Building More Won't Fix the Housing Crisis

Housing has become a financial asset that generates vast gains for the wealthy.

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All over the rich world, liberal politicians are repeating the same story: housebuilding is how we fix the housing crisis. Governments come to power pledging vast housebuilding programmes, as if sheer volume could reverse decades of spiralling rents and house prices. But the uncomfortable truth is that in most countries, the problem is much deeper than under-supply.

Nowhere is this clearer than in the UK, where financial speculation over land values has created one of the most dysfunctional housing markets in the developed world. But the problems in the UK aren’t unique to our hyper-financialized economy – they’re just a more extreme version of problems seen across all rich countries. The US, Canada, Australia, and much of Europe should look to the UK housing market as a warning sign of what is to come if they fail to grapple with their own housing crises.

The Financialization of Housing

Over the past forty years, housing has been financialized. Vast amounts of debt are collateralised by real estate, making mortgages by far the largest assets on banks’ balance sheets. This isn’t credit for productive investment: it is credit creation for the sole purpose of bidding up the price of existing homes.

Financialization is what has driven the affordability crisis. In the UK, the Office for National Statistics has found that house prices have quadrupled since 1997, while earnings have doubled in nominal terms. 70% of the value of UK housing comes from the land the homes sit on, not the houses themselves. Why? Because the amount of land in a country is (relatively) fixed, and if you allow people to borrow vast sums of money to buy an asset that you can’t produce more of, you’re going to get asset price inflation.

Since the 1980s, when Thatcher liberalised bank lending and sold off the UK’s council housing, mortgage debt has exploded. Bank of England statistics show that new loans for housing rose from 0.8% of disposable income in the 1960s, to 21% in the 80s, and 23% in the 90s. With more money chasing the same amount of land, prices ballooned until the crisis of 2008. Then, the government stepped in to bail the whole system out and get the party started again with quantitative easing (more on that here).

These same dynamics apply to Japan in the 1990s, the US in the 2000s, and Canada and Australia during the 2010s. Everywhere you see financializaiton – the growth of financial motives, markets, and institutions relative to the real economy – you see a housing crisis. Because the two are intricately linked.

Buy Land: They’re not making it anymore

As a consequence of financialization, the relationship between the physical cost of a home and its market value has broken down. Across the rich world, and nowhere more than Britain, the value of bricks and mortar has shrunk relative to the value of land. The ground beneath a semi-detached home in London now accounts for the lion’s share of its price.

This matters because it explodes the myth of scarcity. Politicians often say the UK doesn’t build enough, blaming sclerotic planning systems and proposing new models of ‘abundance’ to unlock building, yet the data show no aggregate shortage of dwellings. Relative to population, the housing stock has kept pace. The real shortage is of affordable housing, because ownership is concentrated in fewer and fewer hands. In London and other major cities, where the jobs are, land and housing are hoarded by investors, private landlords, and developers.

More building isn’t going to solve the problem. New supply, if left to the market, quickly becomes part of the same cycle: developers buy up land, credit chases those developments, and prices continue to climb. Without tackling financial speculation and the rentier ownership of land, new building simply feeds the bubble.

Bursting the Bubble

The solution is not more market housing but a radical shift in how we conceive and provide homes. All the countries suffering from finance-driven house price inflation need to de-financialize, and de-commodify housing.

There are a few clear options. Robust rent controls are essential to curb exploitation in the private rented sector and to stop landlords treating tenants as ATMs to generate ‘passive income’ 🤢. And we must confront the structural drivers of speculation: from distortions in the tax system, to banking rules that privilege mortgage lending over productive investment.

But the only real, long-term solution to the housing crisis is to bring back social housing: housing provided by the public sector, at social rents, with security of tenure. Social housing used to form a significant chunk of the market in the UK, after successive governments built over a million homes after the Second World War. But Thatcher sold all this off in a bid to make people less ‘dependent’ on the state.

In fact, the neoliberal vision was twofold: make surviving harder for the poor, and make prosperity dependent on financial markets for the rich. If you have security of tenure in good social housing, you’ll be less scared of losing your job, and therefore more likely to organise as part of a union. Commodifying housing was a critical part of Thatcher’s plan to attack the power of the working class. She also wanted to make middle class people see themselves as ‘mini-capitalists’, with a stock of assets and liabilities, rather than simply relying on wages. Similar strategies were used by neoliberal politicians all over the rich world to transform housing from a normal commodity into a financial asset.

This shift helped to create a rift within the working class. People who owned homes saw their prosperity as tied to financial markets, rather than work, making them less likely to organise and more likely to favour policies that also supported the interests of wealthy asset holders. Meanwhile, as affordable social housing became scarcer, millions were pushed into the private rented sector, where prices are high and insecurity is rife. Those people, force to work long hours for low pay just to keep a roof over their heads, provided grist to the mill of neoliberal capitalism.

All this is to say that ending the housing crisis requires attacking one of the foundations of neoliberal capitalism: the idea that we are all little, budding capitalists just waiting for the opportunity to invest in financial markets. Instead of seeing ourselves as isolated, competitive capitalists, we need to recognise the ways in which we are all interdependent, and cooperate to build housing markets that insulate us all from risk.