Beyond Grenfell: how to fix the housing crisis 

The Grenfell Tower disaster of 2017, which claimed 72 lives, exposed profound structural and regulatory failings within the UK’s housing sector. The report released today reveals the catastrophic consequences of using flammable cladding, non-compliance with fire safety regulations, and a severe lack of oversight by both local councils and private contractors. However, the disaster highlights more than just immediate safety failings; it exposes a broader, systemic collapse in the UK’s housing policies, which have been inadequate for over 40 years. 

Grenfell Tower stands as a symbol of how housing policy has not only failed in terms of safety but has become a significant obstacle to economic growth and social mobility.

The tragedy serves as a lightning rod for deeper dysfunction in the UK’s housing system. It underscores how housing issues are stifling the economy, dampening productivity, and worsening social inequality. Housing is a long-term root cause of the UK’s economic underperformance, simmering for 40 years and now reaching boiling point. It is the housing crisis that has exacerbated short-term inflationary pressures in the UK, from events like the war in Ukraine and the effects of the COVID-19 pandemic, more than in any other developed nation.

The roots of today’s housing crisis, epitomised by Grenfell, stretch back decades. In the 1970s, the UK was in line with France and Germany in terms of homes per capita. Yet, 50 years later, France now has 22% more homes and Germany 17% more homes per capita than the UK. Experts estimate that the UK needs 5 million additional homes to catch up with Germany, or 7.5 million to match France. This shortfall is the direct result of consistent underbuilding, particularly in affordable housing. The failure to meet demand has led to inflated prices, overcrowded rentals, and long waiting lists for social housing. Decades of policy neglect have turned the UK’s housing sector into a bottleneck, obstructing economic recovery and social progress.

Housing has become a major drag on the UK economy, with soaring costs burdening households. In the 1950s, housing costs accounted for only 15% of average household income, rising slightly to 17% by the 1970s. Today, that figure stands at a staggering 27.5%. Additionally, homeownership patterns have shifted dramatically. The 2021 Census revealed a stark reality in the UK housing market, with 5 million households now in private rental accommodation—one in five homes—up from 3.9 million in 2011 and 1.9 million in 2001. This rapid growth in the rental sector underscores declining homeownership rates and the increasing difficulty of buying a home.

Between 2011 and 2021, the number of households with a mortgage dropped by 1.5 million. For the first time since records began, more people own their home outright than those who own with a mortgage—31% compared to 28%. In recent years, as interest rates have risen, there has been a growing divide between those who own their homes outright and those reliant on mortgages or renting. The Bank of England’s main tool for controlling inflation is raising interest rates by increasing the base rate, which directly affects homeowners with a mortgage. Increasing the base rate impacts the rental market because landlords with buy-to-let mortgages pass these higher costs on to tenants. Where buy-to-let landlords lead the market follows, inflating rents across the market. 

This means that when the Bank of England tries to control inflation, those dependent on mortgages or renting face the greatest strain, with their disposable income significantly reduced. Consequently, the burden of controlling inflation through mortgage rate manipulation falls disproportionately on people aged 25-55, who often have less financial flexibility due to lower wages or the costs of raising children. As a result, inflation control primarily impacts younger generations, while those who own their homes outright, with greater disposable income, are comparatively shielded, exacerbating the generational divide.

Taking a step back, controlling inflation purely by manipulating interest rates is one of the most outdated, boneheaded and regressive economic practices we persist in doing.We still do it simply because it has always been done this way. Just as we once persisted in pegging our monetary system to the price of gold, controlled bread prices by manipulating wheat imports, and banned the sale of mutton to lower the price of wool.

Connecting wider issues around housing stock and its financing to the Grenfell disaster might seem like a stretch. Yes, Grenfell was caused by regulatory and fire safety failures, local and national government incompetence, unscrupulous building contractors, and the London Fire Brigade’s lack of preparedness. But these are all short-term failures. Grenfell also speaks to long- and medium-term issues: how we, as a country, want to live. Are we a nation where homeownership is open to all, or only a privileged few? Should those in lower socio-economic circumstances be relegated to substandard housing with little chance of escape, or should we focus on promoting social mobility?

For Keir Starmer and his Government, Grenfell and the wider housing crisis presents a crucial moment for bold medium and long term reform.

In the long term, the finance system needs several key changes. First, interest rates should be set by market forces between banks, allowing lending rates to reflect actual risk and confidence in financial institutions, rather than being dictated by the Bank of England. This would encourage a more competitive and stable lending environment, free from government control. Second, mortgage products should shift towards more affordable, long-term fixed-rate options to protect homeowners from volatile interest rate changes. Lastly, the state should withdraw from artificially inflating asset prices through practices like Quantitative Easing (QE), which has decoupled house prices from the real economy and contributed to a housing bubble.

Many of these reforms involve reducing government interference and market distortion, reconnecting the housing market with the wider economy, making homeownership more accessible for younger generations, and stabilising the financial future for all.

In the medium term, structural reform of the planning system is necessary. Sir Keir Starmer has handed the housing brief to Angela Rayner, but the serious work of reform is being delegated to her Minister of State, Matthew Pennycook. He has a solid background in the sector, having played an active role in shaping housing legislation, including tabling significant amendments to the Renters (Reform) Bill in the previous Parliament. 

Pennycook brings a degree of experience and understanding that many of his predecessors lacked. However, his success in addressing the housing crisis will depend heavily on the stability of his role. If Pennycook is given sufficient time and continuity to implement long-term strategies, his expertise could drive meaningful reform. Housing ministers in recent years have often had short tenures, limiting progress on housing policy. For Pennycook to be effective, he must remain in the role for an extended period. Only then can he develop and enact the sustained policies necessary to address the deep-rooted issues in the UK’s housing market.

Pennycook could do worse than to revive and expand Michael Gove’s 2021 proposal to impose binding housebuilding targets on local councils. Gove’s plan, which sought to address housing shortages by setting fixed targets for local councils, was ultimately thwarted by Theresa Villiers and around 60 Tory MPs who championed local control over planning decisions.

Pennycook and Starmer could adopt a “big tent” approach that balances national housebuilding goals with local flexibility, appealing to a wide range of stakeholders by incorporating elements of Gove’s bill and securing cross-party consensus. Making planning reform an immediate priority would enable Starmer to gain support from Conservative MPs who backed Gove’s bill, especially given the current lack of leadership within the party.

By committing to building 1.5 million homes over the next parliamentary term, Starmer can go some way towards addressing the supply shortage while stabilising housing costs, though much more will still need to be done. Additionally, reforming planning laws and unlocking more land for development would alleviate pressure on both renters and buyers. If done right, this could be a game-changer, not only easing the burden on households but also stimulating economic growth by freeing up income for other spending and investments.

The UK’s housing crisis is more than just a social issue—it is the single largest barrier to economic recovery. Housing costs are a handbrake on productivity, a block to social mobility, and one of the most significant drags on the UK economy. In fact, housing differentiates the UK’s economy more negatively than any other factor among OECD nations. While issues like Brexit, austerity, and the pandemic have played their part, housing has been the primary factor holding the UK back in the medium and long term compared to our nearest competitors. 

Forget the controversy over the portrait of Margaret Thatcher: Starmer should have a picture of Grenfell Tower hanging prominently in Number 10. That image should represent everything he needs to achieve within the housing sector, and the wider economy—financial reform, social mobility, and an energised economy. He has the opportunity to lead the charge in resolving this crisis, not only by increasing the housing supply, but also by reforming the policies that have long stifled growth and equality. The question is: will he take it?

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