The Role of Government in UK Housing Costs

Last Updated on July 17, 2025 by Karl Thompson

Housing provision in the UK is influenced by government policy. Additionally, the workings of the housing market shape it. Market forces deeply affect home ownership, rental agreements, and housing costs. Supply and demand, in particular, play a significant role. However, government intervention has played a crucial role through investment, subsidies, and regulation.

💷 Rents and Rent Assistance: How the State Has Stepped In

Most homes in the UK are built by private, public, or social landlords. These providers aim to recoup their investment by selling the property. Alternatively, they may rent it out. Private landlords aim to turn a profit. Rental income for these landlords is determined largely by market demand. It is not significantly influenced by construction or repair costs. In contrast, public and social landlords have traditionally charged below-market “social rents”, where the aim is affordability, not profit.

However, concerns about rent affordability have existed since the early 1900s and have led to a variety of interventions:

Rent controls and housing subsidies were introduced to keep costs down.
Capital subsidies supported house building, while revenue subsidies helped with maintenance.
After WWII, public spending on housing increased, including support for Housing Associations from the 1970s.

But from the late 20th century, Conservative governments began to roll back state involvement:

Rent controls were abolished, and capital subsidies were withdrawn.
Instead, Housing Benefit became the main support tool—a demand-side measure giving tenants money to pay their rent.
Introduced in the 1980s, Housing Benefit paid rent directly to landlords. It covered 100% of rent for those on income support. It also covered a portion for others on low incomes.

Yet this system created its own issues:

The removal of rent controls led to rising private rents.
By the mid-1990s, Housing Benefit costs had skyrocketed to £12 billion annually.
The government grew concerned that the system incentivised high rents and discouraged tenants from moving to cheaper accommodation.

In response:

The Labour government introduced the Local Housing Allowance (LHA) in 2008. This policy involves paying a flat-rate benefit to tenants, not landlords. The payment is based on the local median rent.
The goal was to create a more competitive private rental market, but benefit costs remained high.

Post-2010, the Coalition government continued these reforms:

The Localism Act 2011 allowed councils to offer fixed-term tenancies (minimum 2 years).

Housing associations were encouraged to introduce flexible tenancies and could offer an “affordable rent” product—up to 80% of local market rent.
The idea was to introduce more movement in the social rented sector and free up properties for those most in need.

Unfortunately, due to a chronic shortage of housing, private rents kept rising—and so did housing benefit costs, despite the cuts.

🏡 Ownership: Mortgages, Mortgage Relief and State Support

Throughout the 20th century, owner-occupation replaced renting as the dominant form of tenure in the UK. Rising rents, concerns about state spending, and a series of government policies all encouraged people to buy rather than rent.

But buying a home requires significant capital. For most people, this would be impossible without mortgages:

A mortgage is a long-term loan (typically 25 years) secured against the property.

If the borrower defaults, the lender can repossess and sell the property.

To further support homeownership, the government introduced Mortgage Interest Tax Relief:

This reduced the tax bill for those who paid mortgage interest and income tax.

It acted as a subsidy for owner-occupiers, especially higher earners with large mortgages.
However, as prices soared in the 70s and 80s, so did the cost of this subsidy.
It was eventually phased out in the 1990s, amid concerns it fuelled housing market booms.

🧾 Mortgage Assistance and Support

While homeownership offered security, it also brought risks:

Job loss could lead to mortgage arrears and repossession.
To prevent homelessness, the state offered Support for Mortgage Interest (SMI)—a benefit covering interest payments for those on income-related benefits.
However, this support was limited to those not in work, creating a disincentive to return to employment.

From 1992, SMI payments were made directly to lenders. In the late 1990s, borrowers were encouraged to take out private insurance, though lenders often accepted the uninsured. After the 2008 financial crisis, the government offered temporary assistance to struggling homeowners. Under the Coalition government, this was eventually rolled into Universal Credit—marking a shift towards self-provision but without fully ending public support.

🏘️ Policy Shift: Promoting Private Ownership and Right-to-Buy

A key change in the 1980s was the Right to Buy scheme. It allowed council tenants to:

Buy their homes at a large discount, backed by guaranteed mortgages.
Over 6.5 million homes were moved from public to private hands.

This had significant consequences:

The best quality public housing stock was lost to the owner-occupied sector.
It reduced the quality of remaining council housing.
Critics argued it was driven more by political motives than housing need. They claimed it encouraged tenants to vote for the party promoting the scheme (often the Conservatives).

The 1988 Housing Act extended this approach:

Tenants could vote to transfer their homes from council to registered social landlords.

Local authorities (LAs) supported this as it removed the burden of maintaining housing stock.

The net result was a shift away from direct public provision to non-profit housing associations.

🏗️ Rebooting the Market: Help to Buy and New Supply

Despite the ideological push for private housing, new building slowed, creating a supply crisis. To address this:

The government introduced underwriting schemes for large developers.
The Help to Buy programme was designed to support buyers but raised concerns it might inflate prices.
Efforts focused on promoting shared ownership, low-cost entry schemes, and flexible purchase models.

In Scotland, shared ownership was extended to all first-time buyers by 2012. In Wales and Northern Ireland, the focus remained on the rental sector, but similar entry-level support measures were adopted.

Final Thoughts

UK housing provision has always been a tension between markets and the state. From subsidised rents and housing benefit to tax reliefs and Right to Buy, government policy has consistently shaped access to housing.

Today, we see a hybrid system:

A private market that determines cost and supply.
A welfare system that continues to absorb rising costs, particularly through housing benefits.
And ongoing efforts to shift responsibility to individuals, even as structural shortages and affordability challenges persist.

The result is a housing system where policy continues to intervene heavily, even as it promotes market-based solutions.

The Evolution of Housing Policy in Britain

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Sources

Social Policy in Britain.