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Held in 2026 under the theme "It Takes a World to House the World: Building Safe and Resilient Cities and Communities", the 13th World Urban Forum (WUF13) elevated housing to the centre of the global urban agenda, framing it as a "connector" for urban development.

The UK Housing Puzzle:

State Withdrawal and the Erosion of Supply Capacity

Junjian Cao

Senior Lecturer, School of the Built Environment, Oxford Brookes University, UK

Biography: Dr Junjian Cao's research has long been devoted to the Chinese property market and urban development, as well as to comparative studies of housing policy in China and the United Kingdom. His work spans commercial property investment, house-price dynamics, property rights protection, affordable housing, market governance, environmental sustainability, and land finance. His seminal monograph, The Chinese Real Estate Market: Development, Regulation and Investment (Routledge, 2015), is the first comprehensive scholarly work to set out, analyse and interpret the Chinese property market, offering a systematic examination of its growth trajectory against the backdrop of reform, rapid economic expansion and urbanisation, its distinctive governance model, and the principal factors shaping asset values and investment decisions. His articles have been published in leading international journals, including Housing Studies, the Journal of Property Investment & Finance, and the Journal of Real Estate Literature.

Dialogue Introduction

The UK's housing crisis has long been a matter of sustained public concern. The dominant narrative tends to attribute it to a planning system that constrains the market, yet the essence of the crisis is not a simple imbalance between supply and demand. Beneath the appearance of shortage lie deeper dislocations between the distribution of housing, a decline in quality, and the erosion of affordability. In this conversation, we speak with Dr Junjian Cao, whose scholarly work has long engaged with comparative housing policy in China and the United Kingdom, to trace the historical trajectory of housing in the UK, examine the underlying causes and structural roots of the supply¨Cdemand mismatch, and consider feasible pathways for restoring the role of the state and rebuilding supply capacity.

This conversation was conducted in 3 July 2026.

Question 1: It is a widespread agreement that a housing crisis exists in the UK, and the country has a well-developed planning system. However, the crisis has only intensified. Where do its historical roots lie?

It is necessary to revisit a critical turning point in British housing policy, the Right to Buy programme, which was implemented by the Thatcher government in 1979. State-led housing construction was a defining feature of the post-war ?UK. Labour's victory in the inaugural post-war general election in 1945, which was based on a welfare-state platform, marked the beginning of a period of substantial council home construction. From the 1950s onwards, the two primary parties engaged in a public competition during subsequent elections regarding their housing construction objectives. The Conservatives committed to constructing 300,000 houses annually, while Labour raised the bar to 400,000. The Conservatives even responded by committing to 500,000 houses annually. For the first time, the total stock of dwellings was essentially in line with the number of households, largely resolving the absolute housing shortage. This politically driven building drive continued into the mid-1970s.

Nevertheless, the mid-1970s' successes also sowed the seeds of a dual vulnerability. Initially, the public finances were unsustainable due to decades of large-scale housing construction. This, in conjunction with the 1973 oil crisis, compelled the United Kingdom to become the first developed economy to request emergency lending from the International Monetary Fund (IMF) and to comply with the fiscal austerity conditions. Secondly, after Margaret Thatcher's election in 1979, council tenants were given the opportunity to acquire their houses at a 30-40% discount off market value. In central London, certain properties were available for as little as 40% of the market price in 1979. The total council housing stock had plummeted from approximately 5.5 million to approximately 4 million residences, and by 1990, over 1.5 million council houses had been transferred to private ownership. Simultaneously, the local authority virtually halted the approval process for the construction of new council houses. The state profoundly relinquished its leading role in housing supply, a deeper legacy of this wave of privatisation.

Housing associations had been a long-standing component of the supply system alongside council houses. Their roots can be traced back to the charitable housing trusts of the nineteenth century, as they are not-for-profit third-sector organisations. During the post-war period of mass council house construction, housing associations played a supplementary and marginal role. The Housing Act 1988 fundamentally reformed their financing arrangements by introducing private capital, and they gradually replaced local authorities as the principal provider of new social housing. However, the void that was left by the state's withdrawal was not filled by this change in role. The scale and pace of housing association delivery were significantly different from those of the previous council housing programme, and they were heavily reliant on private lending and public subsidy. Additionally, their rents were generally higher than those of traditional council houses, raising questions about their contribution to affordability.

