Dianati, Kaveh; (2022) London's Housing Crisis; A System Dynamics Analysis of Long-term Developments: 40 Years into the Past and 40 Years into the Future. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

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.

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