This is not a market failure. This is a major government failure.
We can argue philosophically that Britain is a free country and the market is shaped by demand and supply and that's the best way to lead our lives because the market is tough but fair and the hard working types get what they deserve while the lazy types do not get the same because they are not as productive hence they do not deserve what the laborious and entrepreneurial accumulate through ingenuity and merit because only the free market can efficiently allocate the resources where these are mostly needed.
Only we're not talking about the blueberry muffins market, we're talking about our homes. This is not just another market that works best in the hands of strong property laws, free enterprise and capital flows. Making sure all citizens get a decent home is a basic government responsibility.
This gov has failed miserably in this key responsibility. There are 15,000 more luxury homes in the pipeline in London. Homes below £500,000 are out of scope, too cheap for the developers to bother. The housing deficit in this segment, the only deficit which matters, will continue to be solved by cramming even more people per sqm or further extending their commute.
This government is still maintaining wealth accumulation and protecting the very wealthy are good for everyone. The problem lies with those who believe it.