Housing and Planning

If politicans are serious about house building targets, they must deregulate planning laws

In the run up to the election, the Labour Party has addressed the most critical problem facing the ‘lost generation’, i.e. Britain’s young cohorts. Milliband has reaffirmed that they should have a right to be able to afford their own homes and live independently of debt and other worries associated with spiralling house prices. The housing market is a major contributor to individuals’ welfare and businesses’ viability. Housing starts, home loan agreements, mortgage lending and the like assist us in assessing many important economic trends. The lack of home building in the UK is eroding affordability, and indirectly, it also undermines economic growth. Currently, house prices in the south have risen by double digits in percentage terms, pricing not just the young, but middle income and some higher income earners out of economically successful areas – sometimes referred to as the brain drain. The main contributing factor is the price of land, which is driven by the complexities of land purchase and the rigidity of planning laws. The inevitable result is the well-known shortage of homes, leading to escalating house prices. The cost of land is between a quarter and up to half the price of the finished property.

Ed Milliband promises to build 200,000 more homes by 2020, but if he is serious about this, he must go a lot further, and advocate a total deregulation of planning laws. In order to evaluate potential fixes, it is important to understand and define what the real issues are. Firstly, what are land markets? Simply put, they are a ‘coordination centre’ for buyers and sellers of land, and transactions in this market are shaped by political complexities and sensitivities, as well as by laws and other fundamentals governing the transfer of that commodity from seller to buyer. Planning rules are complex and often an obstacle for home builders. They are often open to interpretation and politically motivated changes. Rules are not set in stone and often differ from one area to another. Inconsistencies often exist between local authorities with respect to their interpretation of rules and as a result, the process of granting planning permission may take longer than necessary.

In contrast, David Cameron’s pledge is that 1.3 million families will have the right to buy housing association homes at a discount, subject to caps – this being an extension of the Thatcherite housing policies. Critics see this as the government undermining housing associations and residualizing social housing. They also point out that this policy will do little, if anything, to bridge the gap between the current low supply and high demand. There is a vague commitment to replacing the housing units that are sold off, but the Right to Buy has not worked like that in the past, and it is, to say the least, unclear whether replacement will work in the future. There may or may not be a case for boosting home ownership, but the key issue is overall supply, and in itself, transferring ownership does nothing to increase supply.

In order to breathe some life into his abstract target figures, Milliband should commit to a programme of deregulation of planning laws. The aim should be to take the politics out of planning and reduce bureaucracy. The economic and social benefits would be huge. Each new dwelling built represents a contribution to the nation’s GDP. An increase in housebuilding would boost employment. If housing became more affordable, labour mobility would increase, as more people would be able to move to areas where their skills are most urgently required. Without these essential reforms, escalating prices fuel more debt, which depresses household consumption in the longer run, ultimately leading to weaker demand and the inevitable erosion of the return to sustained growth which is long overdue. By setting a target, Milliband has at least started a debate, but that debate must go a lot further, especially for the sake of the ‘lost generation’.

2 thoughts on “If politicans are serious about house building targets, they must deregulate planning laws”

  1. Posted 28/04/2015 at 07:30 | Permalink

    The claim here is that the main contributing factor in high prices is the availability (or rather lack of) of land (with planning permission). I disagree. The main factor is regulations that limit density/height of dwellings – preventing more efficient land use through building higher. So new housing tends to be just 2 storey conventional housing where we could provide much more housing on the same amount of land were buildings of (say) 4 or 5 or 6 storeys allowed (or even encouraged by land value taxes). It doesn’t need to be high rise housing – just medium rise to provide good living space close to amenities.

  2. Posted 02/05/2015 at 14:03 | Permalink

    The facts are we do not have a housing shortage. What we do have is a mal-distribution of Land, which not only causes 200% higher than cost prices, but deadweight losses(under occupancy, vacancy, land banking), and excessive tax liabilities for the majority of the population. All of which add up to unaffordable housing. This can be easily be solved by taxing the selling price of land down to zero. http://www.capx.co/there-is-no-uk-housing-crisis-and-there-never-was-one/

Comments are closed.