How a bold housing pivot could rescue Britain's PM

Whether it keeps Keir Starmer as Prime Minister or replaces him with the likes of Greater Manchester mayor Andy Burnham, Britain’s Labour Party faces a near impossible task: it needs a bold policy pivot ahead of the 2029 election to reunite its shrinking coalition of northern working class voters and London’s progressive professionals while bringing bond markets and backbenchers onside. The housing market may offer the key.

Last week’s speeches by both Starmer and King Charles III underscored this government's greatest flaw: a diffuse economic programme spanning pledges to seek alignment with the European Union, invest in rail, fight climate change and nationalise steel production. Rather than concentrating on a few sectors, Starmer's industrial policy stretches across most of the economy. A popular PM might juggle so many priorities. A weak one, with only three years before the next election, needs a simpler agenda, with no more than three clear battlegrounds.

Geopolitical crises have already defined two. One is defence, where a new strategy still awaits full funding. The other is expanding energy generation to offset the effects of the war in Iran. The government has made progress on renewables, but its ban on new oil and gas exploration licences seems counterproductive.

Nothing, however, would give the PM a clearer economic narrative than a focus on the elevated cost of housing, which cuts across social classes. It's top-of-mind of households in lower-income areas who are suffering from a squeeze in the cost of living and fled to the anti-immigration Reform UK during the May 7 local election. But it's also a big concern for young, downwardly mobile elites in urban areas with eye-watering rents, who are being enticed by the anti-capitalist Green Party.

Starmer recognised this in 2024, ⁠when he set a mandatory target for local councils to create 370,000 new homes per year, with an emphasis on using undeveloped land around cities to build "socially rented" housing - the cheapest type of affordable tenure, often costing only half of the equivalent private rent. Lawmakers have also streamlined planning permissions.

Yet, while more former greenfield land is being released the number of housing projects granted planning permission has cratered, dropping an annual 45 percent in the third quarter of last year, data by the Home Builders Federation suggests. Official figures show that net additional dwellings in England only amounted to 208,600 in the fiscal year ending in March 2025, far from the government's goal.

The problem is that hitting such targets isn't in officials’ hands. In the 1980s, then-PM Margaret Thatcher sought to reduce the central role that local authorities played in housing development, in an attempt to increase private property ownership and remove debt from public balance sheets. The result was also to place the construction burden squarely on the shoulders of cash-strapped housing associations, as well as private actors who are reliant on cyclical market conditions - and are wary of creating supply faster than demand can absorb.

This is largely why Britain's privately-operated dwelling stock has grown by less than 300,000 units each year since 1989, and also why permissions are down so much at present: it just isn't profitable to build. In a report last year Zoopla estimated that a 17 percent increase in development costs since 2022 made two thirds of England inviable for starter and family home development. Materials inflation has halved the operating margins of developers such as Barratt Redrow and Taylor Wimpey and Persimmon over the last four years, according to Visible Alpha. High interest rates are biting, and house ⁠prices and rents continue to decelerate.

To be sure, Starmer's reforms are laudable and necessary. Research suggests housing supply in the United Kingdom is more constrained than elsewhere, and planning restrictions are a big source of unpredictability for developers. Nevertheless, merely easing them won't deliver an affordable housing boom by the next election in 2029, especially with another global supply crisis developing from the Iran conflict.

One alternative would be to goose demand again with a "Help to Buy” scheme that subsidises mortgages for house purchases, which was one of the Conservative government's favourite tools between 2013 and 2023. Last week, Adrian Gosden at London-based Jupiter Asset Management argued that a new round of the scheme would be a good way to get the UK economy out of its rut without spooking bond markets too much. But studies have tended to find that giving people money to buy or rent inflates prices without inducing much new construction.

Here's a better way to ⁠rethink housing policy: instead of setting a target that includes private housebuilding, the government should commit to raising the share of publicly owned dwellings from 16 percent to 20 percent of the national stock by the next election - and 25 percent by 2034. This would mean adding 250,000 government-owned homes a year. Building them would require reviving the postwar model of state development corporations with land assembly powers, able to develop or commission whole neighbourhoods at scale.

At current prices, this would cost roughly 2 percent of GDP, or 60 billion pounds a year. This is far above the 39 billion pounds over 10 years currently earmarked for the development ⁠of affordable housing, but not insurmountable: the money could come from cutting housing benefits, which cost the state north of 30 billion pounds per year, as well as much of the broader, ballooning rise in non-contributory welfare since the Covid-19 pandemic, which amounts to about 65 billion pounds.

Crucially, the target could also be met by the state buying existing homes. That would not boost growth as much as new construction, but would immediately allow the government to cut rents and ease affordability for selected groups, such as the young. Prices might rise, but moderately: property ⁠transactions in the UK top one million a year.

The point is that, unlike in Starmer's failed attempts to trim Britain's vast welfare state last year, backbenchers and voters would be appeased by an immediate, tangible flood of affordable homes. Any new borrowing by the state would be offset by a yield generating asset, which could easily fit within revamped fiscal rules. And bond markets would cheer the government's ability to trim ballooning social spending.

Leadership challenges during crises are rarely ideal, but this may be the last opportunity for Labour to try something new.