Rebuilding Metro-Land

14th March 2009

Building societies, as their name suggests, helped fund a housing boom after the Great Depression. Who will do it this time? asks Yolande Barnes, head of research at the property company Savills

The semi is an iconic feature of the English streetscape. Neat rows of private houses, built in the 1930s, symbolise better than any castle the Englishman's home. They form the backdrop to suburban train journeys from our town and city centres, to Metro-Land posters and John Betjeman poems. Given their post-Depression timing, how come we built so many?

The property market today bears little comparison with the market of 80 years ago, except in one respect: prices fell then and they are falling now. Last year marked a drop of 16 per cent in house prices in the UK. A further 11 per cent is expected this year. Those averages disguise large variations in the performance of different types of homes in different locations.

Evidence in the 1930s is scant, but the signs are that house prices in Britain didn't start to fall until two years after the 1929 stock market crash and that the big falls were over within three years. The rest of the decade was characterised by a mixture of small falls and very modest growth until the Second World War, when records cease.

Total price falls are recorded as somewhere in the region of 10 per cent in the years to 1935. By 1938 growth was just under 3 per cent.

These falls demonstrate neither the scale nor speed of what we have seen in the housing market this time and are likely to see in the coming year. Armageddon, it appears, is not heralded by a great house-price crash in every case.

In a rather familiar sounding twist, it is interesting to note that, according to The Illustrated Carpenter and Builder of 1935, the value of newly built flats fell by 20 per cent over the same time period. Clearly all those racy new Art Deco apartment blocks in the edgier locations of towns and cities didn't stand up well to economic conditions. Demand seems to have retreated to the more familiar and conventional family house in those uncertain times.

That suggests a clear parallel with the market today. Blocks of new flats in unproven locations, heavily dependent on investor buyers, have fallen heavily in price by comparison with traditional family homes.

However, it is also in the new-build market that the 1930s starts to look different. The success story of the time was the suburban semi-detached, three-bedroom family house, vast ranks of which were built on the outskirts of London and the more prosperous southern English towns. Many of the big names in mass housebuilding were born at this time: Wates, Taylor Woodrow, Laing. Today this sector looks distinctly unhealthy. Each of those companies has ceased to operate in the private housing sector, been acquired or has merged in recent years. Does their disappearance spell the end of a cycle that began 80 years ago?

In terms of activity, the answer would appear to be yes. Almost three million homes were built between 1933 and 1939, most in the private sector. They were bought by a growing number of new owner-occupiers. In 2007 at the height of one of the biggest housing booms this country has seen (and despite ambitious government targets) we barely managed 200,000 a year. By 2010 that figure may fall as low as 50,000.

What was it about the 1930s that enabled these homes to be built?

Many housebuilders would point out that the first Town and Country Planning Act came into force only after the Second World War, so builders in the 1930s were unencumbered by the planning regulations that we have now. While this may be true in part (there were many local authority bylaws and controls before 1947), the present nosedive in housing output has much more to do with funding, or lack of it, than with restrictive planning practices. Rather than looking at how housebuilding was regulated in the 1930s, it is more instructive to look at how it was funded.
Today's collapse in prices has been caused by the drying up of credit. The property market, like the car industry and the high street, has been a victim of the collapse in lending. The key to delivering housing in the second decade of this century will be funding.

At first glance, financial conditions in 1930s Britain look similar to today's. Bank balance sheets were destroyed, interest rates were low and a long period of recapitalisation and restructuring was in hand. The banks had no money to lend to developers or owner-occupiers, but there was an alternative: mutual societies. These conservative, deposit-taking institutions, often founded in the late 19th century, were thriving in the 1930s – especially after small depositors lost faith in the big banks.

It was no accident that building societies were so named; they provided mortgages to aspiring owner-occupiers (who often saved with them) and funded housebuilding – bridging a gap that neither banks nor the Government of the time were willing or able to fill. Now, with the UK housebuilding industry appearing perilously near extinction, numerous agencies are looking for ways to provide the right type of housing for those who need it, whether in the private or the social housing sector.

The answer lies, as it did in the 1930s, with identifying sources of new capital. Most of the small, local building societies have disappeared (ironically subsumed into now-ailing banks). So we must find new deposit-takers and investors for the 21st century, willing to take the steady, secure income streams, in a low-inflation, low-interest rate environment that will come from financing the building of complex developments for all types of households.

Future development is probably more mixed use, mixed tenure, multilayered and complex than1930s suburban Metro-Land but will have the potential to be equally enduring and well loved if investors and depositors (at home or overseas) are provided with the means of funding it.

This article first appeared in The Times.

Find Your Local