Britain’s housing shortage and weak economic growth are the result of decades of underbuilding rather than a lack of land or demand, according to a new report from the Institute of Economic Affairs (IEA).
The briefing argues that the country’s inability to build enough homes, commercial property and infrastructure has become one of the biggest barriers to economic growth, describing the housing crisis as “entirely self-inflicted”.
Written by IEA editorial director Kristian Niemietz, the report forms part of the think tank’s forthcoming book, The Great Stagnation: Why Britain Stopped Growing, which examines the causes of the UK’s prolonged period of weak economic growth.
The report argues that Britain has experienced almost two decades of stagnant real income growth and says restrictive planning rules have made it unnecessarily difficult to build homes, offices, laboratories, infrastructure and even reservoirs.
According to the IEA, the shortage extends well beyond housing, with a lack of commercial premises increasing business costs, reducing productivity and limiting expansion in some of the country’s most economically productive areas.
The report also challenges the perception that England is overdeveloped, noting that only around one-tenth of the country is built on, while almost two-thirds remains agricultural land.
It highlights a sharp slowdown in housebuilding over the past 60 years. Between the mid-19th century and the mid-20th century, the housing stock typically grew by between 1% and 2% a year, but annual growth has since fallen to around 0.5%.
The IEA argues that governments have recognised the problem for more than two decades through policy papers and reviews, but have failed to implement reforms capable of significantly increasing development.
The briefing is the second in the IEA’s Great Stagnation series, with further reports due ahead of the publication of the full book later this year.
Dr Kristian Niemietz, economist and author of the briefing, said: “The thesis of this briefing is that Britain has stopped growing, because the British economy is rubbing up against physical capacity constraints. We are trying to squeeze a twenty-first-century economy into the physical built-up environment we have inherited from the previous two centuries, and we refuse to expand that capacity to anything like the degree that is required.”
Lord Hannan, director general of the Institute of Economic Affairs, added: “Every fast-growing economy in history got that way partly by using more of what it already had: more land, more buildings, more space to work and live in. Ours stopped, because regulators, with mostly good intentions, built a system that lets NIMBY objectors veto growth while rationing land in a country that’s ninety per cent undeveloped. Kristian shows that if we want the growth we were on course for in 1997, we need to think again about who gets to say no to a building.”
