Economania

It was the perennial topic of conversation in the 1980s – the value of one’s house. It was Margaret Thatcher’s declared objective to create ‘a property-owning democracy’. To that end her Government, in accordance with neo-liberal economic principals, embarked upon the programme of de-regulating the financial sector and allowing the market to rule. Whereas in the past mortgages had been limited to 2.5 times one’s salary, now there would be only a limit on borrowing determined by the market.

In 1918, less than one quarter [↓25%] of people owned, or were buying, their own home. The majority of Britons lived in rented accommodation. From the end of the First World War until 1939, falling house prices in conjunction with rising earnings raised the level of home-ownership to about one-third of households [1918-39 ~33%] . This rise in home-ownership ground to a halt during the Second World War, but began to increase once again in the late 1950s – the time when Harold MacMillan famously said, “… most of our people have never had it so good.”.

All post-war Governments have tried to increase the rate of home-ownership, but none more so than the Thatcher Government, which enacted the policy of selling council houses, at a discounted price, to their tenants. About 2 million people took up this offer. As a consequence of this, and other policies, home-ownership peaked in 2001 at just under ~70% of households. This, however, marked the turning point. Since then, home-ownership has ↓fallen back to 64% and it continues to fall, as various social and economic factors press down on the market.

In 1977 (Q3), the average price of a house in the UK was £12,970; an average salary at this time would have been around £4,500 per annum and first-time buyers could take out a mortgage with a 5% deposit. Interest rates on mortgages in the late 1970s were around 7%, but this reflected the rates of inflation at that times, subsequent on the economic shocks of 1973/1974.

In 2025 (Q1), the average price of a house in the UK is £265,497. The average new mortgage now stands at £225,672 and the average outstanding mortgage debt stands at £136,510. Interest rates currently are around 4.5%, but the rate varies according to the deposit one can afford. For a 25% deposit, the rate will be around 4.32%, while for a 10% deposit, the rate rises to ~4.78%. Current rates reflect the recent history of bank base rates following the period of austerity after the Global Financial Crisis of 2007/08.

At time of writing, total mortgage debt in the UK stands at £1.698 trillion. There are currently 12.4 million mortgage-holders. Whereas in the past, borrowing was limited to 2.5 times one’s salary, people are now having to borrow much higher multiples of annual earnings. For example, in the North-East of the UK, a typical mortgage will represent 4.8 times annual earnings; in London, it rises to a staggering 11.7 times annual earnings. Furthermore, half of first-time buyers now take out mortgages with terms of over 30 years.

The current Labour Government came to power with a pledge to build 300,000 new houses per year for the next 5 years. At the outset, one has to say that Britain has a very poor record for building the required number of houses. There was a massive boom in house-building in the late 1930s and then a second smaller boom in the 1950s, as part of post-war reconstruction, but other than those the UK’s record has been mediocre.

The construction industry has said that there are 38,000 unfilled vacancies and that it will need a further 250,000 workers in the next 3 years if the Government is to fulfil its declared targets for house building. To this end, the Government has just announced the creation of 10 new colleges to teach building trades. These are expected to be completed by 2029.

However, even if the bricklayers were available – and there is currently a shortage of 20,000 – the UK also has a brick shortage. (Financial Times, April 2025)

The Government has cited planning restrictions as a major impediment to house-building and while this might be a factor, it is not the full story. The way in which the property market is structured is, to a large extent, the cause of the problem. The housing market creates a perverse incentive not to build houses.

By restricting the supply of houses, property developers force prices ever higher, thus increasing profits. Furthermore, the banks benefit from ever-rising house prices, since this makes their loan books look much healthier, as the assets against which they lend rise in value.

Landlords benefit also from an economic rent, as the properties they own rise in value, while at the same time they can charge ever-higher rents to those who cannot hope to begin buying a house.

There is yet another factor that also needs to be considered. Student debt now stands at over £292 billion. As these people come eventually into the property market, they will already be saddled with massive debts.

The Government exhorts property developers to build affordable homes, but this is a vain hope. Builders will not build the required quantities of cheaper housing when all the incentives push them towards restricting the supply of homes in order to maintain high prices.

If the Government is committed to increasing the supply of housing, then it might usefully look at the practice of land-banking. As of 2023, UK property developers between them held over 918,000 plots of land, an increase of ↑49% on 2018. Currently, the top eight UK property developers hold over 488,000 plots worth about £198 billion.

The Chancellor of the Exchequer currently faces a dilemma. The Government needs to raise an extra £42 billion to meet spending requirements but is bound by its own declared restrictions on borrowing. Perhaps the chancellor might consider the introduction of a Land Value Tax. This could raise the required revenue, while at the same time prompting property developers to actually get on with the business of building houses.

There must come a breaking-point in the market. The property market, particularly the housing market, is not functioning beneficially. Housing in the UK, indeed property in general, consumes far too much of the nation’s finances. Housing rental is non-productive activity – it merely forms a conduit through which money flows.

As Mark Twain advised: “Buy land. They’re not making it any more.” He was right, but if Britain’s housing shortage is to be solved then the historical inequities of land tenure in Britain, and the resultant malfunctioning of the property market, must be addressed without delay. Thatcher’s ‘property-owning democracy’ is disappearing over the distant horizon, possibly never to be seen again.

Sources

History Extra (reprint of BBC History Magazine article, 2014)
Financial Conduct Authority (website)
Nationwide Building Society
Statista
Reuters
Construction News

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

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