The government’s housing ambition

The government’s housebuilding programme is a key plank in its mission to grow the economy and address housing needs. It  has set a national housing ambition with a target of 1.5 to 1.85 million homes over five years, or roughly 370,000 per year. Using the ‘Standard Method’,  a mandatory government formula used to calculate the minimum number of homes a local planning authority needs to plan for, Cornwall is required to build 4,421 homes per year. This represents a 68% increase from their previous target of 2,707. (See Annex)

No-one is denying that Cornwall has a housing crisis. It is driven by high demand, low wages, and a shortage of affordable homes, with over 23,000 households on the housing register. But the approach taken by the government is to see this as a straightforward supply-demand equation: build more houses to meet demand, prices will drop and  more people will get on the housing ladder. 

This is a ‘category error’ for it ignores the fact that housing is now an ‘investment product’ not a place to live in. And the ‘financialisation of housing’ as an investment product is driven by unregulated bank credit playing a key role.

Housing as an investment product

Unlike most economic commodities where rising prices reduce demand, rising house prices actually fuel further demand for housing as a lucrative financial asset that increases in value over time. This creates a powerful “housing-finance feedback cycle” where expectations of future capital gains attract more speculative investment, which in turn inflates house prices even further relative to wages.   As a report commissioned by the last government (but whose findings were ignored by the present one) explains:

“With most economic commodities, rising prices will lead to falling demand. In contrast, rising house prices relative to income creates more demand for mortgage credit as: 1) affordability worsens meaning larger loans are required for house purchase; and 2) expectations of future house price rises increase the attractiveness of housing as a financial asset”

In this sense, housing as an investment product has some similarities with Bitcoin. Both are forms of non-productive capital, both rely heavily on future price appreciation with returns largely dependent on capital gains (selling the asset for a higher price than you bought it for).

Liberalisation of Credit

The same report points out that housing as an investment product is closely linked to the increasing supply of credit. Rising house prices make banks and financial institutions more willing to supply larger loans. Because banks use the property and underlying land as collateral, higher property values naturally “de-risk” larger mortgage loans. Ultimately, increasing the supply of mortgage credit essentially creates its own demand for further mortgage credit. As the report states:

“Housing’s function as an investment and financial asset has been prioritised over its role as a consumption good and housing need more generally…… Since the 2000s, these developments have resulted in huge increases in credit and wealth (the latter, in particular, since the global financial crisis) flowing into the UK housing market, decoupling house prices from their historic relationship with incomes; a rate of increase far exceeding any feasible increase in new construction of homes.” 

Moreover it is important to point out that credit driven demand is powered by commercial banks ability to create money. A common misconception is that banks lend savers money to borrowers. They do not. As the Bank of England explains:

“The reality of how money is created today differs from the description found in some economics textbooks: rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is Central Bank money ‘multiplied up’ into more loans and deposits.

In effect, it is keyboard strokes into a computer screen.

The Housing market is global not local

The market for housing as an investment is now global, not local. In recent years, Private Equity  firms and pension funds have poured billions into the UK rental market, spending a record £1.5bn on single-family homes in just one year. Global giants such as Blackstone have become dominant players, claiming to be the largest provider of new builds in the UK over the last three years and currently overseeing 17,000 residential properties.

The same report estimates that foreign property buyers have pushed up house prices in Britain by 17% over the last two decades.  

Private equity is now active in Cornwall and the risk is that Cornwall Council will get its fingers burned in the same way a failed PFI strategy has turned out to be a form of wealth extraction with costs far greater than the initial private monies invested.

The Cornwall Council strategy

For all these reasons it is hard to see how building ‘affordable housing’ whose price is pegged at 80% of the market rate is likely to address real housing need, when that market rate continues to be inflated by vast amounts of money looking for an investment return. What is needed is social housing that is pegged at 50% of the market rate. Cornwall already has more than one in ten properties in Cornwall that remain empty, Building more houses could well add to that total rather than meet real human need.

This begs the question why Cornwall Council decided not to pursue a recent government funding proposal that included a significant addition to social housing stock.  A letter was sent from the Ministry of Housing, Communities and Local Government  to all local council leaders and chief executives outlining the new Social and Affordable Homes Programme. The programme allocated  £39 billion   over 10 years from 2026-27 to 2035-36 of which “At least 60% of homes delivered through the SAHP will be for Social Rent”. Bidding for funding opened in February 2026 and closed in April 2026. 

While this is an important oversight that still requires explanation, the ultimate responsibility for a failed growth-at-any-cost using housebuilding programme lies with the central government, not Cornwall Council. For that reason, the real conversation should be with our MPs. 

To conclude:  by  ignoring these investment dynamics, the outcome for Cornwall could well be a significant increase in housing supply but no significant drop in price, nor any drop in the 23,000 households on the housing register in years to come.

Appendix – The Standard Method.

The Standard Method is a mandatory government formula used to calculate the minimum number of homes a local planning authority needs to plan for.  It is   a two-step formula to calculate minimum housing need for each local area.  

Step 1: The Baseline

This is 0.8% of the local housing stock – and gives for Cornwall a baseline of 2,160 new homes per year. This is supposed to be a measure of what organic household growth would require.  

Step 2: The Affordability Uplift

To ensure housing supply responds to market pressures, the baseline is adjusted upward in areas where house prices are significantly higher than local wages. Local affordability is based on the average price to earnings ratio (what multiple of an average local salary is equal to the average cost of a home). The less the local affordability the higher the Affordability Uplift. 

Cornwall has an ‘affordability ratio’ of 8.56, meaning that the average price of housing is over eight and a half times the average salary. That figure is fed into the formula giving rise to a target of  4,421 giving Cornwall one of the biggest “Affordability Uplifts”.

The flaw at the heart of the Standard Method is outlined above. It assumes that housing is like any other commodity subject to supply and demand.  This simply doesn’t hold water for two reasons already outlined above; housing is now an ‘investment product’, not just a place to live; secondly, the liberalisation of credit means that it is too much money, not too many people, fueling the rise in house prices.