[Not] A housing shortage – the fallacy behind the new towns policy
- rpwills
- 7 days ago
- 8 min read
The government announced the locations of 12 new towns on September 28th. New towns are between them expected to create at least 10,000 new homes in each location.
So why new towns?
The government believes that there is a housing shortage and lack of supply has driven up prices. The evidence actually indicates a housing surplus and that lack of supply is not the reason for rising house prices.
Actual evidence
Unlike many goods houses are also assets.
This is an important factor to consider when looking at house prices and values. Asset values often increase when interest rates are low as people look for gains elsewhere. Periods of low interest rates by reducing the gains from holding money in banks results in people looking from returns from housing, pushing up prices. This is exacerbated by the lower interest rates making it easier to borrow more funds for house purchases. The impact of low interest rates on house prices has been noted in countries other than the UK.
Quantitative easing introduced to enable businesses to invest and households to increase spending, by reducing interest rates again makes borrowing to buy property easier hence pushing up values. When interest rates do go up as they have done over the last year borrows find they are paying significant amounts on their borrowings. More affluent households tend to gain from increases in asset values as they purchase extra property often for renting out or for leisure purposes. For most home owners increasing values give the illusion of being better off, although in reality gains from selling are offset by the cost of buying an equivalent property.
Why the variations in house prices?
We can make the case that the second driver behind increases in house prices are general increases in earnings. House prices and changes in house prices vary by area across the UK. Some of this may be attributable to earnings being higher in some areas than others. For example, in London and South East England prices have been above the average for some time while in contrast areas in the north of England are lower.
The most obvious factor is earnings levels, which vary by local authority. However, house prices in an area are not solely attributable to the earnings of residents in that area. They also reflect the earnings levels of people who move to the area or who purchase properties in the area. In these situations particularly the latter the earnings and also funds available will be higher than in the local area. People who move from a more expensive area will gain additional capital when they sell and move to an area with lower house prices.
So a household moving from London or the South-East of England will have more funds available to spend in a region like Cornwall – able to outbid local residents. It is also possible that some of these households will have built up additional capital due to their high earnings in the past, again this will give them additional resources with which to buy property.
Remortgaging is one way those with assets can finance the purchase of additional properties to use as second homes, holiday lets or buy to let.
“A number of businesses exist which give advice on how to remortgage “An interest only buy-to-let mortgage is a standard way to start a property portfolio, a holiday let mortgage will enable you to buy a property with a plan for short-term lettings, and if you want to move to a new property but keep your original home and rent it out, the let to buy system enables you to alter your mortgage terms appropriately. All of these three types of letting processes can be financed through a remortgage deal, either a full remortgage or a second charge on your primary property.”
There is also the international market to consider, especially prevalent in London, where international investors buy up property – either to use as an alternative home or to turn into holiday lets. As these investors usually have considerable funds available the impact is further pressure on properties available to residents and prices. Since the Great Financial Crisis overseas investment in housing rose considerably “Between 2014 and 2016, for example, 13% of all homes purchased in London were bought by overseas investors and around half of these were of housing valued at less than £500,000. A recent study estimated that foreign property buyers have pushed up house prices in Britain by 17% over the last two decades.” A number of corporate structures mainly registered in offshore tax havens bought around 28,000 properties and land in London to the value of £100 billion between 2009 and 2015.
Supply
Generally in most areas supply is such as to provide sufficient numbers of dwellings for people to be able to rent or buy. But supply can be a misleading concept. Supply is usually understood to mean simply the number of new dwellings that are constructed and therefore available. Yet not all new dwellings (or existing ones) are necessarily available - they may be bought specifically for second home or holiday let use, they may be aimed at the luxury non-local market. Additional supply is not additional supply if taken out of the residential use sector.
Access to resources
Households have different levels of access to financial resources which impact on whether they can rent or buy and the type and quality of housing. Reference has been made to the fact that affluent households have extra power when it comes to the housing market enabling them to buy additional property. Those on low incomes and younger people have also seen their financial position eroded.
Home ownership levels have fallen since the Great Financial Crisis with younger first time buyers (FTBs) bearing the brunt of this change. Mulheirn has identified the main reason for this. “The dominant cause of the collapse was the abrupt slowdown in mortgage lending to FTBs, which almost halved between 2007 and 2008, and did not recover until around 2014. This was reflected in a sudden drop in the median LTV for new FTB loans, from 90% in 2007 to 75% in 2009. Had new FTB mortgage issuance persisted at its pre-crisis rate, home ownership would not have fallen in the subsequent years.”
[Ian Mulheirn, August 2019.’Tackling the UK housing crisis: is supply the answer?’, UK Collaborative Centre for Housing Evidence.]
The problems of FTBs are commented upon in other reports. “With higher rental fees, less lenient lenders and larger deposits required to secure a mortgage, it could take a lot longer for those currently aged between 25 and 34 to get onto the property ladder.”
