UK Housing Crisis Extends Far Beyond Mortgage Rate Concerns
The United Kingdom's housing crisis is proving to be significantly more extensive than mere rising mortgage rates, with the ongoing Iran war now threatening to plunge an already struggling property market into deeper turmoil. As sales dry up and new construction projects are put on hold, the situation is becoming increasingly dire, writes Chris Blackhurst. While there are some positive indicators regarding affordability, the broader landscape remains bleak.
Affordability Gains Mask Underlying Market Weakness
First, the good news. Homes in England and Wales are becoming more within reach of people's budgets following years of being prohibitively expensive. Figures from the Office for National Statistics reveal that the average home in England cost £300,000 in 2025, equating to 7.6 times the annual average earnings of a full-time employee at £39,300. This marks a fall from 7.8 in 2024 and is well below the 2021 peak of 9.1, representing the lowest level since 2015. In Wales, the pattern is identical.
After adjusting for inflation, house sales prices in England and Wales have risen by only 5 percent since 2021, while average earnings have increased by a substantial 25 percent over the same period. Wages are growing faster than house prices, which should be a positive development. There are regional differences, with London showing a ratio of 10.6 times, but even this is below the high of 12.9 in 2021. All of that appears positive, but there is a resounding "Yes, but" to consider.
Iran War Exacerbates Existing Market Despair
Even without the Iran conflict, the housing sector was already in a state of despair. However, the war, along with its expected prolonged impact after the conflict ends, acts as a thunderbolt to the market. Interest rates were heading downward, but now no further cuts are predicted for the remainder of the year. It took a year before some of the knock-on economic and business effects of the Russian invasion of Ukraine became apparent. The initial impacts were obvious, but others were not felt for a while.
Confidence, already low and weak, has now deteriorated further. The UK has suffered not just one global event in the past decade, but a series of them. What this means is that people have stopped moving. Iran will add to that trend, but it was happening already. Consider those figures from the ONS. They are all very well, but that assumes you have a job, and one that is secure. Jobs are disappearing, not helped by AI, with Amazon revealing another round of cuts. Graduates are despairing of getting on the career ladder and, with that, earning enough to buy a home.
Structural Shifts in Employment and Education
Larry Fink, head of BlackRock, one of the world's biggest investment managers with $14 trillion under management, is warning that as AI progresses, we must rethink the focus on young people going to university and promote trades such as plumbing, electrical work, and welding. Fink was talking about the US, but he could have been referring to the UK when he said: "I think what we did was wrong. We really put judgement on so many jobs, and so many people who probably should not have gone into banking, or media, or law, probably should have been a great worker with their hands, and we need to now rebalance that approach."
He added: "We built the foundation of education, and we said to all the young people, go to college, go to college, go to college. And we probably overdid it ... We need to balance that out, and we need to be proud that ... a career can be just as strong in these fields of plumbing and electricians."
Market Stagnation and Landlord Exodus
House prices remain static or are falling. "Under-gazumping", demanding a price drop just prior to exchange of contract or else the purchase collapses, has become a common practice. In flats, new legislation protecting tenants, supported by both the Tories and Labour, alongside onerous taxes, is seeing buy-to-let landlords exit the market. Some 100,000 homes are thought to have left the market as a result.
Young people are not buying apartments. If they are, it tends to be thanks to the Bank of Mum and Dad. Interest rates are hurting, as is stamp duty, which is considered "dead money" and a hefty consideration for anyone looking to buy. People are not moving. They are staying put and doing up their homes instead. It is no coincidence that Wickes, the DIY chain, is planning to open 70 new stores. Other high-street retailers may be suffering, but not home improvement sectors like DIY, kitchens, and bathrooms.
Construction Halt and Government Targets
Those with properties who were counting on them being a nest egg, the one asset they could depend upon, are equally faced with uncertainty and having to redo their sums. As for new homes, they are not being built. The word being used repeatedly among housebuilders is "viability". In London alone, there were 300,000 planning permissions for new homes granted last year, and only 5,000 starts. Building materials are soaring in price, and on top of the economic woes, builders have been hit by ever-heftier demands from regulators on sustainability, such as the need to install heat pumps, as well as quality and safety.
The government has announced that seven new towns are to be created, but that is a reduction from 12. They are anxious to make inroads with the 1.5 million new homes target set in the Labour manifesto. They want to show progress, at least before the next general election. Those new towns, however, will only deliver a fraction of the desired total, and that will be over a lengthy period. It also assumes that, after the inevitable legal disputes and hold-ups, they do get built as envisaged.
Social Impact and Policy Challenges
Let us not forget, either, that while the housing sector struggles, 170,000 children in Britain live in temporary accommodation with their families, often moving several times in a year. The Tories' help-to-buy scheme provided a fillip, but it has ended. While there is talk of Labour coming up with a replacement, a report is said to be circulating the Treasury signalling disapproval, as the initiative was seen as inflationary. There is also nervousness about creating a repeat of the embarrassment of seeing some housing bosses walk off with multimillions in their pay packets and bonuses.
Ministers and their advisers are very good at listening to builders' woes, while remaining of the intrinsic belief that many of them are only out to make money. To be fair, several of these firms have not helped their cause. Britain's housing crisis will remain, and with that, an economy in the doldrums. For, as Nick Kilby, an expert in government and planning who runs the Cratus Communications agency, said this week: "The irony is that the sector could help push up GDP. It's one of the few gears the government can press to achieve a growing economy. Yet it's firmly in neutral, going nowhere fast."
Cycle of Frustration and Call for Action
The government is frustrated. It believes it has changed the planning system as asked, but has seen no lift in building. The builders are frustrated because they are absorbing ever-rising costs, not to mention employment charges and apprenticeship levies, and must cope with interest rates. The two sides are locked in a cycle of frustration. Steve Reed, the housing secretary, should focus on the roadblocks he can deal with and stop writing new laws. Or else, heaven forbid, it will only get worse.
