Despite the economy still being in recovery from one of the worst economic contractions in 300 years following the Covid pandemic, house prices have continued to soar. This widening gap between the housing market and the rest of the economy is a symptom of the UK’s longstanding housing crisis.

In Positive Money’s 2022 research report, Banking on Property, we found that the dominant narrative of the problem being rooted in a shortage of supply fails to explain the rapid house price growth of recent decades. Instead, rising house prices are rooted in a series of policy changes, introduced over many decades, that have sought to increase home ownership and transform houses into profitable financial assets. At the same time, weakened regulation of the financial sector and declining interest rates have increased the availability and attractiveness of mortgage credit..

The result has been the emergence of a powerful feedback loop between government policy, mortgage lending and house prices. Government policies intended to increase home ownership have ended up increasing the flow of new money into the property market, pushing up house prices to unsustainable levels. Successive governments have tried to help more people onto the ‘housing ladder’, but instead these policies have ended up pulling the ladder even further out of reach.

The impacts of these policy failures are felt unevenly across different demographics: Black, Asian and ethnic minorities, the young and lower income groups are being locked out of home ownership due to rapidly rising house prices, trapping them within the private rental sector. As renters, they face higher housing costs, greater insecurity and poorer living conditions, while homeowners and property investors make large gains on their property wealth.

It’s time the government and Bank of England worked together to enact policies that ensure good homes are genuinely affordable and available to all, instead of financial assets for banks and landlords.