The truth about house prices and immigration

House Prices Immigration

Nigel Farage, the leader of Reform UK, has claimed that “immigration is the real reason for the housing crisis”, arguing that Britain needs to “build a new house every two minutes” to accommodate legal migrants.

The UK has experienced thirty years of positive net migration, with 16.8pc of the population in England and Wales foreign-born, according to the 2021 census. Net migration was 685,000 in the year to December 2023.

Meanwhile, the average UK house price was £284,691 in December 2023, a 24pc increase in the last five years, according to the Office for National Statistics. House prices have soared by almost 70pc since the Conservatives gained power in 2010, according to Bloomberg analysis.

Politicians – including Farage – are keen to capitalise on the frustration and anger of people trapped in the housing market.

Robert Colvile, of the Centre for Policy Studies think tank, says: “All three of Reform, Labour and the Conservatives are promising to build more houses and cut immigration – but they are generally pretty scant on the detail of how they will do either or both of these, with Reform’s housing pledges being the least detailed of all.”

So is immigration to blame for the housing crisis – or are other factors at play?

A deficit of 4.3 million homes

The housing crisis has primarily been caused by a lack of supply.

Britain has accumulated a deficit of 4.3 million homes that it has failed to build since 1945, compared to the average European country, according to think tank the Centre for Cities. That is larger than building a city the size of London, which already has 3.8 million homes.

“The housing crisis long predates the age of mass immigration. We’ve been building fewer houses every decade since the 1960s,” says Colvile.

Not only have we been building too few homes for the existing population, it hasn’t kept up with newcomers either. Because of immigration, successive governments’ housebuilding targets have been far too low, adds Colvile – not that they would necessarily been able to hit them.

“When the Government set a housing target for England of 300,000 homes a year, it did so on the assumption that net migration would be 170,500 a year. In fact, it’s been higher every year since – far, far higher in the last couple of years, when that housing target would have had to be over half a million to keep pace.”

He continues: “According to the Government’s own methodology, we needed to expand the housing stock by around 3.4 million homes over the last decade: 2.2 million to meet existing housing pressures, and 1.2 million to cope with net migration. We increased the number of homes by only 2.1 million.”

Bloomberg found that in some areas of the country, just one home was built for every 10 additional people added to the population between 2011 and 2021.

Our ‘dysfunctional’ planning system

Several factors have stifled the supply of housing, chiefly Britain’s notoriously rigid planning system.

“The UK is unique in having a discretionary, case-by-case planning system,” says Anthony Breach, of the Centre for Cities. “Builders can propose new developments, and the planning system means we have no way of ensuring they get built.

“The only way we can meet demands for homes and address the housing crisis is to switch to a flexible, rules-based zoning system where developments that comply with all of the requirements are automatically granted permission.”

The Government’s Green Belt policy, introduced in 1955, aims to restrict the spread of urbanisation and maintain areas of natural beauty. It protects approximately 13pc of the land in England from property development.

Paul Cheshire, professor of economic geography at the London School of Economics, views the introduction of the Green Belt as the beginning of the failure of building enough homes, stating that its sole purpose today is to prevent property development.

“We don’t build enough houses because of our planning system – which is the most dysfunctional I could probably come up with – [and] which suffers most from a lack of available land as a result of the Green Belt policy.”

One of the Labour party’s key election policies is strategically reviewing the Green Belt in order to free up land and build more homes, a policy Cheshire welcomes.

Rising incomes and cheap money

Farage’s argument is simple: there are more people arriving in Britain, taking up more homes, which is causing a shortage.

But by attributing soaring house prices solely to immigration, Cheshire claims that Farage is ignoring the fact that rising incomes are a much more significant factor than population growth in pushing up house prices and stoking the housing crisis.

“The main driver of demand for homes is growth in real incomes. As people get richer, they buy bigger and better houses, additional houses, and more space around those houses,” he says.

Throughout the 1980s, 1990s and 2000s, real incomes grew steadily year on year by between 1pc and 3pc. This extended period of growth had a seismic impact on house prices, as people were able to borrow more.

Cheshire believes that a growing population has only a small impact on house prices, a sentiment shared by Breach of Centre for Cities.

“The population happens to be going up now, including in big cities, but the UK still wasn’t meeting the demand for new homes in periods when there was net emigration.”

Between 1971 and 1991, London’s population fell from 7.5 million to 6.8 million people according to the Office for National Statistics. Meanwhile, the average house price in the capital rose from £5,378 to £76,848, a staggering 1,329pc increase, according to Land Registry data.

Governments’ own policies bear much of the responsibility for rising house prices, adds Cheshire. It introduced a range of affordable homeownership schemes during the 2010s in a bid to make it easier to get on the housing ladder.

One of them was Help to Buy, which saw the Government give out loans to those wanting to buy new builds, meaning they’d only need a deposit of 5pc of a home’s value.

Cheshire argues that these schemes, which have boosted demand for homes in the face of a relatively fixed supply, bear much of the responsibility for rising house prices.

“If you add anything to demand, prices go up. That’s why Help to Buy was a totally useless and counterproductive policy, and is partly why houses are so unaffordable.”

“The era of cheap money has also played a huge role in driving up prices,” adds Colvile, referring to the historically low borrowing rates offered to homebuyers during the 2010s that made mortgages far more affordable.

The average fixed mortgage rate fell from over 5pc in 2010 to under 2pc in 2021, though has climbed again in recent years.

The toll on renters

Immigrants are more likely to be renters than those born in the UK. Just 47pc of migrants own their own homes, compared to 70pc of those born in the UK.

Those who are foreign-born are almost three times as likely to live in rented homes, according to analysis by the Migration Observatory at the University of Oxford. At least 80pc of new arrivals rent for at least the first few years after they move to the UK, according to previous analysis by the ONS.

There is evidence that immigration has driven up rents. Capital Economics found that in the two years to June 2023, immigration led to an additional 430,000 households wanting to privately rent homes, meaning rents have climbed 11pc higher than they would otherwise have been.

Rents typically rise roughly in line with wages, but between mid-2021 and the start of 2024, UK rents rose by 30pc, according to property website Zoopla. This was nearly double the 17pc increase in wages over the same period.

Net immigration hit an unprecedented 467,000 in 2021, before rising even further to 745,000 in 2022, official data shows. In the decade prior to this period, immigration added on average 150,000 additional renting households over every two-year period.

‘Mass migration is making the existing housing crisis worse’

“It’s wrong to say that immigration has absolutely nothing to do with rising house prices,” says Cheshire.

“But the impact is small. If you want to solve the housing affordability crisis, you need to change the things that are causing supply to be so radically constipated.”

Colville agrees that a lack of supply is far more to blame for rising house prices than immigration, though he believes the latter does play a role.

“We already had a housing crisis, but mass migration is definitely making it worse,” he says.

“Farage is certainly right to highlight the connection between immigration and the housing crisis, but his claim that immigration has caused our housing problems is simply wrong.”

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