Banking on Property - What is driving the housing affordability crisis and how to solve it

Overview of the Report

“Banking on Property – What is driving the housing affordability crisis and how to solve it” is a research report published by Positive Money, a not‑for‑profit organisation focused on financial reform. The authors, Danisha Kazi and Laurie Macfarlane, analyse UK housing policy, credit creation, quantitative easing and demographic impacts, drawing on extensive data and government statistics. The report was released in March 2022 and is publicly available on the Positive Money website.

Key Findings on House‑Price Growth

Since the early 1980s UK house prices have risen dramatically, with the median price in England now nine times median earnings and in London thirteen times. Between 1980 and 2021 London house prices increased by 326 %. The report shows that the surge is not explained by a shortage of dwellings – the surplus of housing units over households grew from 660 000 in 1996 to over 1.1 million by 2018. Instead, policy shifts that promoted home ownership and treated housing as a financial asset, combined with liberalised mortgage markets and low interest rates, created a feedback loop that amplified price inflation.

Role of Credit and Monetary Policy

Liberalisation of mortgage lending from the 1970s onward raised the share of bank credit allocated to mortgages from about 20 % of GDP to over 70 % before the 2008 crisis. Quantitative easing (QE) since 2009 added roughly 45 % of UK GDP in central‑bank reserves, lowering long‑term yields and making housing more attractive relative to bonds. Studies cited estimate that a 10 % increase in QE‑related bond purchases can raise house‑price inflation by 6 % and that QE‑induced lower yields contributed to a 22 % reduction in 10‑year gilt yields, further supporting price rises.

Demographic Disparities

The crisis disproportionately affects ethnic minorities, young people and low‑income households. In England, home‑ownership among Black households is 31 % versus 66 % for White households; in London the gap is even wider. Median household wealth for Black and minority ethnic families in London is £87 200, six times less than the £524 100 median for White British families. Private renters, who constitute 49.5 % of London households, spend on average 42 % of their income on rent, compared with 32 % nationally.

Policy Recommendations

The authors propose a three‑part strategy: macro‑economic reforms (including adding house‑price stability to the Bank of England’s mandate and strengthening macro‑prudential tools), market‑shaping policies (such as diversifying the banking sector and reforming land and property taxes), and alternatives to home ownership (rent controls, stronger tenant rights, and scaling up non‑market housing). Specific suggestions include capping loan‑to‑income ratios above 4.5, limiting buy‑to‑let mortgage exposure, introducing progressive council‑tax bands, aligning capital‑gains tax on second homes with income tax rates, and creating stakeholder banks focused on productive lending.

Relevance for Sustainable Housing in Europe

While centred on the UK, the report highlights systemic drivers – financialisation of housing, policy‑induced credit expansion and inadequate taxation – that are common across many European markets. The evidence that housing supply outpaces household formation yet prices keep rising underscores the need for policies that decouple housing from speculative investment. Sustainable housing solutions therefore require coordination between fiscal, monetary and regulatory authorities to curb excessive credit, protect tenants, and redirect investment toward affordable, energy‑efficient homes.

Data Sources and Credibility

The analysis incorporates official statistics from the Office for National Statistics, Halifax House Price Index, Bank of England minutes, and YouGov polling, as well as academic research on credit, QE and housing markets. The report’s extensive bibliography and transparent methodology enhance its reliability for policymakers, researchers and advocates seeking evidence‑based approaches to the European housing affordability challenge.