Across the UK, the cost of housing has risen faster thanwages for more than a decade. Even as higher mortgage rates have cooled pricesslightly, affordability remains a major challenge. Supply has simply not keptup with demand. Like most G7 nations, the UK has consistently missed itshousing delivery targets, leaving both renters and buyers struggling to findhomes they can afford.

The issue is not only about where people live, but how theeconomy grows. A shortage of good quality, affordable homes limits labourmobility, constrains business growth and restricts productivity. Thegovernment’s ambition to build 300,000 new homes a year has never been met, andthe shortfall continues to widen.

Why Housing Supply Matters

The relationship between housing and economic growth isstraightforward. When people cannot afford to live near their jobs, businessesface recruitment challenges, productivity suffers and regional inequalitydeepens. The situation in the UK’s innovation-led cities such as London,Manchester, Bristol and Edinburgh mirrors similar challenges in cities like SanFrancisco and Toronto, where housing shortages are also slowing growth.

In London, average house prices are now more than 12 timesthe average annual salary. Rents have increased by more than 25% over the pastfive years. With borrowing costs still high, housing affordability is at itsweakest point in decades. These pressures ripple through the wider economy,discouraging young workers from moving to opportunity-rich areas and pushingkey workers further from the places they serve.

A Need for Policy Clarity

Policymakers face a delicate balance. On one side, there ismounting political pressure to improve affordability. On the other, the privatesector delivers the majority of new homes, meaning investor confidence isvital. Short-term measures such as rent caps or sudden tax changes can haveunintended consequences, discouraging development and stalling supply.

Scotland’s 2022 rent freeze provides a clear example. Themove, introduced without consultation, caused investment in the emergingbuild-to-rent sector to stall almost overnight. Although the policy was latersoftened, investor confidence has been slow to recover. Ireland has experiencedsimilar effects from rent controls, with institutional investment fallingsharply as a result.

The lesson for the UK is simple. Consistency and stabilitymatter. Investors and developers need clear, predictable frameworks that rewardlong-term commitments to new housing.

Building Momentum in the Right Places

To make real progress, the UK must prioritise three actions:

1. Streamline and modernise planning so good quality schemescan be delivered faster.

2. Encourage development in city centres whereinfrastructure already exists and demand is strongest.

3. Support alternative housing models such as build-to-rent,affordable rental, student living and later-living communities.

These measures would unlock new investment and acceleratedelivery at scale.

Learning from Success

There are encouraging signs overseas. In Australia, policyincentives have helped build-to-rent schemes flourish, with thousands of newhomes under construction and strong foreign investment supporting localdevelopment. In the United States, record levels of multifamily housingcompletions have helped to stabilise rents in key markets.

The UK can achieve similar results by providing stablepolicy environments and recognising the economic importance of housingdelivery. Data from CBRE shows that living sector investment now accounts formore than a quarter of all real estate investment globally, reflecting growingconfidence in these markets.

A Long-Term Commitment

Meeting the UK’s housing needs will not happen overnight. Itrequires a joined-up national strategy that gives local authorities the toolsto deliver, empowers developers to innovate and reassures investors that theircapital is welcome.

Housing policy should focus on increasing supply rather thanshort-term interventions that distort the market. With borrowing costsbeginning to ease and demand showing no signs of slowing, now is the time for arenewed commitment to delivery.

Homes are not just assets on a balance sheet; they are thefoundation of economic and social stability. If the UK wants to drivesustainable growth, boost productivity and support its cities, it must buildthe homes people need.

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