The economics of the UK housing market are highly dysfunctional. For decades, demand for housing, through population expansion and changes to the nature of households, has consistently outstripped the supply of new homes, and this has translated into vastly inflated prices across the UK. In an effective market, supply is responsive to demand, and this has a balancing effect on prices. When it comes to housing, inelastic supply has instead facilitated rising prices.

House price inflation, declining affordability, a tight rental market – these are the obvious costs of the housing crisis. Yet as Policy Exchange’s new paper contends, insufficient attention has been paid to the chilling effect that the UK has had on the wider economy. Chronic housing undersupply has reduced the mobility of the labour force, absorbed potential productivity gains in the UK’s cities, dampened consumer demand and diverted bank lending away from productive areas. The housing crisis does not simply have localised effects on regional markets; it is holding back growth everywhere.

The obverse point, however, is that addressing the housing shortage offers immense economic opportunities for the country. As in previous historical periods like the 1930s and the 1950s and 1960s, expanding housing supply could provide a platform for sustained growth that balances the economy and spreads prosperity widely. It could help reduce government expenditure on benefits, it could make our urban areas more productive, and equally importantly, it could restore faith that the aspiration of homeownership – an aspiration that is held abidingly by the overwhelming majority of British citizens – remains attainable for hard working people.

As this paper argues, the government urgently needs to restore trust in the planning system by giving businesses greater certainty about the availability of land for development, and by demonstrating to residents that housebuilding in their local area will be beautiful and of high quality.