Planning – largely because of the cruel growth in the unaffordability of housing – has risen up the political agenda. Reforms are urgently needed to allow more homes to be built, but change is notoriously difficult. Ahead of an LSE public event next month, Paul Cheshire analyses the chances of the latest proposals from the Labour Party kickstarting a new wave of housebuilding.
Planning has always been important to planners or developers: their lives and livelihoods revolve about it. Yet economists have been curiously uninterested – curious because although planners plan without regard to the impact their practice has on prices, planning is fundamentally an economic activity. It allocates the use of a scarce resource – land – historically central to economic thinking. And land, in the form of land with houses on it, has, according to Piketty, surged from having a stable value about equal to total gross domestic product (GDP) between 1700 and 1960, to a value three times that of GDP in 2010.
House price inflation has overwhelmed all other price increases over the past 20 years and hit the poorest hardest.
Housing is now the largest component of household spending – up from 11 per cent in 2001 to 2003 to 17.5 per cent in the most recent two year-period. The poorest 30 per cent of households spend, proportionate to their incomes, twice as much as the richest 10 per cent. House price inflation has overwhelmed all other price increases over the past 20 years and hit the poorest hardest.
A forthcoming LSE public event, organised by the Centre for Economic Performance, seeks to begin to redress our failure to engage with the issues of land, housing, and our planning system which determines the supply of both (and of commercial premises too). It brings together some of the most influential contributors to the debate which, during the last 40 years, has grown from an arcane academic study to a subject that dominated party conferences in 2023.
How did we get here?
When London’s Green Belt was imposed in 1955, eggs cost about 28p a dozen. If their price had risen at the same rate as the price of housing land, they would have cost £91.28p by 2008 – the most recent date comparable data is available for. If supply is fixed, but demand rises, the outcome is obvious. The demand for houses and space both in and around them, has grown by an order of magnitude since 1955.
Back in 2020, the Conservatives did come up with some proposed reforms that could have made a significant improvement by making our system more “rules-based”. These were buried by the Chesham and Amersham 2021 by-election results and the shameless courting of the NIMBY-vote by the Lib Dems, who took the seat from the Conservatives. Since then the Conservatives have, in essence, retreated into denial and post-truth politics. They have abandoned both any target for house building and any mechanisms for trying to ensure houses are built.
Even when local authorities (LAs) do have a plan, our planning system is deeply dysfunctional. Local plans are at least supposed to allocate land to cope with “housing need” (not, note, housing demand). But even in 2020, only 45 per cent of LAs had a valid plan. In 2022 Michael Gove abandoned housing targets and neutered the very weak existing pro-building mechanism, which was taking account of local housing affordability in deciding appeals against development approval.
Since then, local plans have fallen by the wayside. NIMBY councils have learnt there is no enforcement and that not having a valid plan is a useful political defence. Any houses that get built are on the basis of successful (and very expensive) appeals allowing the development to happen so, if any houses get built, it is “Whitehall’s” fault.
An estimate in July 2023 was that now only 33 per cent of LAs had an up-to-date legal plan and that this proportion would fall to 22 per cent by 2025. Indeed, the proportion of LAs with up-to-date legal plans in two of the faster growing and less affordable regions, the South West and the East Midlands, was expected to fall to nine per cent and 13 per cent respectively by then. Because local politicians often overrode the local plan, we never really had a “plan-led system” anyway. But now most LAs do not even have a plan to ignore.
Labour Party reform proposals are now the only show in town
The Labour Party’s proposals announced over the last few months and summarised in Starmer’s 10 October conference speech do have quite a cunning solution. Notes accompanying the speech state that an incoming Labour minister will immediately instruct all chief planning officers to accept proposals to build if their LA does not have a plan and is not meeting key housing targets. Housing targets would be reinstated. Labour would also introduce an enforceable “presumption in favour” where development proposals conform to the local plan and – more effective probably – empower the Planning Inspectorate to draw up local plans where these are “significantly and egregiously delayed”.
None of this would make much difference unless vigorously and rapidly followed through. But the threat of automatic approval if there was no plan, and of the Planning Inspectorate drawing up local plans if the LA failed to do so, could concentrate even the most NIMBY minds into producing local plans that realistically could deliver housing targets. All that does presume, however, not just more determination than politicians have historically been willing to deploy but also significantly more resources for seriously under-resourced LA planning departments and the Planning Inspectorate.
The other serious proposal – serious in that it might really improve house building – is a strategic review of the Green Belt. This has been most explicitly addressed by the Shadow Housing Minister, Matthew Pennycook. In a speech to the Fabian Society (which recently produced its own radical proposals), he went further than Starmer’s rhetorical “build on the Grey Belt”. He admitted housing needs could not be met by building on brownfield land alone but parts of the Green Belt had to be released. But he went further by arguing this had to be done in a “strategic way” and “Labour would bite the bullet”. If carried through, this really could make a difference since a strategic review of the extent and social value of the Green Belt would surely conclude that releasing those areas with no environmental or amenity value near to commuter stations would not only have zero welfare cost but could support rail-oriented development for several million new homes.
New Towns: the go to solution that will not work
The third substantial proposal Labour has come up with is a “new generation of New Towns”. The criteria set out to pinpoint sites for these – near transport hubs in areas of significant “housing need” where there are no negative environmental or amenity concerns – make sense. So does their idea of creating “heat maps” of these factors to come up with suitable locations and setting a six-month deadline for the selection process. Less convincing is their hope that the local authorities concerned will bid for them or at least co-operate.
Making the whole proposal inoperable is the suggestion to set up New Town Corporations with planning powers and powers to compulsorily purchase land with limited “hope” value. Three separate attempts have been made by Labour since the second world war to establish bodies to buy development land at existing use value using compulsory purchase powers. All have failed because “hope” value – that is the hoped-for value of the land if it got planning permission – was not extinguished. So first landowners sat on land expecting the compulsory purchase threat to go away (a reasonable expectation since the Conservative Party never signed up to it). And second, the costs of planning consultants, valuers and lawyers arguing about what the “existing use” value was and what the land’s hope value would be, exhausted any development value the land might have had. All the value went to the professionals. Unless there were a more radical instrument for acquiring the land for New Towns, the proposal is likely to dribble away into the dust just as Gordon Brown’s eco-towns did.
Unless there were a more radical instrument for acquiring the land for New Towns, the proposal is likely to dribble away into the dust just as Gordon Brown’s eco-towns did.
The 1947 Town and Country Planning Act, still the foundation of the planning system, worked by expropriating “development rights” from freeholders without compensation. These development rights are owned by the state which has designated LAs to act as its agents in granting any permission to develop. So it would seem that the development rights could be assigned to the New Town Corporations, thus extinguishing all hope value for existing land owners since they could only sell for anything above the land’s existing value to the development corporation. While compulsory purchase powers might exist in the background, the aim should not to use them but offer a sufficiently higher price for the land, compared to its current market value, to induce substantial numbers of owners to sell freely. Making “generous” offers would not only save money but might allow New Towns to be built.
So, on balance, perhaps two cheers for Labour’s proposals. They are unlikely to get 300,000 houses a year built any time soon but, if implemented rapidly and with greater firmness of purpose to confront vested interests than has been shown by any government since 1947, should increase supply and make things a little bit better.
“The economic costs of British planning: unaffordable housing, and lost employment and productivity”, a discussion on the challenges of planning and their wider impact, takes place at the London School of Economics and Political Science on Tuesday 5 December from 6.30pm to 8pm. This public event is free and open to all.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
Image credit: Shutterstock