With the state having withdrawn from direct construction, housing associations partially taking up the social housing function under financing constraints, yet the private sector focused on market-led development, the three actors lacked any effective mechanism of coordination. Private house-builders now deliver more than 100,000 houses a year, far short of the over 200,000 dwellings routinely achieved during the era of council house building. All subsequent policies, from New Labour's limited response to the Barker Review, to the Conservative government's expansion of Permitted Development Rights (PDR), to the more recent promotion of the Build-to-Rent model, amount to little more than short-term adjustments within this path-dependent trajectory.

Housing has evolved from a social provision to a financial asset as a result of the state's gradual retrenchment from its dominant role in the supply of housing. The UK's heavy reliance on the financial services sector and the pursuit of a "property-owning democracy" have mutually reinforcing effects. Households have come to regard housing as their primary asset, the balance sheets of banks have been significantly affected by high house prices, and successive governments have been hesitant to implement policies that could lower property values. Market mechanisms and the logic of financialisation stepped in to fill the vacuum left by the state¡¯s withdrawal from housebuilding. As a result, housing transformed from a place of sanctuary to a speculative asset that has attracted substantial overseas investment. The financialisation of the housing in London and its surrounding regions has been entrenched by the significant proportion of the market held by international buyers, while lower-income households have been systematically excluded from affordable supply.

Fig. 1 Port Sunlight Village, UK, a model village built from 1888 by Lever Brothers (later Unilever), exemplifies the philanthropic and industrial housing traditions that supplied working-class dwellings in the UK long before the state took on that role.

Question 2: Given the state's withdrawal is where the problem originates, has there been any serious attempt to bring the state back into a dominant role over the past two decades?

As early as 2004, the Barker Review of Housing Supply, commissioned by HM Treasury, provided a clear warning: the UK was entering a prolonged phase of housing shortage and rapid house-price growth, but demand-side support alone would only push prices higher. According to the Review, increasing supply should be the fundamental solution. Its second report, published in 2006, squarely focused the supply-side bottleneck on the planning system and proposed action along two lines. The first was to accelerate planning decisions: shortening the timetables for producing planning documents, restoring the "presumption in favour of development", establishing an independent body to determine major infrastructure applications, streamlining the appeals process, and abolishing the needs test for commercial development. The second was to release more land, requiring local planning authorities to review Green Belt boundaries and permit development in lower-value areas, such as low-grade agricultural land where impacts would be limited.

Following the publication of the two reports, the government introduced a range of measures to improve supply, and by around 2007, house building was visibly recovering. The 2008 financial crisis, however, brought this process to an abrupt halt. The government mounted a large-scale rescue of the domestic banking system, preserving the integrity of the financial sector, but offered no comparable protection to house-builders. Numerous private construction firms were caught between frozen credit and a rapidly cooling market; industrial capacity was severely damaged, skilled tradespeople left the sector in large numbers, and supply chains fractured. By the time the market began to recover in 2015, it had become apparent that the construction industry's actual delivery capacity had been eroded. Building capacity, supply-chain networks and the accumulated stock of skilled labour are all the product of long processes; once broken, they are not readily restored in short time.

A second factor is that supply-side measures take a considerable time to yield visible results, whereas demand-side stimulus can produce clearly identifiable political dividends in the short term. Schemes designed to support first-time buyers, such as Help to Buy, are a case in point: they deliver visible benefits within a single Parliament, and the government of the day can point to precise numbers of households helped onto the housing ladder. Increasing supply, by contrast, requires sequential progress through land allocation, infrastructure provision and project delivery, a cycle that, within the British planning system, typically spans five to ten years or more. Faced with the binding constraint of the electoral cycle, incumbent parties have a rational preference for demand-side stimulus, even where such policies push prices still higher over the medium to longer term. A form of policy dependency has thus emerged in which each new round of demand-side intervention is deployed to address the legacies of the last, while supply-side reform is repeatedly deferred. The result is a persistent and profound gap between the academic consensus established by the Barker Review and the reality of policy practice.

