04How did housing policy differ between Postwar Britain and Western Europe?
Hypothesis 3: The rate of British council housebuilding did not fall below public housebuilding in other countries pursuing mixed-tenure strategies
Hypothesis 4: The private sector housebuilding rate did not increase as policy shifted towards private ownership towards end of the post-war period
The previous section showed there were problems in British housing supply and outcomes in the post-war era between 1955 and 1979, both compared to earlier periods and to other European countries. As a result, the decline of council housebuilding after 1980 cannot entirely explain the housing crisis today.
Postwar Britain’s shift from public to private housing was not unusual by European standards – every other country that pursued a ‘mixed-tenure’ strategy underwent a similar decline in public housebuilding.
What was unusual was the low rate of private sector housebuilding, which then fell further alongside council housebuilding, even after policies to support homeownership and price pressures on housing began to increase from the 1960s.
The post-war decline of both private and public housebuilding indicates that the English planning system became more restrictive over time, reducing the supply of land available for new homes compared to earlier periods and other European countries.
Postwar Britain’s housing policy mix was unusual
Although every European country needed to build more housing after the Second World War, not all countries took the same approach to housebuilding. Different countries had different mixes of private and public sector construction, built different amounts in total, and made different choices with town planning.
European central and local governments in the post-war period all provided some subsidy for housebuilding programmes. These “bricks and mortar” subsidies were designed to mitigate the negative effects of demand-side rent controls that had emerged during the World Wars in every European country – including the UK – in both the public and private housing sectors.15
Bricks and mortar supply-side grants and subsidised low-interest rate loans that subsidised private housebuilding for homeownership or private rent were implemented in every European country after the Second World War – except the United Kingdom. While the UK had implemented bricks and mortar subsidies for private construction in the interwar period, the bricks and mortar subsidy regime in Postwar Britain was unique in that was directed entirely towards public housebuilding. 16
The rise and fall of council housing in the UK was not unusual by European standards
The supply of new council homes fell in the 1970s, with the council housebuilding rate declining from 1.1 per cent growth a year in 1968 to 0.6 per cent in 1979. This decline is part of why the total rate of housebuilding fell towards the end of the post-war period.
Whether this decline in council housebuilding is why the UK built fewer houses overall in the post-war period than other European countries depends on whether other countries that also pursued a mixed-tenure approach were able to sustain large public housebuilding programmes throughout the post-war period.
Alongside the UK, the other European countries that relied on a substantial mix of private and public sectors and centralised social housing subsidies to deliver high levels of housebuilding after the Second World War included Germany, Denmark, Norway, Sweden, and the Netherlands.17
Figure 7 shows the gross rate of public housebuilding in the UK and the average of these other European countries from 1950 to 2015, with the surplus of the European mixed-tenure average or the UK coloured in dark and light purple respectively. It demonstrates that the UK was not unique. Every European country with a large public housebuilding programme saw it decline rapidly after the early 1970s, for most countries roughly in time with the withdrawal of centralised subsidies as pressure on public budgets and growth deepened across the developed world after the Oil Shock in 1973.18
Figure 7: From the 1970s onwards, public housebuilding fell in every European country where it was important to total supply, including the UK
Where the UK stands out relative to the rest of Europe is from 1951-1955, during Harold Macmillan’s tenure as Minister for Housing, when social housebuilding rates reached a level 0.5pp higher than Britain’s European peers after an explicit promise to build 300,000 homes a year. Much building in this period was the construction of the New Towns designated by central government during or shortly after the Second World War, which were exempt from the planning powers the TCPA 1947 gave local authorities due to provisions under the separate New Towns Act.19
Although it did not exceed pre-war housebuilding rates, the early 1950s saw the peak housebuilding rate of Postwar Britain, driven by both this high council housebuilding and planning reforms to the 1947 regime that reduced local authority land development charges and consequentially caused private housebuilding to increase. This level of public housebuilding was not sustained, and Britain converged to a level typical of other European countries that pursued mixed-tenure strategies by 1957.
Britain’s post-war decline in council housebuilding is sometimes blamed on the 1961 Land Compensation Act, which forced local authorities engaged in compulsory purchase of agricultural land to pay “hope” values (i.e. after the profits of development) rather than agricultural values.20 However, it should be noted that this Act did not affect either purchases by local authorities for slum clearance, private builders, or the New Town development corporations.21 To the extent it did cause a decline in public housebuilding, the 1961 Act was one factor among others rather than its root cause.
