Steve McCabe headshot




In this article, Dr Steve McCabe (Member of our Housing and Communities Leadership Board and Associate Professor, Birmingham City University) considers the role of rising house prices is exacerbating the UK’s housing crisis and what needs to happen to stop such increases if we are serious about fixing the ‘broken housing market’.

Can we stop house prices rising?


If you’re a homeowner, you probably like the idea that your home continues to rise in value. It makes us feel wealthier. The notion house prices should be stopped from rising would seem anathema. It’s obvious that political effort, and finance, is being heavily invested in maintaining house price inflation. Successive governments, whilst propagating the argument that building more houses is the solution dealing rising prices, actively support the current system in which encourage increasing values of all homes occurs. Undoubtedly, banks and building societies have a lot to lose if house prices started falling.


The housing market is broken. Even the government admits this. There are many things wrong with housing in the UK. Houses are some of the smallest in Europe. Newly built houses are frequently poorly built, many containing avoidable faults and, currently, are not adequately designed to cope with climate change. The great dream of the ‘Home-owning democracy’ has been fading away for decades. Owner-occupation reached a peak in 2003. Modestly well-off old folk live in fear their house will be seized for care-home fees while young people fear they’ll never be able to afford their own home.


That there should be change is widely accepted. Indeed, various solutions have been implemented which only seem to exacerbate the problem. Understanding why prices continue to rise seems crucial. Is it possible to ensure house prices rise at no more than the prevailing rate of inflation, a state of affairs which existed in the past, enabling working people on average incomes to afford to purchase homes sufficient for their families?


Importantly, we’ve come to expect economic progress. Goods and services become cheaper and improve in quality. Housing appears to be a different ‘product’. Perhaps, we should acknowledge, housing is not a normal consumer product. We should not expect it to conform to conventional rules of supply and demand. At the core of the relentless rise in house prices is an asset, akin to something you’d invest in rather than for utilitarian purposes. However, we accept, the ability to own your house has always been assumed to be a fundamental right.


Critically, it’s the financial system and freedom it has allowed some to exploit the economics of assets which needs to be understood. The nature of the asset being exploited is not widely understood. The liberated financial sector and the nature of the asset underlying houses has resulted in the huge but erratic inflation in the prices which purchasers must pay for that most important, yet basic necessity, somewhere to live. Only by explaining the proximate cause of the rise in house price rises can we hope to rein them in. Only by preventing further damaging price rises and eventually engineering a gentle slide downwards can we hope to have a housing market, which occurred in the past, delivering good quality, reasonably priced houses in sufficient quantities to satisfy demand.


Accordingly, until house price rises are reined in, other reforms will have little or no impact. This means greater controls over the way in which financial institutions which, because of reckless lending on mortgages, have caused prices to rapidly increase and, of course, led to financial crises such as in 2008. So, can this be achieved? After all, these are powerful institutions who, in large part, rode out the GFC (Great Financial Crash) of 2008 with the assistance of massive amounts of government money though what’s known as QE (Quantitative Easing).


This is money which adds to public debt and, as we’re constantly told, will need to be repaid by increases taxes and/or reduced spending by government. In the last two years during the pandemic more assistance has been provided which, though ostensibly justified to provide support for the housing market, has accelerated a rise in house prices. Ominously, the ratio of average house price to average wages is as high as it was before GFC. Many speculate another crash is entirely possible.


More interest rate rises seem inevitable. There’s a ‘cost of living’ crisis which means those on already stretched incomes will need to make tough choices about spending on food, fuel and energy all of which are increasing. The result is likely to be a ‘cooling’ of the housing market. This would come produce consequences. Recent purchasers may find the costs of their mortgage rise dramatically there may be a return to the grim days of the mid 1990s when negative equity and re-possessions were prominent.


Vitally, the main asset that’s the target of bank lending is the plot of land on which houses are built. Can anything be done to make it less vulnerable to the financial vultures? One way is to let Local Authorities hold on to the land they already own. This could apply to government-owned land too. Foolishly, the Ministry of Defence allowed much of its vast estates fall into the hands of what are known as venture capitalists. Like Singapore, where the Economist declares the housing problem fixed, all housing land could be nationalised for collective good.


That may sound extreme but there are other less drastic ways to reduce the collateral in the plot value to reduce the bankers’ cut and restore it to society. Campaign group Fairer Share contend that Council Tax and Stamp Duty should be scrapped and replaced by a standard rate across the country. Since the price of houses, especially in high-priced areas, is predominantly based on plot value, this campaign effectively advocates taxing away plot-values. So, society, not the banks, benefit and house prices start to converge downwards to the cost of building – the basic ‘product’ – only. With sufficient political support, this could commence within a year. The effect on house prices would be immediate. However, whether politicians sincerely wish to genuinely restrain runaway house prices is a moot point.


Stop House Prices Rising! The Essential First Fix For the Broken Housing Market written by Conall Boyle and Steven McCabe has just been published by Bite-Sized Books and available on Amazon 

About Dr Steve McCabe

Dr Steven McCabe is Associate Professor at the Institute for Design, Economic Acceleration & Sustainability (IDEAS) and Senior Fellow within the Centre for Brexit Studies, both of which are based at Birmingham City University. Steven is a long-standing academic and has written extensively on issues of management, business and politics. Steve is also a Member of the Centre for the New Midlands Housing and Communities Leadership Board.

Over the last two years, as well as writing a number of chapters dealing with Brexit, inequality and the pandemic, he has co-edited Brexit and Northern Ireland, Bordering on Confusion (published by Bite-Sized Books, ISBN-13:978-1694447807) and English Regions After Brexit: Examining Potential Change through Devolved Power (ISBN-13: 979-8666953099) and Exploring the Green Economy: Issues, Challenges and Benefits (ISBN-13:‎ 979-8532032347) both also published by Bite-Sized Books. He has researched and written extensively on the way in which British housebuilding developed in the past century and may be improved through economic intervention and technological innovation.