Beyond this, the intrinsic tensions of supply-side reform have kept it perpetually at the margins of the political agenda. British society is deeply imbued with the notion of a "rural idyll", a cultural tradition that idealises country life as preferable to the urban, and this preference has exerted a lasting influence on the values embedded in planning policy. The Green Belt is the institutional embodiment of that cultural preference. Formally introduced in 1955, Green Belt land now covers approximately 13 per cent of England, and its fundamental purpose is to contain urban expansion. Yet it can sit in evident tension with the objective of increasing housing supply. Barker's 2006 report explicitly noted that Green Belt policy in the south of England had lengthened commuting distances, pushed up land prices, and forced up housing densities, and recommended that local planning authorities review Green Belt boundaries and permit development on lower-value agricultural land. In practice, however, the British planning system confers extensive rights of participation and objection on local authorities and residents, and any sizeable development scheme can face intense opposition within its host constituency. At the local level, councillors face political pressure from voters within their wards who oppose development. The layering of cultural tradition, institutional design and political incentive has made supply-side adjustment consistently difficult to advance.

Fig. 2 Two Barker Reviews commissioned by HM Treasury: the Review of Housing Supply (Final Report, 2004) and the Review of Land Use Planning (Final Report, 2006); Kate Barker, then a member of the Bank of England's Monetary Policy Committee (2001¨C2010), who chaired both Reviews. Source:https://obr.uk/about-the-obr/who-we-are/kate-barker/

Question 3: The UK's rental market has been in the state of continuous contraction and faster rent increases over the past decade. What has been squeezing the sector so systematically?

The contraction of rental supply in the UK is the cumulative outcome of a series of policies whose effects have compounded over time. Taken individually, each measure has its own policy rationale; taken together, however, they have squeezed rental supply from multiple directions.

The first dimension arises from the policy cycles within the private rented sector itself. Intervention in private renting in the UK can be traced back to the rent controls introduced during the First World War. The Increase of Rent and Mortgage Interest (War Restrictions) Act 1915 was an emergency measure adopted in response to wartime housing shortages and public protest, and its central provision was to freeze rents for working-class dwellings. Although the intention was that the measure be temporary, rent controls were repeatedly extended and reinforced through subsequent legislation; the Second World War brought a further widening of controls, and their combination with the post-war expansion of council housing progressively squeezed the private rented sector out of the market. The stock of private rented dwellings fell from around 8 million in 1944 to approximately 1.9 million by 1988, and the private rented sector was reduced from a dominant to a marginal tenure.

It was not until the Thatcher years, with the gradual dismantling of rent controls, that private renting began to recover. The Housing Act 1988 marked the pivotal moment, effectively removing rent regulation and security-of-tenure restrictions on new tenancies. The sector subsequently revived, expanding to some 4.6 million dwellings by 2011 and re-emerging as a significant component of housing supply. Yet this recovery came under renewed pressure after 2015. In that year's Budget, Chancellor George Osborne announced a phased restriction on the deductibility of mortgage interest against rental income. By 2020, individual landlords could claim relief only at the basic rate of 20 per cent, whereas higher-rate landlords had previously deducted at 40 or even 45 per cent. The Autumn Statement of the same year introduced an additional three-percentage-point stamp duty surcharge on the purchase of second and additional properties. The National Landlords Association warned at the time that the combined tax burden would leave landlords with only two options: to pass on the additional cost through higher rents, or to exit the market, either of which would further tighten supply.

