When Tim Ellis’ landlord gave him and his 20-something flatmates notice to end their tenancy for a £4,500-a month East London house, they didn’t attempt to argue. Even before moving in the landlord tried to hike the rent last minute, pre-contract. From London via Berlin to Sydney rents are at an all-time high. The search for urban shelter is often costly and exhausting for those seeking opportunity and a place to live.
How will young people put roots down in the future if they can’t afford big cities? Is reform of the global urban rental market possible? Or is this market failure on a simply epic scale? Solutions for change – especially as food, energy and transport inflation bear down while interest rates race higher – look thin on the ground.
First, calm down a notch suggests Kath Scanlon, Distinguished Policy Fellow at The London School of Economics and Political Science (LSE). The urban shelter pressures are not spread equally – far from it – she says. “They’re not being felt in Middlesbrough, Hull or Indianapolis. They’re being felt in high-demand, attractive cities like London, Vancouver, San Francisco and Barcelona.”
Perhaps, but the lifeblood of big and attractive cities are usually fed and supported by younger people, particularly in the service economy or public sector. Key workers, in other words. “You’re right,” Scanlon says. “The crisis has implications for when people have children, where school rolls are falling in London.”
So what tools can be deployed? Scanlon doesn’t see the potential for one big intervention that would “solve everything because you are working within the confines of an existing system. We’re not going to sweep away the existing planning system or eliminate the UK Greenbelt.”
Instead she sees potential for more development of Greenbelt land of, say, within 800 metres of existing railway stations “that would provide a couple of million potential homes. If you increased social housing from what is now very small levels that would make a difference.” House price swings are also cyclical, she says, though hopes for wild house price falls among younger home buyers look stillborn: the latest UK government numbers show an annual 5.5 percent price rise in the UK, even if values have fallen one percent since January 2023.
1990s – the decade of demand
Let’s roll back briefly – how did we get here? Dr Chris Foye is a lecturer in housing economics at Henley Business School, University of Reading. He says the seeds for massive affordability pressures in large, well resourced cities were freely sown in the early-1990s.
“That’s when you got agglomeration economies where companies want to be in cities. Networks, the sharing of knowledge, all those things become very important.” A huge surge in employment followed, but only for these highly networked conurbations. You could buy into these cities if the price was affordable, or you could commute. But fast good quality commuting networks are not evenly spread. Even now, some three decades on, some commuting times have deteriorated, says Foye.
A cocktail of zero social housing aspiration – at least as far as the UK goes – and a massive supply-demand imbalance was supercharged in 2008 by cheaper credit from global central banks following the global financial crisis. Rock-bottom interest rates spurred lending – and prices – higher. By late January 2017 the world’s biggest economy was headed by a property developer – President Trump.
So which major Western cities are prioritising lower-cost social housing and a coherent long-term social policy to support it? Not many. Foye says look at Vienna or Helsinki, two cities unconnected by geography but with a long history of strong social housing. Despite big differences, the model is different. In Vienna the government already owns much of the land.
Around 60 percent of Vienna’s 1.8 million residents live in rent-controlled properties. Both cities have a more balanced income distribution, meaning the supply-demand pressures are less – basic economics. Move east to Tokyo, he adds, where rents have generally been kept stable “because Japan produces a huge amount of new housing.” Traditionally Japan has also been a low inflation economy.
To build or not to build?
For many Western cities, you have to build far more social housing, or more housing for lower-income residents. “That way you address the distributional issue and you address the price, or rent, issue,” says Foye.
Such change would mean a doubling or tripling of new supply for some countries. The UK Home Builders Federation (HBF), whose members account for 80 percent of new homes built in England and Wales each year, says under-delivery goes back decades. Some experts believe the UK should be building 300,000 new homes a year, claims HBF spokesperson Steve Turner. “Last year we built around 235,000. That’s a doubling of supply. We were around 120,000 in 2012.”
Some say the government is weakening supply progress, partly through new environmental regulations – more cost, less bottom line developer profit. Supply levels could collapse to near 2012 levels Turner warns, potentially worsening the inter-generational divide between those who own versus those who don’t, or can’t. But this argument pivots also on the UK fixation on home ownership, leaving less room for alternatives – especially for the young – and social housing.
Most new UK social housing is built by the private sector through a cross-funding model. When planning permission is given a local authority may stipulate 20 percent, for example, of new stock as ‘affordable,’ which it will manage.
Seen through a global lens the supply and demand issue looks increasingly pervasive. The right to adequate housing – including affordable housing, not just what the market will bear – is guaranteed by the Universal Declaration of Human Rights, Article 26, including reasonable security of tenure. Good luck with that, many will say.
What about rent controls? French rent rises for unfurnished properties are controlled by an index, the Indice de Référence des Loyers, or IRL. Three-year tenancies are commonplace and the minimum notice is six months. Rent controls in the US, which are increasingly under attack, are decided at state level. But less concentrated industrialisation in developed economies means the draw of lower rents, or rent controls, which in the past let industrialists cap salaries and costs, have less attraction.
The house always wins
Authorities are sensitive to large-scale social housing change because of the in-built education and health services following wind. “There may also be an increase in traffic or pollution, as well as existing infrastructure like water and energy supplies being stretched further,” says Tabitha Cumming from The Lease Extension Company. In the early stages of the pandemic some predicted rents would fall in big cities and that this would persist. For a short while the city was looking almost obsolete. It didn’t happen.
The world is crying out for well-designed homes for those on ordinary wages
So where will young people live in future affordably? A sliver of hope has emerged from the UK Government’s Michael Gove. The levelling up, housing and communities secretary is introducing a ‘fairer deal’ for tenants but it’s small beer compared to the three million social homes UK housing charity Shelter says are needed in the next two decades at a £10bn cost per year.
One outcome is the continued development of more ‘edge cities,’ or a new incarnation of suburbia – cheaper land but urbanish, attracting a skilled and educated labour force. More likely is that the ‘crisis’ will continue to worsen until it reaches critical mass, if it hasn’t happened already.
Meanwhile the world is crying out for well-designed homes for those on ordinary wages. Critics, including some developers, are quick to say the profit isn’t there, but demand is off the map. How might, with some more committed policy and environmental re-tuning, a Carrefour Group or Lidl respond, in comparison?