How can Behavioural Public Policy contribute to tackling the UK Housing Crisis

Dr Richard Whittle, Chief Policy Fellow, Y-PERN

In this blog I will briefly look at the contribution Behavioural Public Policy can make to solving the UK housing crisis. Note however I say contribute toward and not solve. Much of the criticism of behavioural science in policy revolves around it solely being the policy rather than part of a considered policy solution. Indeed Michael Hallsworth’s excellent manifesto for applying behavioural science seeks a humbleness in approach. We will not nudge our way out of a housing crisis, behavioural interventions can not generate the investment needed for large house building or housing retrofit programmes with costs estimated in the tens of billions. However viewing the housing crisis as a complex system through a behavioural lens may demonstrate where behavioural insights could impact this housing crisis system to affect positive change.

Clearly there is an affordability issue in UK Housing, particularly in urban areas where there is much discussion of the dearth of affordable housing. However this problem is endemic in the UK with the typical UK home now 7 times average earnings, the cost of a house in the capital is 12 times the average London wage. We need to go back to 1876 in the data to find the last time UK housing was so unaffordable. Behavioural insights are unable to address this disparity, sure we can use behavioural insights to encourage savings or budgeting behaviours, however with the average first time buyer needing to save 104% of their pre-tax wage this, especially in a cost of living crisis is simply unachievable. Nudging saving behaviours is likely a good policy in itself but it only marginally address the housing affordability issue. If someone, assuming that house prices and thus deposits don’t increase, needs to save 25% of their wage and their living costs equate to 90% of their take home pay, nudging them to save their entire disposable income may impact their social life but it does not make reaching that deposit any more likely. Additionally house price growth has far outstripped wage growth in the UK, in this case a person will need to save an increasing proportion of their wage each year to reach a deposit.  

What use then are behavioural insights in this structural supply led crisis? Simply behavioural science can not be the policy solution, however they may enable of facilitate other policy solutions. In particular shared ownership schemes and the Lifetime ISA (LISA). In this blog I will not address the efficacy of these two recent policy innovations aimed at addressing housing affordability. They are both financial products and specialist researchers debate their effectiveness. Assuming that these products at least begin to improve affordability, for instance the shared ownership scheme allows someone to buy part of a property with a landlord, paying part mortgage and rent. Eventually they may be able to purchase more of the property as they increase their loan to value, or sell the portion of the property they own to fund a full housing deposit. The Lifetime ISA is a government funded scheme which pays a 25% bonus on savings (up to £1,000 per year) designed to support the quicker and cheaper accumulation of a housing deposit. Behavioural insights have had considerable success in encouraging sign up and minimising drop out in similar schemes, for instance by Applying Behavioural Insights to Organ Donation, the UK Behavioural Insight Team found that small changes to a government website could lead to 96,000 extra organ donor registrations per year. Similarly, simply changing workplace pensions to opt-out rather than opt-in has resulted in around 90% of eligible workers becoming enrolled in a workplace pension. The combination of behavioural insights expertise in generating engagement and activity and effective policy tools are key. Behavioural science can be an effective tool which is part of the solution.

Viewing our housing crisis as a whole system with interacting issues of housing affordability, homelessness, housing location and quality, supporting infrastructures (e.g. transport) and in the contexts of ‘levelling up’ and climate change. Behavioural science may not provide direct solutions but it can enable well designed policy interventions and play a leading role in policy design, and in directly combatting issues of information, engagement and perception

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