In May 2026, the Renters' Rights Act 2025, taken forward by the new Labour government, came into force, extending the trend of contraction from another angle. The Act abolished the "no-fault" eviction mechanism (Section 21 notice) established under the Housing Act 1988; converted fixed-term assured short hold tenancies automatically into open-ended assured periodic tenancies; restricted landlords to a single rent increase per year; and gave tenants a statutory right to challenge proposed increases at tribunal. Although these provisions are designed to enhance tenants' security of occupation, from a supply-side perspective, landlords have lost two crucial levers, flexible exit and independent rent-setting, and the effective barriers to entry have risen. The change is expected to accelerate the exit of smaller, individual landlords, which has been underway since 2015. Each of the two reforms, the tax measures of 2015 and the rebalancing of tenancy rights in 2026, is defensible on its own terms, whether in the name of fiscal consolidation or of strengthened tenant protection; but their cumulative effect has been a sustained shrinkage in the supply of affordable private rented housing.

The second dimension concerns misalignment of supply and the pass-through of costs outside the traditional private landlord segment. On the one hand, the Build-to-Rent model promoted by governments since the 2010s was intended to encourage institutional investors to build rental houses at scale to supplement the supply of rental housing. In practice, however, the model has been positioned overwhelmingly at the upper end of the market in urban centres, with substantial rental premiums. Although build quality is generally high, rents are far from affordable, and the sector's actual clientele is sharply misaligned with the original policy objective. On the other hand, green retrofit standards have further raised operating costs. Since 2019, private rented dwellings in England have been required to hold an Energy Performance Certificate (EPC) rating of E or above; below that threshold, new tenancies and renewals cannot lawfully be granted. The government has also proposed to raise the required rating to C by 2030. In order to comply, landlords face retrofit costs averaging several thousand, and in many cases close to ten thousand pounds per unit, the greater part of which is likely to be passed on to tenants through higher rents.

Question 4: The UK was completing more than 400,000 houses a year in the 1960s; by 2011, at its lowest point, output had fallen to around 110,000. As technology has advanced, and the economy has grown considerably in the intervening decades, why has the industry's capacity to build contracted so severely?

The shrinkage of the UK's house-building capacity has to be understood along four dimensions: market structure, the financial cycle, the supply chain, and the industry's technical traditions.

House building is an industry heavily dependent on credit and expectations. Capacity expands during economic upswings and contracts in downturns; that is the fundamental rhythm. British private house-builders take their cues closely from the market: when the economy is strong, and prices are rising, they open more sites; when the market cools, and prices come under pressure, they proactively rein in output to protect prices. Such pro-cyclical behaviour is a normal feature of a market economy, but in the UK, it is amplified by structural characteristics. The British house-building market is highly concentrated, with a small number of large, listed house-builders dominating supply; these firms place greater weight on shareholder returns than on expanding output. Demand-side policies such as Help to Buy did stimulate an additional output of around 29,000 units between 2013 and 2017, but the gains from this expansion flowed disproportionately into capital returns rather than into reinvestment in capacity. Even when the government has granted extensive planning permissions, actual housing starts have often fallen well below the number of consents. Between 2017 and 2021, English planning authorities granted an average of 316,000 planning permissions a year, yet the bottleneck lay not in the approvals process but in housebuilders' active management of output in line with house-price expectations.

Turning to the supply chain, the productive capacity of British construction faces a further set of constraints. The 2008 financial crisis dealt an enormous blow to industrial capacity. In its aftermath, the house-building sector was severely damaged: numerous small and medium-sized builders were caught between frozen credit and a rapidly cooling market, and large numbers of skilled tradespeople left the industry. These smaller firms had been the backbone of post-war British housing delivery; the country's ability to build 300,000 dwellings a year in the 1950s rested on the efficient operation of several thousand small and medium-sized builders. The 2008 crisis dismantled much of that ecosystem. Unlike the financial system, industrial capacity cannot be swiftly restored through capital injection: the construction trades depend on the transmission of experience from master to apprentice, and the loss of a generation of skilled workers commonly requires at least another generation to make it good.

Domestic production of basic building materials has continued to decline, and reliance on imports has risen accordingly. Domestic output of cement, steel and other basic materials has fallen sharply over recent decades, while imports account for a rising share of consumption; the bulk of demand for timber is met from overseas. This deep exposure to international markets leaves the industry highly vulnerable to disruptions in global supply chains: increases in shipping costs, geopolitical conflict, and changes in tariff regimes can all feed through rapidly into material prices, making cost management extraordinarily difficult for builders.