Those renting have also faced difficulties as a Resolution Foundation report shows. “In 2018, we estimate that SRs were 2.5 times as likely to work in a minimum wage job (defined here as one paying at or below the wage floor-plus 5p), compared to non-SRs. Why might this be the case, ….. the Clarion residents survey also indicates that significant numbers of SRs with high poverty risk are in casual, zero-hours contract or part-time work, all types of jobs which we know go hand-in-hand with a pay penalty.”
Judge,L., & Slaughter,H., February 2020, Working hard(ship) - An exploration of poverty, work and tenure, Resolution Foundation.
Mulheirn includes benefit cuts in his analysis of why those renting have faced affordability issues. “Growing housing affordability problems in the rented sector appears to be due to a combination of slow wage growth for young people, erosion of the social housing stock, and housing benefit cuts. Tackling these problems directly would be a far more potent (and less economically costly) way to improve affordability than boosting market supply.”
[Ian Mulheirn, August 2019.’Tackling the UK housing crisis: is supply the answer?’, UK Collaborative Centre for Housing Evidence.]
Government assertions
The report contains numerous references to increasing housing supply despite evidence to the contrary as outlined previously.
1.2 In setting this remit, the government has been clear that work on these new towns must begin urgently, in order to address the challenges facing the UK today – primarily low productivity, compounded by a significant shortfall in housing stock. That shortfall in turn is limiting labour mobility, worsening public health, disrupting educational attainment, and delaying family formation, each with significant negative economic and social consequences.
The Case for New Towns
1.2 …..The government’s July 2024 policy statement on new towns launched the work of the Taskforce and made clear that boosting housing supply requires more than just reform of the planning system. It demands a long‑term, strategic approach to building large-scale communities that can support growth, create opportunities and create resilient communities.3 The Taskforce’s Terms of Reference reflect this ambition, setting clear objectives: to create new and expanded places that drive economic growth and increase the supply of new homes.
1.3 This chapter explores the scale of the UK’s economic and housing delivery challenges, and how a revitalised future New Towns Programme can help address them. It sets out how new towns can boost economic output, increase housing supply, and provide a model for delivering large-scale housing developments in the country. It also draws on lessons from previous waves of new towns in Britain, as well as international examples.
10. House price stability in which prices rise in line with wages is good for economic, social and financial stability, however persistent growth above this level creates many economic and social problems.7 There is a broad consensus that over the long term, the insufficient supply of homes has contributed to the declining affordability of homes, even after taking account of the contribution of rising incomes, interest rates and demographic changes.8
18. Housing supply issues are therefore not only shaping the economy, they are shaping the makeup of society itself. Households with children are some of the most likely to live in a home that is cold or with damp19.
21. At the heart of the housing crisis and its consequences is a long‑term undersupply of new homes. Despite successive governments’ attempts at reform, the current system has consistently failed to meet this challenge.
Unlocking investment 54. There is a significant appetite to invest in the UK’s residential sector and to grow the supply of new homes. However, this potential has been constrained by a lack of consented and deliverable land available for investment, particularly in areas where there are uncertainties over planning or a lack of existing infrastructure.
60. New towns can play a vital role in tackling the national housing shortfall. By delivering homes at a scale that exceeds what is typically achievable through the local planning system, they can make a significant contribution to meeting long‑term housing need. These developments will help to moderate house price growth and improve affordability over time.
43. The scale of new towns necessitates land assembly and the delivery of housing and infrastructure beyond the capacity of individual home builders or developers alone – they need to be driven by strong delivery bodies. This approach enables accelerated build-out rates, allowing for a quicker response to housing demand. By fostering investor confidence and enabling long‑term planning, next generation of new towns not only aims to address the immediate shortage of homes but also lays the groundwork for a more resilient future housing supply.
Addressing the housing supply shortage
60. New towns can play a vital role in tackling the national housing shortfall. By delivering homes at a scale that exceeds what is typically achievable through the local planning system, they can make a significant contribution to meeting long‑term housing need. These developments will help to moderate house price growth and improve affordability over time.
61 The OBR has found that sustained increase in housebuilding of all tenures will help to ensure house price to income ratios remain stable over time.61 A review by the Greater London Authority (GLA), which looked at seven different studies, found that building new housing, even at market rates, improves housing affordability overall, including freeing up other homes as people move.62 By significantly adding to the housing supply over time, new towns will therefore play a role in making housing more affordable, particularly in the areas where they are built.
117. While the sites submitted through the Call for Evidence have played a valuable role in adding to the Taskforce’s knowledge base, site selection has ultimately been made in the national interest, where there is clearest demonstration
that the essential criteria for new towns locations has been met. The Taskforce has also accounted for the expressed preferences from ministers to prioritise early delivery, with many of the recommended sites either already somewhat underway or able to deliver in the short term, as well as ensuring they meet the primary objectives to drive economic growth and resolving housing supply pressure.
Source
New Towns Taskforce Report to Government, September (2025), New Towns report.
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