Keir Starmer's Labour Party pledges to build 1.5 million new homes over the next parliamentary session.Ian Forsyth/Getty Images
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
Although Canada’s housing crisis is more acute than most, many Western countries are wrestling with the same problem. So the ambitious plan by Britain’s new government to tackle that country’s crisis should interest Canadians.
By and large, the housing crises have the same root cause – lack of new supply because of bottlenecks and underinvestment. Britain’s new government has announced a bold plan to tackle the first problem. It will take planning approval out of the hands of municipalities and centralize it, set mandatory house-building targets for local councils, open up some greenbelt lands to development and commit to building the supporting infrastructure new housing will need.
Centralizing the planning process should eliminate the powerful obstacle to new construction of NIMBYism, whereby property owners lobby local councils to block new building in their neighbourhoods. The ill-fated Boris Johnson government unveiled a proposal for centralized planning but was blocked by a backbench rebellion, since Conservative homeowners objected stridently to the thought of new housing entering their communities and affecting their property values.
However, Labour governments depend less heavily than Conservative ones for political donations from the property-owning sector. They also have a bigger bloc of voters among renters, who tend to favour new housing. So the politics of homeownership make it more likely that a Labour government could pull this off. Meanwhile the Prime Minister has made his deputy, Angela Rayner, the housing secretary, giving her a strong ministerial team to ensure she can sweep aside obstacles.
So the program has got off to a promising start. In order to facilitate house-building, the government will need to also expand the labour supply, especially of skilled workers, building inspectors and planning officers, to which end the government has so far said it will appoint another 300 officers. Reflecting the optimism that things will get moving, the share values of construction and property-developing companies have risen on the London exchange since the Labour election victory, signalling the expectation that activity will now pick up.
On the investment side, the government has so far been reluctant to put its money where its mouth is. As has been the case in Canada, private investment in real estate has been going in the wrong place. Too much of it has gone into acquiring existing properties and putting them on the rental market, thereby actually reducing the supply of new housing available for sale, thus inflating prices. And the government has yet to address this.
However, merely getting the private sector to build new housing is unlikely to itself solve the housing crisis. It’s true that any new supply of housing will help to limit house-price inflation. But developers also have an interest in keeping new supply from growing too quickly so as to ensure they still make a tidy profit. In the sort of competitive market dominated by small housebuilders that characterized the early postwar period, one could rely on competition to ensure builders looking for revenue would aggressively build. With the emergence of market concentration in the hands of a small number of companies, that competitive drive has diminished.
The government could, however, step in and stir up competition by expanding supply itself, by building social housing. And that is where the government has room to be more aggressive.
So far, all it’s offering is to reduce the cost to councils of building by doing away with the “hope value” rule, which enables sellers of vacant lots to charge inflated prices based on what the land’s value will be after the council has built the houses. That won’t likely suffice to ensure the government hits its house-building target. It will probably need to give councils more money to build the houses as well, since in the past governments have only been able to expand supply aggressively with significant public investment.
The new Chancellor, Rachel Reeves, mindful of the way Liz Truss’s reckless budget led to a meltdown in the country’s bond markets two years ago, would rather not do this. Yet she is not Ms. Truss, and bond markets know this. Apparently respectful of her prudence, bond investors have reacted favourably to the Labour victory, and would probably tolerate her adding debt to build housing, not least because the government would have an asset to match the value of the loans (unlike Ms. Truss, who wanted to borrow to fund tax cuts). If the Labour government’s housing revolution is to succeed, it will almost certainly need to take such risks.
As Canadians eager to end the housing crisis have seen, to their chagrin, the road to policy failure is paved with good intentions, and a lot of positive words. But if Britain’s Labour government realizes its revolution, it may help point a way forward in Canada – and it will probably come down to whether the government can match its words with action, and money.