The House Always Wins

Further down the same press release, it was reported that the government's new National Housing Bank would "unlock over £53 billion of private investment" into the housing market. Lloyds CEO Charlie Nunn welcomed the partnership, noting his bank had already provided more than £22 billion in new housing finance since 2018.

Reeves did not mention that the banking sector had spent three decades pouring credit into residential property and pricing workers out of the housing market on wages that hadn't moved in a decade.

The median real wage of UK workers finally returned to its 2008 level last year. Not exceeded it. Returned to it. According to the House of Commons Library's earnings analysis, for most age groups, April 2025 was the month real pay recovered ground lost in the financial crisis. Seventeen years of flat wages, all while facing rising rents and deposits that bore no relation to what the labour market was prepared to pay.

In that same period, the average home in England rose from roughly four times annual earnings to 7.7 times, according to the Office for National Statistics' most recent affordability data. The ratio peaked above twelve in London in 2021. A couple on median wages now takes nearly four years to save a deposit. In 1975, it took eight months.

Planning is part of the story. A system that restricts development creates the conditions for price inflation. But restrictions on supply do not, by themselves, explain the scale or the speed of what happened. Parliamentary evidence submitted to the housing market inquiry is direct: mortgage credit is a major contributor to UK house price growth, compounding any supply shortfall rather than being explained by it. An IMF study of 36 economies found that a ten percentage point increase in mortgage credit as a share of GDP was associated with sixteen percentage points of additional real house price growth. Supply constraints created the conditions for price inflation; credit expansion drove it.

The mechanics are straightforward. When a UK bank extends a mortgage, it creates the purchase money as a new deposit. The purchasing power flowing into the housing market is not drawn from prior savings elsewhere in the economy. Since the mid-1990s, UK banks have dramatically increased their mortgage lending relative to incomes, GDP, and total lending, driven by financial deregulation, the liberalisation of the mortgage market, and the securitisation of mortgage debt. Each round of lending pushed prices higher; each price rise increased collateral values, making further lending appear prudent; the cycle ran until borrower incomes could no longer sustain repayments. The outstanding stock of residential mortgage debt now stands at £1,734 billion, the highest on record since the Financial Conduct Authority began reporting in 2007.

Governments have compounded this at every turn. Right to Buy transferred around two million council homes into private ownership between 1980 and 2003, concentrating much of that stock in the private rented sector while the replacement social housing was never built. George Osborne's Help to Buy scheme, launched in 2013, provided government equity loans and guarantees to stimulate demand for new-build homes. The theory was that subsidising buyers would prompt developers to build more. Academic research found that in supply-constrained areas the scheme failed to trigger additional construction and instead pushed prices up. The House of Lords built environment committee concluded that Help to Buy inflated prices by more than its subsidy value in the areas where it was most needed, at a total cost of around £29 billion. The Competition and Markets Authority's housebuilding market study found that one large developer sold around 60% of its annual output through the scheme in 2018. The three largest developers, Persimmon, Barratt and Taylor Wimpey, accounted for 43% of all Help to Buy transactions between 2013 and 2017, and their share prices nearly tripled over the same period. A decade of near-zero interest rates after 2008 completed the picture, increasing both the amount banks were willing to lend and the prices buyers were prepared to pay.

The consistent thread is that governments addressed affordability by making it cheaper or easier to borrow, which fed the very inflation they claimed to be solving.

The new towns programme is welcome as far as it goes. Building more homes is necessary. But announcing that the mechanism for financing this expansion will unlock £53 billion of additional private lending into the housing market is not a break from the pattern. Channelling more bank credit into residential property is the pattern. If the credit mechanics are left intact, developers and existing owners will capture the gains while affordability ratios drift further from wages, exactly as they have done after every previous supply intervention.

Reeves is right that the planning system matters. She is wrong to treat it as the sole cause and wrong to propose more private finance as the primary remedy. The banking sector's incentive to concentrate lending in residential property, amplified by risk-weighting rules that make mortgage books cheaper to hold than business lending, has been the consistent driver of price inflation across three decades and multiple governments. Addressing it requires capital requirements that reduce those incentives, meaningful restrictions on high loan-to-income lending, and a social housing stock rebuilt at sufficient scale to remove lower-income households from the speculative market altogether.

The median worker's real wage is, finally, back to where it was in 2008. A home in England costs 7.7 times that wage. A Chancellor serious about that gap would be asking what the banking sector's role in producing it was. Instead, Rachel Reeves gave Lloyds a quote in the press release.

Source list

1. Rachel Reeves, Chancellor of the Exchequer, quoted in HM Government press release: Seven new towns proposed to kickstart housebuilding push, 22 March 2026. https://www.gov.uk/government/news/seven-new-towns-proposed-to-kickstart-housebuilding-push
2. Charlie Nunn, Group Chief Executive, Lloyds Banking Group, quoted in the same press release.
3. House of Commons Library, Average earnings by age and region (CBP-8456), updated 2025. https://commonslibrary.parliament.uk/research-briefings/cbp-8456/
4. Office for National Statistics, Housing affordability in England and Wales: 2024, March 2025. https://www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2024
5. IMF study, cited in written evidence to Parliament: Evidence on the Economics of the United Kingdom Housing Market. https://committees.parliament.uk/writtenevidence/62396/html/
6. Financial Conduct Authority, Mortgage Lending Statistics, March 2026. https://www.fca.org.uk/data/mortgage-lending-statistics
7. Felipe Carozzi, The Economic Impacts of Help to Buy, LSE, 2019. https://www.inrev.org/system/files/2019-10/NTRP-The-Economic-Impacts-of-Help-to-Buy-2019.pdf
8. House of Lords Built Environment Committee, reported in Inside Croydon, January 2022. https://insidecroydon.com/2022/01/10/help-to-buy-fuels-londons-house-price-inflation-say-lords/
9. Competition and Markets Authority, Housebuilding Market Study: Final Report, February 2024. https://www.gov.uk/government/publications/housebuilding-market-study-final-report/final-report
10. Chris Foye and Edward Shepherd, How big UK housebuilders have remained profitable without meeting housing supply targets, University of Reading, December 2023. https://research.reading.ac.uk/research-blog/2023/12/11/how-big-uk-housebuilders-have-remained-profitable-without-meeting-housing-supply-targets/