Madsen Pirie
Britons talk about the property ladder as though it were part of the natural order. You put your foot on the bottom rung. You climb, and each step up is paid for by the rise in value of the step below. Nobody questions the premise. Houses go up. That is what houses do.
Except that elsewhere, they don't. Ask a German about the property ladder and you will get a puzzled look. Ask a Swiss and you may get a lecture on renting. Ask anyone in Japan who bought in 1990 and you will get a long sigh. The ladder is not a law of economics. It is a peculiarly British product, and we manufactured it ourselves.
The Town and Country Planning Act of 1947 took the right to build away from those who owned land and handed it to the state. From then on, building needed permission. Permission became a rationed commodity, doled out by local councils whose voters already had houses and saw little reason to welcome more.
For a while this hardly mattered. The real damage came later, when incomes rose, households multiplied, credit was freed and interest rates fell. Demand surged. In a normal market, rising prices would have called forth new building. In Britain they called forth planning objections. When supply cannot respond, demand has only one place to go, and that is into the price.
The evidence is hard to dodge. Christian Hilber and Wouter Vermeulen at the LSE studied English house prices from 1974 to 2008. They estimate that without regulatory constraints, real prices would have risen by about 100 percentage points less. Had the South East been governed by the North East's planning regime, itself strict by world standards, prices there would have been around a quarter lower.
Physical shortage of land, the excuse most often offered, made far less difference. Britain is not running out of land. It is running out of permission. The result is that over the past four decades, real house prices have grown faster in Britain than in any other OECD country. Real incomes have not kept pace. That gap is the ladder.
For roughly two decades after reunification, real house prices in Germany barely moved. Switzerland saw a boom and bust around 1990, then long years of stability. These are prosperous countries with crowded cities and plenty of demand. Yet their housing did not behave like a one-way bet.
Part of the reason lies in who wins when homes are built. In Germany and Switzerland, local councils gain funding when their population grows. New residents bring revenue, so councils have a reason to say yes. In England the arithmetic runs the other way. A council that approves development gets the traffic, the pressure on schools and the fury of existing residents, while the rewards go elsewhere. We designed a system that punishes permission and then professed surprise when permission proved scarce.
The culture follows the incentives. Germany and Switzerland are the only two OECD countries where most households rent. Tenants are well protected, mortgage lending is cautious, and nobody expects their front door to fund their retirement. A German buys a house to live in, often once in a lifetime. The idea of climbing from one property to the next on a rising tide of paper gains is simply foreign.
Germany is not immune to cheap money. Prices rose through the 2010s as interest rates fell, then corrected after 2022. But a decade of froth is a different thing from half a century of relentless climb.
Japan offers the starker lesson. Its property bubble burst in the early 1990s, and real house prices then fell for two decades. The gains of the previous twenty years were wiped out. Anyone who had treated a flat as a pension found the pension had evaporated.
What kept prices down afterwards was not only a deflated economy. Japan zones land nationally, with a short list of broad categories, and within those categories building is largely a matter of right. Local residents cannot easily block what the rules allow. So Tokyo, one of the largest and richest cities on earth, simply keeps building. It adds homes on a scale that would make a London planning committee reach for the smelling salts. Rents and prices stay within reach because supply is allowed to answer demand.
The Japanese do not speak of a property ladder either. A house there is treated more like a car than a gold bar. It is something you use, and it loses value as it ages.
Other countries felt the same tide of cheap credit and falling interest rates that we did. What differed was the sea wall. Where supply could respond, the tide spread out into new homes. Where it could not, it rose against the walls of existing ones. Britain built the highest walls in the developed world and then marvelled at the flood.
The ladder has winners, of course, or it would not have survived. Those already on it see their wealth swell without lifting a finger. But even many of them lose. Their children cannot buy. Their towns cannot grow. Their firms cannot hire people who cannot afford to live nearby. A whole generation is told to climb a ladder whose bottom rungs have been sawn off.
None of this is ordained. It follows from rules that Parliament wrote and Parliament can rewrite. Let councils share in the gains of growth. Let building be a right within clear rules, not a favour granted after years of pleading. Do that, and houses would start to become homes again rather than heirlooms. The Germans have a long word for most things. They have never needed one for the property ladder.