Profit Over People: How Financialization Impacted the UK Housing Market

Introduction

The shortage in housing in England has been persistent since the 1980s. It has become more acute in the years since 2010 due to reasons like the decline and demolition of social housing and reductions in capital investment for new affordable housing. However this is not solely a logistical problem but a deeper market failure driven by market financialization, that exaggerates other socioeconomic issues like poverty or income inequality.

The Problem

The core issue of this market failure is the increasing financialization of housing. This is when houses were seen as a financial purchase, bought and traded for speculative gain rather than serving the traditional purpose as a home. Housing started to become a popular avenue to generate wealth, rent or speculative profit which further increased the scarcity for housing. Primarily large scale institutional investors like Private Equity Firms, have large amounts of capital available which they use to buy houses in a single transaction and in bulk. This causes the prices to surge and drives them beyond a point of affordability for families and first time buyers. Furthermore, when they bulk buy houses, they tend to hold it as a rental asset for a long term basis. This permanently removes the housing from the market, reducing the supply for traditional housing ownership which therefore creates artificial scarcity. 

The reason companies or individuals want to buy and hold the assets is because they benefit from capital appreciation, [Graeme Horton, 2025] ^[1]. Capital appreciation is the increase in value of an asset over a long period of time. This means that they want profit from their investment as they expect the prices to rise over years to a point where they can sell it for more than they bought it for.

What Have They Done In The Past To Solve This?

Now the question stands, what has England done to resolve these issues? In 2010 there were about 300,000+ long term empty dwellings, [Graeme Horton, 2025]^[1], despite there being a housing shortage. In order to incentivize independent homeowners to make the housing available again, they introduced two schemes; the Empty Homes Programme, [GOV.UK, 2012] ^[2], which gave owners grants to repair their long term homes that have been empty; and the New Homes Bonus scheme, which rewarded councils that revived properties and brought them back into use. These efforts made a significant impact between 2010 and 2016 where the number of empty houses dropped by 20% and more importantly, long term empty houses dropped by 33%, [Gerry Georgieva, 2025]^[4]. However, in 2016 the government ended the Empty House Programme and lowered the rewards from the New Homes Bonus scheme. This was primarily because the government decided not to renew the budget line for this initiative as they already spent just under £100 million for two rounds of The Empty Housing Programme.  This puts the pressure on the councils, making it difficult for them to single handedly deal with the issue. By 2024, the number of empty houses increased by 22% and empty long term housing rose by 32%,[Gerry Georgieva, 2025]^[4].

Affordability Issues and AHC Poverty

The groups that view housing as a basic need for shelter were negatively affected by the government withdrawal. They face housing insecurity and an affordability crisis because of the artificial scarcity created in the rental market that causes prices of existing housing to escalate. This makes the rent a large percentage of a low income renter’s wage. This leads to an increase in poverty in the economy as there is less income to spend on other basic necessities like food, education or healthcare. This essentially traps them in AHC (after housing cost) poverty, a measure of poverty used in the UK based on a household’s income after accounting for rent, and mortgage payments. This shows how strenuous housing costs can be, especially when placed on low income households.

Social and Fiscal Costs

Empty houses act as a magnet for trouble. With an empty place that isn’t taken care of well, it often attracts illicit activity like drug dealing or vandalism. This creates a hostile environment for surrounding houses making the whole neighbourhood feel unsafe. In order to prevent this from happening, the government has to invest in more police force to ensure security. Furthermore, the government will have to provide short term accommodation for those who can no longer afford homes as homelessness would be on the rise. Therefore, all these attributes contribute to an overall increase in fiscal spending and a greater inefficiency in the economy due to resource misallocation.

Potential Solutions

One method could be to dramatically increase taxes on long term empty housing. As of April 2024, the UK has implemented a 100% council tax premium on homes that have been empty for 1-5 years, [GOV.UK, 2024]^[3], I think they should increase it further, up to 250%, as it would incentivize home owners to either sell or rent their property out. They won’t have the incentive to hold onto their assets and/or leave them empty. In addition, the government could provide lower interest rates for home owners for the rehabilitation of their houses. This would make the restoration process of houses easier and therefore more people would take advantage of the opportunity, especially if leaving the house empty cost more than repairing it.

Conclusion 

In conclusion, the UK’s housing shortage is less a crisis in the misallocation of resources but rather the deep rooted problem of financialization of housing. When large scale investors treat housing as an asset for capital appreciation and speculative profit, it creates an artificial scarcity in the economy as they increase the demand for housing and reduce the supply. This causes prices to surge and affects low income households as housing becomes unaffordable for them and they face AHC poverty. Furthermore, empty houses cause higher fiscal spending and social costs because poverty and homelessness increases. The Empty Homes Programme, which was withdrawn in 2016, proved to be an effective method of government intervention. However going forward a stronger approach may be needed, such as increasing council tax premiums on long term empty houses paired with financial incentives for house rehabilitation. This would incentivize homeowners to sell or rent out their properties rather than holding them and leaving them empty. This will increase the supply of housing, providing a stable shelter and home for all rather than being used as a tool for profit.

Works Cited

[1] “What is Capital Appreciation?” Capital Appreciation: A Smart Investor’s Guide to Growth, porticoinvest, Graeme Horton, 29 July 2025.

https://www.porticoinvest.com/capital-appreciation-guide

[2] “Empty Homes programme: guidance and allocations.” Homes and Communities Agency, GOV.UK, 5 March 2012. https://www.gov.uk/government/collections/empty-homes-programme-guidance-and-allocations.

[3] “Guidance on the implementation of the council tax premiums on long-term empty homes and second homes.” GOV.UK, Ministry of Housing, Communities and Local Government, 1 November 2024.

https://www.gov.uk/government/publications/long-term-empty-homes-and-second-homes-council-tax-premiums-and-exceptions/guidance-on-the-implementation-of-the-council-tax-premiums-on-long-term-empty-homes-and-second-homes. 

[4] “Empty home crisis: Why aren't they being used to solve shortages?” BBC, Gerry Georgieva, 19 August 2025.

https://www.bbc.com/news/articles/c3r413l5n57o.