The interwar period in Britain oversaw the boom in the housing sector which resulted in the construction of a significant three million houses. In my previous article I explained how it is this boom which, amongst other factors, has been crucially attributed to post Great Depression economic recovery in Britain. The boom in housing was supported by a macroeconomic climate of cheap money, falling construction costs, increasing real incomes, and demographic changes. Renowned economic historian Stephen Broadberry has deconstructed the relative importance of each of these factors empirically. His research suggests that cheap money supporting the boom accounted for almost half of the increase in housing investment. Moreover, building societies played a crucial role in the transmission mechanism of cheap money boosting housing investment, since they had an influence over both the supply and demand of mortgage loans.

The role of building societies towards the boom in housing during the interwar period can be evidenced from the fact that from 1922 when they advanced £22.7 million to mortgagors and had total mortgage assets worth £83.7 million, they grew phenomenally and by 1938 had advanced £400 million with total mortgage assets worth £759 million. Such was the capacity of building societies to lend that even allowing for their hidden reserves, they had approximately lent out 50% of depositor funds. An important question to explore here is: how did building societies originate and what made them so successful?