Latest housing research: We can’t solve the housing crisis with more private homes

In housing terms, trickle-down economics means that building any home of any type is a positive thing, because it creates chains of vacancies in the market. Any new home will be bought by someone living in a less expensive one, and then they will sell their home to someone else lower down the ladder, and so on until it reaches the bottom end of the market, thus addressing housing need at all levels in a given area.

However, the evidence demonstrates that this approach is flawed, due in part to investment homes at the higher end of the market being left empty and breaking the chain. It’s also questionable whether the theory is applicable to a housing market in a city like London, which attracts buyers from all over the world and not just the local area.

The core problem is that the private housing market responds to demand, ie what those with sufficient purchasing power can afford, rather than responding to housing need. Developers slow or stop building when demand weakens, rather than reducing their prices, which prevents meaningful price drops. Meanwhile, millions face unaffordable rents, overcrowding or homelessness.

Although the government has taken welcome steps through the measures announced in last year’s Comprehensive Spending Review, its overarching strategy continues to rely heavily on boosting private supply. This includes relaxing planning requirements and reducing developers’ obligations to deliver affordable housing in the belief this will accelerate construction. The report argues that such policies echo failures of the past, prioritising developer interests and short-term economic growth over social outcomes.

The analysis shows that increasing private supply, even at historically high levels, would not significantly reduce prices or improve affordability for low-income households. Most housing transactions occur in the existing (not new build) market, and long-term structural factors – such as low interest rates, financial investment in property and credit liberalisation – are more impactful than any mitigating effect from new supply.

Even when new homes are built, evidence suggests the filtering effect is weak: affordability gains are marginal, often take years, and rarely benefit those excluded from the market altogether. In some cases, new luxury developments push up local rents through gentrification.

The report also highlights flaws in the planning and land markets. Land values have soared, capturing value for landowners rather than communities, while viability loopholes allow developers to negotiate down affordable housing obligations. Evidence captured from 23 development sites in London suggests instances of overpayment for land, on the assumption that affordable housing contributions can be reduced later in the process via viability assessments, resulting in the loss of nearly 1,000 affordable homes across the sites studied.