Housebuilding before planning — the glory years?

Speculative builders met need in the 19th century no more than they do today

What might housebuilding during the late Victorian and Edwardian years tell us about the issues in housing we face today? The two or three decades prior to 1914 provide an interesting insight into the functioning of the market before the state became heavily involved in the building of homes (soon after the First World War) and before the introduction of the modern planning system (in 1947) after which all housebuilding was subject to the consent of the local authority.

This period was therefore the last time Britain had a free market in housebuilding — there was no competition of any significance from councils, and builders could more or less pitch up where they wanted, buy the land and start putting up homes. There are voices in the housing debate today who suggest that such a framework would be optimal, that most of our current troubles stem from the 1947 planning regime and that the 20th century council building programmes were either superfluous or crowded out private-sector development.

So how did housebuilding progress before these innovations? First, it was highly cyclical, fluctuating with demand — much as it has for the last few decades. When investment in new homes dropped off (almost exclusively that of landlords), prices fell, and housebuilding went into decline. This had been the case since at least the early 18th century, but can be seen in detail in London in the two decades leading up to the First World War, in the following two graphs.

What we can see here (in the first graph) is a period of steady house price inflation between 1895 and 1902/3, followed by rapid deflation from 1903 to 1914 and stagnation during the First World War. This ended the building boom (in the second graph) that had taken off in the 1890s and which crested around 1901–1903, after which construction went into a steep decline for the subsequent decade right up until the outbreak of war in 1914.

On the face of it, this is an example of a classic boom-and-bust cycle with housebuilders frenziedly supplying as much housing as was wanted until the market was finally sated and prices fell. This is what we would hope to see from a functioning market, and it is an interpretation of events that some contemporary accounts support. George Head, writing in 1908, described the boom a decade earlier: ‘The demand was great, building was pushed forwards and suburbs were overbuilt — the boom preparing for the inevitable slump.’ In 1907 the Property Owners’ Journal complained that ‘the builders go on building, notwithstanding the 90,000 empty houses and tenements in London’. Historians later took up this narrative too, of builders building right into a downturn of their own making. S.B. Saul in a 1962 paper argued that the building boom came to an end due to ‘an overshooting of demand leading to a rise of vacancies and a fall in rents’.

Saul came to this conclusion despite noting that while housebuilding in London was falling, population growth in many areas was accelerating. He acknowledged that this ‘seems surprising’, but took it as evidence that the boom had oversupplied the market to such an extent that this increase in population had already been catered to and no further building was necessary: ‘All this suggests a burst of speculative building around the turn of the century very much in excess of need.’ This was quite a leap to make, but Saul sought to support his hypothesis with data concerning the numbers of empty homes during the period. Zooming in on Tottenham, where there was a large increase in population and yet a fall in housebuilding, he pointed to an increase in the number of empty houses from 1,145 in 1901 to more than 2,200 in 1908. He found the same pattern in Wandsworth and cites contemporary reports suggesting high numbers of empty houses across London. ‘It was less population growth than the degree of over-construction which was the key factor.’

There is a seductive appeal to this theory, but it is not what happened.

For a start, rents did not fall. This has been illustrated by much more recent scholarship by Luke Samy. Prices fell dramatically after 1903, as we have seen already, but rents essentially stagnated for the following decade, taking London as a whole (see graph, below). This is a crucial distinction because rents are a truer reflection of the supply and demand for housing as an accommodation service, rather than its capital value as an investment. Prices incorporate rental values but are also influenced by a range of factors, including the investor’s expectations of future rent growth, interest rates, alternative investment opportunities, and so on.

Furthermore, in outer London, where the decline in building had been most pronounced, rents rose rapidly, by more than 20 per cent, between about 1902 and about 1908 (graph, below). It is true as well that towards the end of the decade there was a fall in rents to below their 1902 value, but they quickly recovered their price within a couple of years. So while house prices in outer London fell by 33 per cent between 1903 to 1914, rents rose by 6.1 per cent. This is not surprising given that, on Saul’s figures, the provision of new rooms in 29 outer districts fell from 38,006 in 1903 to 7,452 in 1913.