Finally, British construction remains largely wedded to traditional brick-and-mortar techniques, and bricklaying remains a well-paid trade. Although government and industry have for many years sought to promote modern methods of construction, most notably modular building, and academic research in the field has been active, one critical link has never been resolved: insurers and warranty providers remain broadly risk-averse towards new construction methods. The country's largest new-home warranty provider covers between 70 and 80 per cent of newly built dwellings; without warranty cover, modular houses cannot secure mortgage finance or be readily sold. This obstacle has prevented British construction from achieving genuinely industrial-scale modernisation.

Question 5: What is the key to the UK's breakthrough path in the face of weakened housing supply capacity? Can a revival of council house building by local authorities, combined with a greater openness to international industrial cooperation, offer a viable path?

The UK housing problem is a systemic one, spanning historical legacies, industrial structure and political institutions. Any credible route forward requires simultaneous progress on three fronts: political will, industrial capacity, and the supporting institutional architecture.

On the political side, a shift worthy of attention is emerging within the Labour Party. Andy Burnham, who took office as Prime Minister in July 2026 after a long tenure as Mayor of Greater Manchester, has argued in his campaign platform and inaugural speech for the restoration of council house building by local authorities, the devolution of fiscal powers, and greater local autonomy across housing, education and healthcare. Were these proposals to be translated into practice, they would mark a potential departure from the dominant policy trajectory of state withdrawal from housing construction that has held sway since Thatcher.

Several converging factors have created the conditions for such a shift. Continued house-price growth since 2020 has transformed housing affordability from a concern of certain groups into a much broader source of social anxiety. The Conservative government's expansion of Permitted Development Rights delivered a short-term uplift in headline supply, but the quality of the conversions has been uneven, with some new dwellings falling short of basic standards of habitability, exposing the limits of a purely market-led approach. Burnham's own experience as Mayor of Greater Manchester, through the combined-authority model and several high-rise housing schemes, has also provided a practical reference point for locally led housing delivery.

On the industrial side, the sustained decline in domestic production of basic building materials, the slow pace of technological renewal, and the erosion of both the size and skill profile of the construction workforce have together produced the current supply predicament. At the same time, national-security considerations have increasingly taken precedence over pure economic-efficiency calculations across a range of sectors, making cost-benefit-driven industrial cooperation harder to pursue. The UK will need to reassert an industrial mindset oriented towards solving real problems, and to draw pragmatically on the global division of labour, making use of existing capacity and technologies abroad to compensate for domestic shortfalls. Rebuilding industrial capacity is unlikely to be achievable through domestic effort alone in the short term; the question of how to balance legitimate national security concerns with openness to global industrial cooperation is one no incoming government can avoid.

The supporting institutional architecture is the decisive factor in whether reform can be delivered on the ground. First, local authorities must regain the political space to use compulsory purchase orders; without that, land assembly will remain extremely difficult, and many prime sites in the UK will continue to sit undeveloped because negotiations among fragmented private owners have broken down. Second, industrial capacity must be rebuilt, encompassing both the training system for skilled tradespeople and the warranty and insurance framework for modular construction, so that new building methods can secure meaningful market access. Third, housing must be recognised as a composite right with multiple dimensions. It is not merely a question of numbers; it also concerns residential quality, spatial equity and community formation. If regulation focuses solely on the count of units delivered, cost pressures will drive standards steadily downwards, storing up problems for the future. Any meaningful housing policy must address all three objectives simultaneously.

In its entirety, a change in political will serves as a foundation for reform; however, re-establishing industrial capacity and finalising the institutional framework will require substantial time and consistent, methodical effort. The transition from legislation to the first spades in the ground for a new generation of council housing will require several years, even in the event of a favourable electoral outcome; there will be no immediate solution. The success of housing reform will be determined by successive governments' ability to implement and sustain substantive, effective policies that address the fundamental social issue, rather than by political rhetoric.