In London, housing affordability has been rapidly declining over the past few decades.
Furthermore, London, and the UK in general, has experienced persistent volatility in
house prices, new housing supply, and housing finance. These features characterise the
main aspects of London’s housing crisis which is the topic of this PhD. Our existing
understanding of this crisis remains largely fragmented and mostly qualitative.
In this thesis, I build a novel quantitative system dynamics model based on existing
literature and statistical data to explain developments in London’s housing system since
1980, with a particular focus on the feedback loops between house prices and housing
credit. The model is shown to be capable of endogenously reproducing the salient
features of the system’s past behaviour, such as the excessive growth in prices and
housing credit as well as the characteristic boom-bust cycles. Extending the simulation
into the future under business-as-usual continues to generate exponential growth and
increasingly larger amplitude oscillations.
Furthermore, I simulate a number of policies aimed at mitigating the unchecked growth
and volatility. Supply side policies considered include a steep increase in affordable
housing construction, a relaxation of planning restrictions, and a combination of the
two. These policies show promise in slowing the growth in house prices (and housing
debt) but do little to curb market volatility. Demand side policies considered include
introducing a capital gains tax on all residential property, lowering average loan-tovalue ratios, enforcing historically anchored property valuations for mortgage lending,
and a combination of all three. These policies, particularly when combined, appear to be
highly effective in eliminating periodic oscillations. They also serve to slow down the
worsening of affordability to some extent, but demand-side policies alone do not appear
capable of stopping the trend in deteriorating affordability. In order to eliminate largescale market volatility and simultaneously stop the continual worsening of affordability, it is shown to be necessary to intervene on both sides of the problem with a portfolio of
targeted policies.
In conclusion, I argue that the unit of analysis in housing policy and discourse must
become feedback loops rather than individual factors. Integrated, feedback-centred,
dynamic simulation tools are needed in long-term planning for the affordability and
stability of the housing market in London and in the UK. The system dynamics model
introduced in this thesis serves as a proof of concept for a promising approach to
policymaking in the area of the UK’s housing policy