UK housing supply expansion seen as key lever to ease living costs

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UK housing supply and living costs

Highlights

London renters spend about 40 percent of income on housing, with government subsidies for London housing totaling around 6 billion pounds annually.
University of Reading model suggests meeting England’s housing targets for five years would lower rents by about 2 percent more per year, with Lambeth rents dropping over 250 pounds a month.
Increased housebuilding could improve UK public finances by at least 1 billion pounds yearly through lower London housing costs and reduced public spending on temporary accommodation.

Housebuilding case sharpens after Budget debate

As reported by the Financial Times, the debate following this week’s Budget centers on whether the UK is overlooking the most direct market-based way to reduce living costs, by building more homes to bring down rents.

The article argues that the supply-demand imbalance is most visible in London, where renters typically spend about 40 per cent of their income on housing. With the capital’s population having grown by 1.6 million this century and housing supply failing to keep pace, high rents are weighing on living standards even for relatively well-paid workers.

That pressure also feeds through to the wider economy. The government spends around 6 billion pounds a year on housing subsidies for Londoners alone, while businesses face higher occupancy costs and workers are less able to relocate to the country’s most productive city. The result, the argument goes, is weaker national income growth and lower tax revenues.

The article challenges the view that private housing aimed at higher earners does little to reduce rents more broadly. Citing research from Finland, it says moves into new flats can trigger wider moving chains, allowing lower-income households to access better or cheaper housing, including adult children leaving family homes or shared accommodation.

Potential fiscal and economic gains

A model from the University of Reading suggests that if England were to meet current housing targets for five years, rents would fall about 2 per cent more per year than they otherwise would. In London, where affordability pressures are most acute, the effect would be particularly pronounced.

For a typical two-bedroom flat in Lambeth, the article says rents would fall by more than 250 pounds a month within that period. It presents that reduction as broadly comparable to a significant rise in disposable income, with lower housing costs potentially delivering a boost similar to much faster wage growth.

Higher construction activity would also support output because housebuilding is a domestically oriented sector. At the same time, cheaper and more available housing could cut public spending, especially on temporary accommodation, and improve the government’s fiscal position by at least 1 billion pounds a year from lower housing costs in London alone.

The argument points to planning reforms in Auckland, Austin, Minneapolis and California as examples of places where increased housebuilding has helped lower prices. The broader implication is that easing planning constraints and raising supply could benefit not only Londoners but households and public finances across the UK.

In our earlier article, we covered Chancellor John Healey’s pre-Budget stance of sticking to deficit-reduction plans ahead of the October 28 fiscal statement. We also highlighted the latest UK growth data showing GDP rising 0.1% in August, alongside the political pressure on the government to balance fiscal discipline with measures that support growth and ease living-cost strains.

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