As with the high rate in the early 1950s, it is unlikely that the UK could have – uniquely among European countries – sustained its late 1960s level of council housebuilding indefinitely. The Netherlands, which sustained its public housebuilding programme throughout the 1970s and 1980s, reduced it substantially in 1989 with the Heerma memorandum.22 A decline in new social housing in the UK alongside other European countries was therefore always probable.
Subsidies for homeownership increased, but private housebuilding did not
As the previous section explained, public housebuilding in Postwar Britain was not able to deliver a high total rate of housebuilding alone as private housebuilding was unusually low. To some extent, this is to be expected as Postwar Britain was unique among European countries in lacking any supply-side policy support for private sector construction.
Private housing did receive more policy support on the demand-side as the postwar period progressed. After 1963, various tax reforms (including the abolition of Schedule A taxation in 1963, followed by the exemption on domestic properties from Capital Gains Tax in 1965 and the new option mortgage subsidy in 1966) introduced demand-side subsidies for homeownership.
Despite the policy shift to support private housing in the mid-1960s, Table 2 shows that UK private housebuilding actually fell from its peak in 1964. This further decline of private housebuilding despite the growing support for homeownership coincides with declining public housebuilding from 1968 onwards.
Table 2: Britain’s private housing supply from 1955 to 1979 was the lowest in Western Europe
|Country||Average annual private housebuilding rate, 1955 to 1979 (%)||Maximum annual private housebuilding rate, 1955 to 1979||Year of maximum private housebuilding||Private housebuilding rate, 1979|
|Western European Average, 1955 to 1979||1.72||2.20||1973||1.55|
The ‘peak’ private housebuilding rate in 1964 was also lower at 1.3 per cent per year compared to the average European peak of 2.2 per cent. Postwar Britain never had a single year of private housebuilding as high as the average private building rate of France, Belgium, the Netherlands, or Sweden. Where Britain was atypical is not just that private sector housebuilding was low on average – it also fell further from an unusually low base. This resulted in private housebuilding peaking, averaging, and falling to a lower level than in any other European country by 1979.
Table 2 shows that Britain was not alone in seeing a shrinking rate of private housing growth over the course of the 1970s. Sweden and Switzerland also saw falls in private housebuilding, but even so their private housebuilding rates were often higher Britain’s total rate of housebuilding. As an example, Figure 8 indicates Switzerland built private housing at an average rate of 2.3 per cent per year from 1955 to 1979, compared to the UK’s average annual rate of 1.9 per cent for both private and council housebuilding together.
Figure 8: Switzerland built more private sector homes than Britain built private and social housing
That private construction was higher in Switzerland than Britain is unsurprising, given Switzerland had a minimal public housing programme. However, it shows that even if a decline in British council housebuilding was inevitable in the post-war period – perhaps for demographic reasons or the end of wartime reconstruction and subsidies – post-war private housebuilding could have compensated and increased, potentially to the levels seen in countries like Switzerland where total housebuilding was also falling. Instead, British private housebuilding fell.
The post-war fall in housing supply occurred despite high demand for housing
Declining public and private housebuilding would not be a problem if demand for new supply was also declining. If demand remained high and was increasingly disconnected from a falling supply however, then housing costs would also have become increasingly disconnected from incomes over time.
Although the available data on national average house prices does not stretch back to 1947, it can be calculated back to 1960. Figure 9 shows the growth of average wages and house prices in England since 1960 (adjusted for inflation) and demonstrates that not only has house price growth outstripped wages over the long run, but that the disconnect pre-dates 1980.
Figure 9: House prices were already disconnecting from wages before 1980
There is a major and long-lasting disconnect of house prices and wages from the mid-1990s, when British housebuilding drops to historically low levels and the demand for homeownership expands due to rising incomes, the decline of mortgage interest rates from historically high levels and a declining effective rate of housing taxation.23
However, this large divergence is preceded by earlier ‘spikes’ in house prices in the 1970s and 1980s when rates of housebuilding were higher but had already begun to fall.
These ‘spikes’ are moments when a rapid rise in housing demand was followed by a rapid decrease in that demand during recessions, as Box 4 discusses. They indicate that housing costs were already a problem in the private housing market before Right to Buy in 1980 when housebuilding was already falling. As these moments of high demand were not met by increases in supply, interest rates instead rose and the economy went into recession due to attempts to control rising prices, with no success over the long-term in reducing actual housing costs.
