buy-to-let mortgages

Housing shortage is a myth and not to blame for housing crisis, says report

While the country has been striving to build more homes to ease the housing crisis, staff at the Bank of England suggest that the problem really lies elsewhere.

Bank Underground, a blog written by staff at the Bank of England, has released an article arguing that low interest rates have played a bigger part in real house price rises since 2000 than the lack of housing supply.

Arguing that housing is an asset rather than goods, the blog says: “Lower interest rates raise asset prices by increasing the present value of future cash flows. These effects can be powerful, especially when interest rates are already very low.

“To see this, suppose a contract pays you a pound coin every year forever. The first 20 pound coins are discounted by the prevailing expectations of future interest rates at the appropriate points on the yield curve, and then assume the discount rate is constant at some other value after that. How much would this contract be worth at different points in time?”

It argues that if house prices had risen at the same rate as goods in general over the past 20 years, they would have risen by 50%, but instead have risen by 60%. Using a series of charts, the report, which can be viewed in full here, goes on to demonstrate what it calls the “drivers of change”, concluding that the “relative scarcity of housing has played almost no role at the national level since 2000, though it has pushed in opposite directions in different regions“.

Rising rents linked to taxes?

Another blog post on Bank Underground linked to the above also looks into the idea that taxes on rental income – which is hugely topical at the moment with Section 24 tax changes affecting many landlords – is not necessarily linked to higher rents for tenants, and the same goes for taxing buy-to-let transactions.

It argues because physical stock (housing) is “fixed” in the short term, because it’s hard to convert individual residential properties into business or other use, and demand hasn’t changed, rent shouldn’t change either.

“Some landlords will sell up as letting becomes less lucrative. But at the end of each sales chain is either another landlord or someone who was previously renting.”

“If it’s another landlord, aggregate rental supply and demand are both unchanged, and so are rents,” the article says. “If it’s a new owner occupier, the supply of rented property has shrunk by one, but so has the number of renters. The tightness of the rental market and thus rents are unchanged.

“The net yield (rents minus tax) from letting property has fallen, so to restore yields to match outside options the asset price must fall. As with any asset, asset prices adjust to the news in yields, not the other way round.”

Other evidence

Bank Underground isn’t alone in its theory of housing supply playing a minimal role in the so-called housing crisis. A report by Ian Mulheirn for the UK Collaborative Centre for Housing Evidence, titled Tackling the UK housing crisis: is supply the answer?, has a similar standpoint.

According to this report, since 1996 “English housing stock has grown by 168,000 units per year on average, while growth in the number of households has averaged 147,000 per year”, indicating an apparent oversupply, as opposed to a shortfall.

It concludes that a shortage of housing did not contribute to house price rises between 1996 and 2018, and increasing housing will do little to reduce current prices.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:


Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment


Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:


+44 (0) 333 123 0320

Open from 9am-6pm GMT


+852 6699 9008

Open from 9am-6pm HKT