The cost of living has 3 major components:

1. The cost of taxes (businesses have to pay their employees enough money, so that after taxes they have enough money left to be able to buy what they need to live on. This means that businesses have to charge their customers significantly more for their services in order to have enough to be able pay their employees. All other businesses have to do the same; hence, everything one buys in this country inevitably ends up being significantly more expensive, which ends up hurting the poor more than any other group. Very few people appear to be consciously aware of this mechanism, esp. the “let’s raise taxes to help the poor” crowd.
2. The cost of regulations (extra people need to be hired just to take care of the regulatory compliances, even though those services often don’t add any value to the product or service, but they most certainly add to the cost of it).
3. The price of real estate: both commercial (higher rent rates get passed on to the customers) and residential (employees need to be paid more to afford their overpriced lodgings).

The key to disentangling this vicious cycle is actually the 3rd item: the price of the real estate that gets bid up to the limit of people’s ability to pay because of the chronic supply shortage: the rate of new dwelling construction has been lagging behind the population growth for decades, which means the price competition for this limited supply is fierce.

For this reason, anything the government can possibly do to enable people to afford to pay more for it (whether by mandating higher wages, or increasing the housing benefits), just raises those prices even higher until the new affordability limit equilibrium is reached, because it’s still the same people competing with their money for the same limited housing stock.

This is why “help to buy” scheme was not such a good idea: while it did enable some people to move in, it ended up making homes even harder to afford for those who didn’t manage to “get in” during this round.

In other words, it’s a shortage of houses (and not the shortage of money in the people’s hands) that’s the problem.

After all, money it not wealth: it’s merely a voucher for good and services that are being produced by other people who work. The stuff we want has to exist before we can buy it from somebody with the money we’ve got. Money does not cause items we want to appear magically out of the thin air, or the services we want to just “get done”.

So if the main problem is not enough construction, then what are the obstacles to the new construction?