This article draws on “Hitting housebuilding targets would reduce rents by £251 a month” published by the Centre for British Progress, written by Rob Blackie, Tim Leunig and David Lawrence.

Andy Burnham’s recent promise to tackle the cost of living pitch ignored the most practical approach: increasing housebuilding to bring down rents. This week the Office for Budget Responsibility predicted that people will get poorer in the next few years. If Britain focuses on cutting rents we can reverse that trend.

The typical British renter spends three times as much on rent as on food, and five times as much as on energy. And in the most expensive areas, such as London and the South East, renters typically spend 40% of their incomes on rent.  And this isn’t because we’re spending money on good housing either. Britain’s housing is smaller, and lower quality, than our European neighbours.

The costs affect not only renters, but all of us. The government spends around £37bn a year on housing subsidies, money we all have to find via our taxes or lower public spending elsewhere. This is the highest rate of any comparable country. There are less obvious costs too: businesses face high rents in London, and skilled individuals can’t afford to move there, constraining the growth of successful businesses in our most successful city. National income – and tax revenues – are lower as a result.

Our high cost of housing can be explained by simple supply and demand, nothing more and nothing less. For instance, London’s population has grown by 1.6 million people this century, and supply hasn’t kept up, constrained by planning rules that prioritise golf courses over house building.

It is reasonable to ask whether new private housing, aimed mainly at people on relatively high incomes, will lower rents more generally. The Prime Minister implies not, hence his currently unfunded pledge to create the “biggest council house building programme” since the 1950s. This would cost tens of billions of pounds a year. This is an admirable ambition, but very unlikely to happen when our government is short of money.

The evidence is clear that private building lowers rents for everybody. Recent research from Finland, for example, shows that while people who move into new flats are indeed relatively well-off, such moves kick off a classic house-moving chain.  The majority of people who move – presumably to somewhere better or cheaper – have lower than average incomes, and – quite remarkably – over a third of people who move are in the lowest fifth of households by income.

Many of these are adult children previously stuck at home with parents, others are people moving out of overcrowded shared flats. So long as enough new homes are built, the laws of supply and demand means lower prices and greater choice at all price points.

All this happens at no cost to the government.

Let’s imagine that England actually hits the current housing targets, for five years. The standard model, developed for the UK government by the University of Reading, shows that rents would fall about 2% a year. In absolute terms, London would see the biggest falls. The rent on a typical two bedroom flat in Lambeth would, for example, fall by over £250 a month within five years, compared to trend. The same renters in Manchester would save £51 a month (because rents are already much lower in Manchester), £43 a month in Birmingham and £32 a month in Sheffield.

As a comparison, the government’s recent energy VAT cut is worth £4 a month – and that has to be covered by £4 extra tax. Or to look at it another way, a £250 rise in disposable incomes from lower rents is approximately equivalent to wage rises doubling over the same period.

Building this number of houses would also increase both national income and tax revenues as well. Government spending – particularly on extraordinarily expensive and terrible temporary accommodation – would fall as housing became more readily available. The rise in tax revenue and fall in spending would reduce government borrowing by £1bn a year, just from cheaper housing in London alone.

In recent years sensible planning reforms in places as diverse as Auckland, Austin, Minneapolis and California have increased house building and caused lower prices. There are many proven models to copy. The government’s recent reforms to the planning system are welcome – but the data on actual housebuilding shows that they are insufficient.

Housing policy failures of both the current and recent governments have everybody in the country who needs to rent somewhere to live, as well as first time buyers. More housebuilding will benefit every postcode since it will increase tax revenues, and reduce pressures on public spending.

No other policy can have as big an impact without needing public spending. It’s time we got building again.

* Rob Blackie was Liberal Democrat Mayoral candidate in 2024, achieving the best result for 16 years. He has beaten the Greens in competitive elections as an organiser or candidate in 2010 (twice), 2012, 2024 and 2026. https://bsky.app/profile/robblackie.bsky.social