Wow, the innocence of youth.
Heathrow first. My first visit to London Airport, as it was then, was in 1955. The Queens Building dealt with medium and short haul, the North Terminal, situated along what is now the perimeter road parallel to the A4, from opposite the Edwardian to almost the east end of what was the 29R (now 27R) dealt with long haul. These, the Control tower and one of the hangars now hidden in the middle of the BA long haul engineering complex and the original BEA hangar comprised the airport.
Development over nearly 50 years has brought in both businesses and the people to work in them. These people have, generally, chosen to live close by their work (and, paradoxically formed very vocal groups in opposition to aircraft noise and airport expansion!).
Homes have been built for them, as well as their places of work.
Your sweeping statement about council houses is arrant nonsense. About 8 years ago a study was done which looked at locating a northern runway between the A4 and the M4, leaving as many of the current hotels, homes and businesses as possible intact. The cost ran into tens of billions of pounds.
Even if a Government had the money, could justify its expenditure and had the power to go ahead without the constraints of planning polcies, public enquiries etc., there would be a major revolt from the locals, environmentalists and just about every interest group you could imagine from Chambers of Commerce to Council Tax payers groups.
Gatwick is also badly situated for further runway development. To the immediate South is Crawley with large housing and industrial complexes (again mostly spawned by and serving the airport, yet highly vociferous against expansion).
To the North, the Mole Valley has been thought of as a possible runway site but is environmentally important in parts, has high ground to the West and is, in fact, topographically unsuitable as the final approach and landing would be down a valley which, though not inheremtly unsafe, would cause some "interesting" resonance problems which would result in very strange and unfriendly noise footprints.
Succesive Governments have agreed that Gatwick will not have a new runway until at least 2012 (may be 2015 - I forget).
In a democracy, on a small overcrowded island, you cannot simply decide that a need in one area totally outweighs the needs, demands and constraints of other areas of life without first weighing all the arguments, costing the project as accurately as possible and then deciding if you can afford it.
Given the lessons of Terminal 5, no Government is going to do anything dramatic.