The lack of smaller housing units is a flaw with the policy yes. Shouldn't take long to subdivide some houses up. The idea that you can expect a subsidized lifetime tenancy in a larger than needed house is lunacy.
2.5 years isn't very long on an economic time-scale. Gordon Brown didn't make any progress in finding a solution in his 2.5 years either. No western country (with the exception of Australia's resource fuelled growth) has found a way to growth. I don't quite see what they could of done differently. Spending your way out requires a sufficiently small debt going into a recessionary period for the market to let you borrow heavily as you try and return to growth. The same applies for consumer helping to spend the country out of recession. Households can't borrow more when they're already heavily leveraged as they were in 2007.