The slump in housebuilding did not, therefore, reflect a surfeit of housing provision and declining rents. It reflected a slump in the value being placed on those homes by landlords. Rents had been rising during the building boom from 1895 to 1903 and, notwithstanding some choppiness in the outer London areas, they largely held their value or rose as housebuilding declined. Even so, investors took their money elsewhere, reducing the economic demand (as opposed to the need) for housebuilding.

So what precipitated that fall in house prices? It is difficult to cite a single factor among various influences. But house prices had been driven up for most of the 1890s by low interest rates. The cost of money then began to rise between 1897 and 1907, eating into the landlord-investor’s yield. This must have been a significant factor. During the same period, local taxation was increasing, the incidence of which fell in part on landlords, further reducing the return on their investments. These are two tangible examples of changes at the time. Less tangible, but perhaps no less plausible, was the observation of George Head in 1910: ‘As beauty is in the eye of the beholder, so value is in the mind of the person who contemplates it. Fluctuations of value are largely dependent on the feelings of security and insecurity which prevail in the minds of investors.’

It is important to note that while average London rents flatlined after about 1900, this was not at any kind of low level. By and large, rents were punishingly high for much of the population throughout the period. Avner Offer calculates: ‘Skilled workmen in London could reckon on paying between twenty and thirty per cent of their wages in rent; labourers and the poor even more, and while the outlay was continuous, incomes were not. Around the poverty line, Charles Booth [Labour and the life of people, 1889] found expenditure on rent, fire, light and insurance to be as high as 40 per cent of the total. At the height of the “house-famine” George Haw [No room, 1900] described families paying fully half their incomes in rent. He supposed the average to be one-third.’

This brings us to those empty homes that Saul points to. Why were there increasing numbers of untenanted properties if the population was growing faster than housing was being built, if not because there was an oversupply of properties? This is the final piece in the puzzle and is explained by those high rents. Rents had been driven by increasing prosperity up until 1902 — the following few years were years of rising unemployment and depression. 1908 was particularly bad. No longer able to afford those rents, families started to share homes. A house agent in Islington was quoted in the Estates Gazette in April 1905: ‘Whereas the houses were formerly occupied by members of one family only, the present class either underlet or take paying guests and, therefore, considerably more people are crowded together than formerly… in some roads, where a few years ago prospective tenants were waiting for the houses, there are now several vacant.’

Saul too describes, from contemporary reports, a very similar cycle taking place in Birmingham during the 1890s. In the early part of the decade, building activity was considerable despite the fact that rents were low. Despite years of ‘rampant’ building, rents then began to rise rapidly from 1897 (presumably due to booming local industry) until there was a local depression from 1903 at which point workers ‘doubled up’ and the number of voids rose.

Empty homes were not evidence of over-construction leading to falling rents — they were evidence that rents were too high and that overcrowding , the curse of industrial housing conditions throughout the 19th century, was worsening. This was, in Offer’s phrase, ‘want in the midst of plenty’. In central London, according to Anthony Wohl, it may have characterised the housing situation of the majority of workers. Three-quarters of a million Londoners lived in overcrowded rooms (generally defined as more than two people to a room). This is to say nothing of course of the standards of these properties or the extent of the slumdom, which had been worsening over several decades and was the subject of various inquiries, commissions and philanthropic initiatives.

In 1903, the speculative boom had burnt itself out and the demand for housing from investors had fallen away, but it was not due to over-construction, falling rents or a sated need for accommodation. This was a cycle that had been repeating itself for a century or more.

These problems were not lost on the politicians of the day, plenty of whom had fallen out of love with the laissez-faire economic liberalism of the mid-Victorian period by this point. In 1913, a Conservative Party pamphlet denounced the ‘present housing evil’ and the then chancellor David Lloyd George told MPs: ‘You cannot provide houses in this country by private enterprise.’ It was precisely the failings of the free market during this period that led to the interventions by the state over the following decades. It is important to acknowledge that those interventions have not always run smoothly either — but there was never a time when the market alone was delivering quality, cheap housing in abundance.

References

Avner Offer, Property and Politics 1870–1914 (1981)

S.B. Saul, ‘House Building in England 1890–1914’ (1962)

Luke Samy, ‘Indices of House Prices and Rent Prices of Residential Property in London, 1895–1939’ (2015)

Anthony Wohl, The Eternal Slum: Housing and Social Policy in Victorian London (1977)

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