Permacrisis

In this week's blog, we examine the housing crisis more closely. Is this a perennial issue across Europe? If not, what are our European neighbours doing differently to combat our problems?

This blog explores the comparative challenges of housing development in the UK versus Europe, examines the underlying causes linked to financial structures, and argues for the transformative potential of peer-to-peer (P2P) lending in addressing these problems.

If we are beginning from the assumption that housing supply is a perennial issue across Europe, perhaps the key difference is that the United Kingdom faces a particularly acute crisis. Despite similar demographic pressures, regulatory frameworks, and economic constraints, the UK's housing market needs to catch up to many of its European neighbours in both volume and affordability of new builds. Central to this disparity is the role of lending markets, liquidity, and developer financing options. To summarise several topics we have covered historically in previous blogs, the UK's restrictive land-use policies, particularly the greenbelt regulations, limit the availability of developable land near urban centres. Planning approvals are slow and often contentious, with local councils overwhelmed by bureaucracy and opposition, we have a small concentration of large developers exacerbating our inefficiencies, and to cap it all off, we have limited liquidity at the end of the market with the most flexibility and desire to build, so having covered the things we know, how do our counterparts differ?

Many European countries face similar challenges, but their policy and financial ecosystems have allowed them to address housing shortages more effectively, and that's where we can adapt our domestic plan. Germany, a country long aligned with the trope of efficiency, relies on a decentralised planning authority for quicker approvals and greater responsiveness to regional needs. Germany's "Baulandmobilisierungsgesetz" (Building and Land Activation Law) empowers municipalities to expedite development in high-demand areas.

The French have a similar set-up, with centralised zoning laws streamlining their processes in a way we don't have. Government-backed housing initiatives ensure that land is made available for affordable housing projects. The Dutch government actively facilitates land development in the Netherlands by working with municipalities and developers to align planning goals and financing.

Looking more closely at the developer ecosystem, European countries have a more diverse pool of developers supported by proactive government policies. For example, Germany's Baugruppen model allows groups of individuals to collectively fund and build housing using a methodology similar to P2P, reducing reliance on large corporate developers. By contrast, the UK's market dominance by major players leads to less competition, higher prices, and slower construction timelines. A different type of lending practice props up these ecosystems and allows SME businesses to operate more efficiently, such as state banks such as KfW (Germany) and Crédit Foncier (France), which provide low-interest loans for housing projects. These institutions actively support small developers and cooperative housing models, reducing financial barriers and providing some of the features of the P2P model on a state-backed level.

So, we know the model works; one of the reasons for the demand for UK P2P market investment is that it's a problem-solution play; one of the significant hurdles for UK housing development is the limited liquidity in lending markets, particularly for small-scale builders because the UK financial system is heavily skewed toward traditional banks, which are reluctant to fund small developers. The perception of high risk, coupled with stricter regulatory capital requirements post-2008, discourages banks from lending to smaller projects, and with limited access to credit, many viable small-scale projects are shelved. These limitations exacerbate the UK housing crisis, particularly in underserved regions that smaller developments could significantly impact.

So, what are our conclusions here? The UK's housing crisis is a multifaceted problem requiring systemic change. While the challenges are steep, lessons from European neighbours offer valuable insights - predominately addressing the liquidity gap in lending markets, particularly for smaller developers. Our European counterparts operate nationally in a more decentralised way, and that mimics the structure of our sector and proves that it works at scale. Peer-to-peer lending presents a viable private-sector solution that works harmoniously with the public sector, democratising access to finance and fostering localised sustainable development. By continuing to empower smaller developers, the UK can chart a path toward a dynamic and equitable housing market that meets the needs of its growing population, and we can finally exit the permacrisis and lay the footing of the next generation of homes.

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