A Liberal Approach to Solving the Housing Crisis: A Free‑Market Solution

The housing crisis in the UK has become characterised by a severe shortage of supply, record homelessness and soaring rents. Consecutive governments (both Labour and Conservative) have failed to solve many of the issues due to a lack of concerted effort to analyse beyond the headline issues and come up with solutions which favour the free market – this is precisely what aim to do in this article. I will be focusing on three of these deeper issues:

Planning restrictions

Planning restrictions severely constrain housing supply, creating structural deficits that drive up property prices. In the UK, restrictive land designations like the Green Belt limit urban expansion, while localised planning vetoes, height limits, and protracted application processes prevent developers from matching supply with demand. Furthermore, Conservative and Labour governments have attempted to reform the planning system most notably vis-à-vis The Levelling and Regeneration Act 2023 and Planning and Infrastructure Act 2025. Despite both of these acts implementing some much-needed reforms such as the streamlining of major developments and speeding ‘buildouts’. However, neither of these acts go far enough in bringing about the necessary changes to ease planning restrictions if we are going to significantly increase the supply of housing. Here are some proposals which I believe would remedy this.

1. Reduce rent-seeking: reduce discretionary elements in the planning system, which incentivise lobbying and other non-productive uses of resources. A rules-based system along the lines of the ones in most of continental Europe, with a presumption in favour of development rather than speculation, would increase housing supply by forcing developers to sell on land they hold or build on it. By repealing the Town and Planning Act 1947 (and its 1990 successor), we would further remove the discretionary aspect of the planning system.
2. Reallocate parts of the Green Belt.  The existence of the Green Belt has placed large areas of poor-quality arable land off limits for development. This could be changed without negatively affecting the principle of maintaining belts of rural land around towns and cities. Targeted building on the green belt by developing areas of minimal environmental quality cold alleviate urban overcrowding and increase housing supply. Areas of natural beauty and sites of special scientific interest would need to be maintained but intelligent development could provide up to one million new homes in the London area alone.
3. Allow local government to benefit from granting planning permission. Shifting tax incentives to local government away from Whitehall, by while allowing them to benefit financially from granting planning permissions, would align their interests with increasing housing supply. By allowing local authorities to keep a significant share of business rates (including fees and charges) generated by the infrastructure associated with new homes (say at least 50%), they become facilitators of growth rather than merely gatekeepers.

Planning permission

Reforming planning permission is another central tenet in tackling the housing crisis in respect of local government. Local governments themselves have to obtain planning permission to develop land. This granting of planning permission by any administration to itself has always been an area of scrutiny, particularly as this can have a significant effect on land value.

Historically, development carried out by local authorities was primarily carried out to further their functions, for example in education or transport. It is now more common for them to be involved in commercial development. One way to tackle this potential difficulty would be to allow councils to grant planning permission on land they own and retain the sale value difference, otherwise known as ‘land value capture’. This would it enables authorities to capture the massive uplift – the difference between the land’s current use value and its value with planning permission – reinvest it in the community and apply the following benefits:

1. Affordable Housing Delivery: funds secured through land value capture mechanisms – such as review mechanisms in planning agreements – could be ring-fenced and used to subsidise and accelerate the construction of social and affordable housing – something that could have an impact on homelessness.
2. Reduced land speculation. By capturing a part of the unearned increase in land value, land value capture reduces the incentive for developers and property owners to hoard undeveloped land and wait for speculative price increases rather than build or sell in a timely manner for productive ends.
3. Market Fairness. This ensures that profits generated by community led decisions or public investments are shared equitably rather than resulting in pure windfall gains for wealthy private landowners or large developers.

Abolishing rent controls

One recent announcement by the new eco populist and Green Party leader Zack Polanski, would be to implement rent controls in England should his party get into power. Rent controls have well-intentioned goals, including reducing financial burdens and ensuring access to affordable housing. Ironically however, while politically popular, rent controls would be likely to increase the housing shortage rather than reduce it. Studies have shown that rent controls not only worsen the housing market but perversely have the opposite effect of what they set out to do, namely bringing down rent prices, for the following reasons:

1. Concentrated occupancy. Those who can occupy rent-controlled housing, benefit financially from this arrangement. Typically, these are long-term residents of the area, and their gain comes at the expense of newcomers. The latter group often ends up living in more expensive uncontrolled housing or lower-quality regulated rental units, thus benefitting existing occupants over new ones.
2. Lack of investment by landlords. Landlords are compelled to lower their rents, leading to a decrease in the value of their properties. In response, they might take various actions, such as reducing spending on maintenance, trying to convert their rental properties into owner-occupied homes, or constructing fewer new rental housing units for others wanting to get on the property ladder.
3. Market distortions. Artificially low rents might create an excess demand for housing, resulting in several possible outcomes. For instance, there might be a mismatch between available housing units and the number of families seeking housing. This mismatch could lead to situations where, for example, an elderly widow continues to occupy a large rent-controlled apartment long after her family has moved out, while larger households are desperately looking for homes of an adequate size. In addition, reduced housing mobility stemming from rent control can lead to decreased labour mobility.

Discrimination can also intensify, as marginalised groups such as the BAME community find themselves disproportionately affected by the housing shortage. Lastly, black-market activities such as the practice of demanding ‘key money’ (a non-refundable deposit upon moving in) tend to appear in response to these market distortions. I hope I have been able to adumbrate a liberal approach to solving the housing crisis by putting forward policies which reduce red tape and burdensome regulation and thus open the sector to more the free market influence – something that all Liberals and Liberal Democrats should be championing!