248.
[37] Merrett (1979), p.252.
[38] Merrett (1979), p.255.
[39] Neuburger and Nichol, p.14.
[40] Table 241, DCLG: https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building
[41] Malpass and Murie, p.58.
[42] Table 241.
[43] Margaret Thatcher, The Downing Street Years, HarperCollins, 1993, p.306.
[44] Thatcher, pp.599-600.
[45] Thatcher, The Downing Street Years, p.604.
[46] Table 209, DCLG: https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building.
[47] Kate Barker, ‘Review of Housing Supply, Final Report – Recommendations’ March 2004, HMSO, 2004, p.5: http://webarchive.nationalarchives.gov.uk/20130129110402/http://www.hm-treasury.gov.uk/d/barker_review_execsum_91.pdf
[48] Alan Holmans, ‘New estimates of housing demand and need in England, 2011 to 2031’, TCPA, September 2013: http://www.tcpa.org.uk/pages/new-estimates-of-housing-demand-and-need-in-england-2011-to-2031.html
[49] ‘Mobilising across the nation to build the homes our children need’, The Lyons Housing Review, 2014, pp.18-19: http://www.yourbritain.org.uk/uploads/editor/files/The_Lyons_Housing_Review_2.pdf
[50] Heather Stewart, ‘George Osborne’s property-owning drive criticised by housing expert’, The Guardian, December 1st, 2015: http://www.theguardian.com/society/2015/dec/01/osbornes-property-owning-criticised-housing-expert-kate-barker
[51] The Future Homes Commission, ‘Building the Homes and Communities Britain Needs’, RIBA, October 2012: http://www.ribablogs.com/files/FHCHiRes.pdf
[52] ‘2012-based Household Projections: England, 2012-2037’, DCLG, February 27 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/407556/Household_Projections_-_2012-2037.pdf
[53] See Robert Rowthorn, The Costs and Benefits of Large-scale Immigration, Civitas, 2015, p.4: http://www.civitas.org.uk/content/files/largescaleimmigration.pdf