Box 4: Monetary and rental policy in Postwar Britain
House prices are not the same thing as housing costs. The cost of a property can be defined as the price paid per month, which is either the rent or the mortgage payment, with the latter determined by both the price and interest rates. When interest rates increase, prices decline, but the total monthly cost of mortgage payment for a new property may remain unchanged or even increase.
Although house prices fell during periods of tight monetary policy and expensive credit in the early 1980s or 1990s, the fact that interest rates were so volatile from the mid-1960s to the mid-1990s meant the actual cost of buying a given property would be the same as in periods of higher housing prices and cheaper credit.
This is further complicated by the fact that in the post-war period up until 1980, mortgages were subject to central control.24 This meant that housing demand at average prices was often unmet, as mortgages were subject to “rationing”.
One side effect of this policy was that to simply acquire one of a limited number of available mortgages, homebuyers would reduce the quality of the house they purchased even if on paper they could afford somewhere better. This means that during periods of tight credit in the post-war periods, namely the late 1960s or mid-1970s, the reduction in transacted house prices is partially the result of less preferable houses being bought, rather than changes in prices for a given property.25
Rents are unsuitable for long-run analysis on the cost of housing in 20th century Britain, as new tenancies were subject to rent control from 1915 until 1988. Recent analysis has shown that rental housing prior to 1979 required extensive subsidies to remain affordable, indicating market housing costs for renters were already high during the post-war period.26
House prices also grew faster than construction costs over this period, and land became much more expensive as a share of total build costs. The price of land increased from approximately 10 per cent of the average suburban house price in England in 1960 to 25 per cent in 1970, and one third of the average price in outer London and the Home Counties.27 This indicates that the supply of new dwellings in the post-war period was constrained primarily by the availability of land on which it was lawful to build homes – in other words, with planning permission.28
The planning system reduced housebuilding in Postwar Britain
The four post-war hypotheses and worsening housing costs indicate that modern Britain’s poor housing outcomes predate 1980 when its housing problems are conventionally dated to begin. The decline of council housebuilding did contribute to a falling housebuilding rate overall, but most of this process occurred in the 1970s and simultaneously alongside a decline in private housebuilding from an already low base.
The root cause of the modern housing shortage needs to be able to explain the immediate decline in total housebuilding after the Second World War and this decade-long decline towards the end of the post-war period, even as demand remained high.
The alternative explanation for the decline in housebuilding over the post-war period is that the planning system established by the Town and Country Planning Act 1947 became more restrictive during this time. As Box 5 explains, the English planning system was designed from the beginning to restrict the growth of large cities by giving local authorities the power to block new development and establishing an unusually unpredictable decision-making process.29
Box 5: What is the problem with the English planning system?
The planning system established in England by the Town and Country Planning Act 1947 is marked by internationally unusual discretion and restrictions on development. In effect, while most other land-use regimes abroad are typically rules-based ‘zoning’ systems, in England and other systems strongly influenced by TCPA 1947 (the devolved nations, Ireland etc.) the permission-and-appeal regime induces case-by-case decision-making, despite being nominally ‘plan-led’.
In short, this means that instead of the planning system allowing all development that follows the rules, in England it is possible for developers to follow the local plan and still have their application rejected. This rejection can be delivered by local authority planning officers, the local councillors who sit on the local authority’s planning committee, central government’s planning inspectors, or even the Secretary of State. The effect is that instead of all land being available for development unless it is prohibited, development is prohibited on all land unless a site is granted a permit (planning permission).
England’s TCPA 1947 discretionary planning system emerged as a deviation from the earlier Town and Country Planning Act 1932, which had established a proto-zoning system.30 The TCPA 1947 was passed in the aftermath of the Royal Commission on the Distribution of the Industrial Population, led by Sir Anderson Montague-Barlow in 1940.
The Barlow Report proposed that, to tackle regional inequality, the population growth of “congested urban areas” (the big cities) be curtailed through planning policy and proposed central control of development rights to this end.31 This became a founding principle of the Town and Country Planning Act 1947 which nationalised development rights, making the development of land only possible if it was considered in the judgement (i.e. discretion) of the local authority to comply with local policy.32
In the immediate aftermath of the war, nearly all housebuilding was done by the state, either through the New Towns or urban reconstruction from war damage. From the mid-1950s onwards, the role of New Towns was reduced and the planning system became one in which private housebuilding increased and was regulated by the new planning system through land allocations and development control based on the judgement of local authorities. The system retained its discretionary design and the system has remained essentially unchanged to the present day.33
After the initial allocations from the first round of local plans and new towns were exhausted early in the post-war era, the mid-1960s saw a growing number of complaints that the planning system was not allocating enough land for new homes.34 By the 1970s, both private and public housebuilding began to fall as tightening restrictions on development reduced the supply of sites for new housing. As Box 6 explains, although the post-war planning system’s rationing of land was most severe for new private housing supply, public housebuilding was also negatively affected by the growing difficulty of acquiring land that would receive planning permission for new homes.
