IMO, the best solution is neither of the two you mentioned. I'd say the best possible solution would be found in the increased availability of microhomes (to buy, not to rent).
It tackles two problems in one go. First of all, many more people would be in a position to buy a home without taking on a mortgage. They would then be in a better place to save their money in order to move to a bigger place (if they so wished). Secondly, because mortgages would no longer be as great a requirement to purchase a house, mortgage lenders would be incentivised to offer people attractive mortgage rates in order to encourage people to borrow money.
In addition, microhomes need not result in large compromises. There are some great microhome designs on the market that offer attractive features whilst still coming in at a lower price than most existing UK houses. I quite like the Dwelle designs, but there are plenty of other options available.
As a side note, I have a book on economics called 'The Grip of Death'. The title of the book comes from the meaning of the word mortgage, which I found interesting... Mort = Death, Gage = Pledge ('Grip' is accurate if the pledge becomes an obligation). I personally believe long term mortgage arrangements to have a tendency to damage personal enjoyment of life, so the name seems apt.
How do these compare for longevity to regular houses? I actually seriously considered possibilities like narrowboats and static caravans when I left uni, but was put off by the need to basically get a new one (or spend the equivalent amount patching up the old one) every 10 years or so - it doesn't seem much of an improvement?
That said, in parts of the world (cough Japan) it is expected that you demolish the old building and build your own when you buy a property (and you build cheap and light, accordingly), so perhaps this is another UK-centric concern.
Another UK consideration: we have a tendency here to build housing outwards rather than upwards. In a country with relatively little land, if we're considering alternatives, IMO it's well worth considering more high-rise buildings in place of low-density sprawl - not only do they not carry the stigma elsewhere in the world that they do in the UK, but they're even now losing it in the UK; check out the "luxury apartment" blocks going up like mushrooms in the London docklands and around rail stations in sleeper towns.
The bulk of the cost of buying a house in the UK seems to be land price. In fact, those microhomes are _more_ expensive buildings than a traditional build - from this calculator (http://www.jewson.co.uk/working-with-you/for-self-builders/p...) the price of a 100m2 build might be ~112k, compared to the microhome 70m2 'lifetime' model.
Microhomes are a nice idea, but they wouldn't help me in East of England.
It tackles two problems in one go. First of all, many more people would be in a position to buy a home without taking on a mortgage. They would then be in a better place to save their money in order to move to a bigger place (if they so wished). Secondly, because mortgages would no longer be as great a requirement to purchase a house, mortgage lenders would be incentivised to offer people attractive mortgage rates in order to encourage people to borrow money.
In addition, microhomes need not result in large compromises. There are some great microhome designs on the market that offer attractive features whilst still coming in at a lower price than most existing UK houses. I quite like the Dwelle designs, but there are plenty of other options available.
http://www.dwelle.co.uk/
As a side note, I have a book on economics called 'The Grip of Death'. The title of the book comes from the meaning of the word mortgage, which I found interesting... Mort = Death, Gage = Pledge ('Grip' is accurate if the pledge becomes an obligation). I personally believe long term mortgage arrangements to have a tendency to damage personal enjoyment of life, so the name seems apt.