Housing affordability in England report

Please note this executive summary and our original report were last updated in 2020. While our overall views remain unchanged, some details may be out of date.

Scope of this report

This research was conducted in response to member demand for high-impact donation opportunities in high-income countries. We were prompted to look into housing affordability and land-use reform by similar research from the Open Philanthropy Project¹ and experts who claim that inefficient land use is likely one of England’s most significant socioeconomic problems.² We focus on England rather than the UK because the Town and Country Planning Act, the country’s foundational land-use legislation, is specific to England and Wales. We use data for England wherever possible but use UK data where necessary.

We continue to encourage people seeking to maximize the amount of good done by their donation to look for opportunities to help people in lower-income countries, animals, or future people on the basis that charities in these areas generally receive much less funding than charities working in high-income countries. However, for donors who would prefer to use some of their donations to help people in high-income countries, land-use reform is likely to be one of the highest-impact opportunities available. At the end of this report we compare work on this cause to funding opportunities in low-income countries in greater detail.

Summary of findings

Housing affordability varies greatly between different parts of England. In terms of both prices and rents, and even after adjusting for local incomes, housing is much more expensive in London and the Greater South East than in the rest of the country. In this report, we discuss the severity of housing unaffordability in England, the likely reasons for local variation in housing costs, and the effects on wellbeing. There are strong reasons to believe that it is unusually difficult to build houses in certain parts of England and that this is an important driver of housing unaffordability. Moreover, the places where it is more difficult to build are generally more economically productive. This relationship has important welfare implications.

First, high regional housing costs reduce movement to economically prosperous places. This lowers economic growth, depresses incomes, and reduces social mobility. Because the effects of lower productivity accumulate year-on-year, the aggregate effect is large: each house that is not built represents a societal loss on the order of £100,000 just in lost productivity. This estimate does not account for agglomeration externalities, i.e. the fact that people are more productive when they work alongside many other people in dense cities.³ The total economic loss from reduced population growth in productive places could be even higher.

Second, there are negative distributional effects. Restrictions on the supply of houses have contributed to a decades- running increase in real house prices that has transferred wealth from young people and renters to older people and long-term homeowners. While rents do not exhibit the same long-term increase as do prices, the current level of rent is unaffordable in many parts of England. This increases the prevalence of homelessness.

Third, supply restrictions make it harder to replace older homes and densify cities. This means that English homes are unusually old, small, and low quality. Less dense cities also have larger environmental impacts.

Overall, we estimate that these effects add up to at least £3 billion per year. It is plausible that the annual productivity hit is about 1% of GDP, representing a loss of about £20 billion per year. Though that’s just a few hundred pounds per person, the effects are unevenly distributed and that figure does not account for lost agglomeration benefits, increased homelessness, reduced quality of life, or environmental impacts.

To help solve these problems, we recommend supporting London YIMBY. A small organization founded to improve housing policy in England, London YIMBY has taken a novel approach that focuses on overcoming political economy challenges. This is important because political hurdles have stymied many past attempts at reform. If London YIMBY’s policy proposals succeed, they could also be replicated in other areas and have widespread positive impact. Finally, for a small but growing organization like London YIMBY, donations are likely to have a large counterfactual impact.

Acknowledgements

We are grateful to the people who gave feedback on this report, especially Ian Mulheirn (Tony Blair Institute) and David Miles (Imperial College London). Thank you also to the many experts with whom we spoke during the research process.

Notes

1. Alexander Berger, “Land Use Reform,” Open Philanthropy, n.d., https://www.openphilanthropy.org/focus/us-policy/land-use-reform. ↩

2. “The undersupply of housing, whose root cause is a dysfunctional land use planning system, is the UK’s biggest problem.” Sam Bowman and Stian Westlake, “4a. Housing,” Reviving Economic Thinking on the Right, 2020, https://revivingeconomicthinking.com/housing/. ↩

3. “Urban economists generally accept the existence of agglomeration economies, which exist when productivity rises with density.” Edward L. Glaeser and Joshua D. Gottlieb, “The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States,” Journal of Economic Literature 47, no. 4 (December 2009): 1, https://doi.org/10.1257/jel.47.4.983. ↩