Box 6: How did the planning system reduce new private and social housing in the post-war period?
Demographic growth in south east England was stronger than predicted after the Second World War, and initial greenfield building land allocations in many county plans appeared inadequate by the early 1960s.35 The expansion of the green belt from 1955 coupled with the end of the first wave of New Towns in 1957 at numbers far below what the initial plans believed was necessary reduced the amount of land available for new housing.36 This, coupled with the new discretionary processes resulted in the price of building land for private builders began increasing as early as the 1950s and private build rates began to decrease from 1964 despite increasing house prices.37
Central government set up several studies suggesting the implementation of regional plans during the 1960s, but they did not have statutory power and were unable to secure local planning authorities’ cooperation in releasing greenfield building land.38 The Wilson Government attempted to make land available for regional planning by bypassing the private market and county planning authorities with a newly established Land Commission in 1965. This had the power to buy land at a 40 per cent discount and if necessary, appeal the decision of local planning authorities who refused to grant it planning permission.
The Land Commission was hamstrung by opposition from local planning authorities in the Home Counties and was unable to break the land bottlenecks.39 During its five-year existence, the Commission managed to purchase 286 acres of housing land in the South East (most of which were used for gravel extraction) and in the Midlands it managed to release a total of four acres for development. Its unpopularity with local authorities and county planners in the Home Counties led to its abolition by the Heath government after the 1970 election.40
Councils that wanted to build new social housing for their residents were also limited by the fragmentation of local government. Many small, pre-1972 urban councils had no greenfield land on which they could build or grant themselves planning permission for new council housing. As a result, they had to apply to neighbouring authorities for building land, who often resisted granting permission to maintain the integrity of their greenbelts. The reforms introduced in the 1972 Local Government Act failed to overcome this fragmentation, as (typically rural) district councils retained control over housing and planning.41 The green belt then reduced the amount of land for development over this period, with its area expanding from 693,000ha in 1968 to almost 1,600,000ha in 1984, roughly 12% of England’s land surface.42
The growing difficulties in acquiring greenfield development land for council housing in the 1960s pushed new social housing onto brownfield land, with local authorities forced to use slum clearances to acquire urban land at the discounts that made new council housing viable. A resulting backlash and the end of the slum clearances eventually closed off redevelopment of private urban residential land as a route to new private and council housing at scale.43
Other European countries did not make the same choices as Britain did in the post-war era. Planning and housebuilding regimes did vary considerably across Western Europe after the Second World War, but European countries with more successful housing outcomes differed from the UK in three ways: 44
- Their governments had greater central power over local planning authorities and could re-draw local development plans that were unable to meet housing requirements more easily. For example, French local plans were drawn up by the local prefect – an unelected representative of the central government – while the Dutch’s local government ministry’s discretionary funding powers over local authorities deterred councils from underbuilding sufficient housing.
- Their planning systems had less of a discretionary element. In contrast to the UK, in most European countries planning permission was and is automatically given by an administrative body if it complies with the plan. This meant that there have been fewer opportunities for European local authorities to obstruct development.
- Their systems of national development control were instituted later than the UK did in 1947. Germany enacted its planning law in 1960, the Netherlands in 1965, and France in 1967. These systems had fewer restrictions on development than England’s, but they also had a longer period after the Second World War in which restrictions were minimal.
The planning system undermined council housebuilding
Council housebuilding in Postwar Britain helped deliver large improvements in housing outcomes, and its decline is one reason that total housebuilding began to fall. However, this decline predates Right to Buy by a decade, occurred alongside a decline in private sector housebuilding despite rising house prices, and was itself predated by a large decline in total housebuilding following the Second World War.
These results seem to stem from the planning system – which always had been highly restrictive – becoming even more restrictive over the course of the post-war period. This reduced the supply of land available for both private and council homes and explains why other European countries managed to build more.
To understand just how much these differences in housebuilding and housing outcomes have been sustained after the end of the post-war period, the report now turns to consider housing outcomes in Europe after 1980.