Planning restrictions are not the main barrier to housebuilding in Britain – so why is the government so set on loosening planning rules? The following is an extract from an article by Anna Minton, author of Big Capital: Who is London For? and reader in architecture at the University of East London.
Liberalise planning rules to fix a housing crisis – sounds logical but it won’t work.
If the price of food had increased at the same rate as house prices in the UK over the past 50 years, then today a chicken would cost just under £70. In London that chicken would cost almost £140.
The government response to soaring house price inflation is to promise to build more homes at speed by loosening the planning system. It is a “supply side” solution, which sounds logical: rapidly increase the number of homes and prices will inevitably come down.
The problem is that the housing market does not function like a pure market, and while the UK does have some of the highest prices in the world the affordability crisis is not a peculiarly British issue; it’s a global problem, with an index by the property consultants Knight Frank revealing that global residential prices have risen by more than 60% in the past 10 years.
Cities around the world, from Auckland to Vancouver, are facing an affordability crisis, with huge price rises and extreme gentrification in cities linked to global capital flows and foreign investment rather than local circumstances.
The flood of global capital into cities – after the 2008 financial crisis – has been driven by a number of factors: low or negative interest rates; the growing dominance of global private equity in real estate; and quantitative easing, the policy of creating trillions of pounds of electronic money pursued by the Bank of England, the Federal Reserve and the European Central Bank. In the UK £445bn was created between 2009 and 2016, which has gone disproportionately into the hands of the richest, who have ploughed it disproportionately into property. Between March and November 2020 a further £450bn was funnelled into the economy and is predicted to have a similarly distorting effect on the housing market.
The irony is that while house prices have soared around the world, they are generally left out of central banks’ calculations on inflation. In the UK, food, clothes, furniture, cars and holidays are all included in the government’s preferred inflation index, the consumer price index (CPI), but house prices are not.
This is the global context for our extreme housing crisis, which is further fuelled by local circumstances. Chief among these are a private sector lacking incentives to produce more housing, and a social housing sector that builds very limited amounts of social and affordable housing. Margaret Thatcher’s defining policy of “right to buy”, under which more than 2m council homes were sold, continues to decimate the dwindling amount of affordable housing in England, although Scotland and Wales have halted the policy. In 1978, the year before Thatcher came to power, the government built 100,000 council homes, the private sector built 150,000 and there was no shortage of housing. Since then, private sector housebuilding figures have failed to make up the shortfall despite repeated policy incentives, which have contributed to a limited rise in building but added further inflationary pressures by increasing mortgage credit.
There is no real desire for property prices to fall as housing investment has a direct bearing on GDP, economic growth and confidence in the economy.
House builders are businesses accountable to their shareholders, and it is well documented that it is not in their interests to flood the market with homes, as it would damage their profits. Instead they control the rate of production and trickle out limited numbers of homes from large developments to keep prices high. As a result, repeated government reviews and politicians from both parties have consistently identified “land banking” rather than a restrictive planning system as the key barrier to supply-side solutions.
If there is widespread recognition that the planning system is not the main barrier, why are the government’s reforms so focused on loosening restrictions? This is partly because it’s a voter friendly idea outside of the Tory shires and popular with free-market Conservatives, while the interventionist policies required to genuinely affect house price inflation are seen as ideologically unpalatable.
Solutions involving the public sector are equally hard to envisage, such as a public housing programme or large-scale new housing developments enabled by the municipal purchase of land, which underpinned the creation of the postwar new towns and remains the European model for development.
The chief obstacle, which is also widely acknowledged in policy circles, is that there is no real desire for property prices to fall as housing investment has a direct bearing on GDP, economic growth and confidence in the economy. The paradox is that millions of individuals and families under the age of 45 may be excluded from the housing market, but millions of older voters inclined to vote Conservative stand to gain from an ever-appreciating asset.
The growing consensus is that the planning bill is unlikely to survive in its current form as it is so unpopular with swathes of Conservative MPs in vulnerable shire constituencies. The result is planning reforms that were unlikely to make a substantive difference in the first place are likely to be significantly watered down. In this way, a government claiming to liberalise the planning system can appeal to its free-market wing, while also appeasing the no-development lobby in the shires. It may be clever politics, which produces a lot of noise about the need to build, but it obscures the causes of the housing crisis instead of addressing them.
First published 6th July 2021
One comment on “It won’t work”
We need more affordable accommodation into the NMW bracket. The high prices and rents are making people homeless and the disgraceful part is the government doesn’t seem to care or see what’s happening right in front of their faces. Drop the prices or drop the buildings as too many are being bought by landlords to rip off the hard working NMW earning people. I don’t care for excuses I want to buy a home not save for 30yrs to be told your on the waiting list or you don’t pass the credit check to buy this home on a mortgage basis. This is something that I’m utterly fed up with and there’s so many empty homes and yet so many homeless people. Get with the program and let’s help everyone to get a home who can afford it without £££££s of added extras for no good reason.