Ensuring that housing is available in sufficient numbers, at a range of prices that can assure access for all but without creating a housing market that might crash and deter investment - as has happened in the US, Ireland and Spain for instance - is a tricky equation. Additionally, it is accepted that social and environmental considerations will impinge to help assure public acceptance of housing growth and its sustainability.
In 2012, amid numerous campaigns for more housing construction to match with recorded and predicted levels of household growth, the Local Government Association (LGA) produced data that showed an estimated three and a quarter years worth of homes in unimplemented permissions (based on the number of completed dwellings in England and Wales in 2011/12). In similar vein, the National Housing Federation (NHF) indicated that its 'Home Truths' research had "identified [housing] sites equivalent to twice the size of Leicester that could be built on now". And in this NHF Report, Housing Minister Mark Prisk acknowledges that the issues pointed out in the report are a result of a long-term "systemic problem" in the housing market and that successive Governments have failed to build enough homes.
Background to the myth
In her 2004 Review of Housing Supply, the economist Kate Barker suggested that in order to deliver a trend in real house prices in England in line with the EU average of 1.1 per cent per annum, an extra 120,000 houses each year might be required. The problem identified was that Planning at present tries to 'make the market' without consideration of the consequences, for example the effect on house prices and affordability. And the planning remedy was the introduction of flexibility at the local level through the allocation of additional land, with the release of this additional land triggered by market signals ie more land is equated to more housebuilding and this in turn results in lower rates of increase in houseprices. The influential Policy Exchange think-tank has been notable in pressing this argument: "Looking for the reasons behind rising house and land prices, it is impossible to overstate the role that the planning system has played. Where demand is growing and supply is restricted, economic theory predicts that prices have to go up, and this is precisely what has happened": Oliver Marc Hartwich, Research Director, in The Guardian 2007. Land in Britain is made scarce and expensive by some of the world's tightest planning laws. It also pushes up your rent or mortgage, and jacks up the bill for housing benefit: Neil OBrien, Director, in a Telegraph blog 2011.
Policy Background
Planning is recognised as playing a key role in ensuring enough land is available to meet local communities' housing needs. The National Planning Policy Framework (NPPF), published in March 2012, sets out that Councils should identify a supply of deliverable sites sufficient to provide five years worth of housing against their local housing requirements. Sites with planning permission should be included within this supply, unless there is clear evidence that schemes will not be implemented within five years. Where there has been "a record of persistent under-delivery of housing", the NPPF goes further and requires that such Councils should include an additional 20% "buffer" of land (brought forward from later in the plan period) to provide a realistic prospect of achieving the planned local supply and to ensure choice and competition in the local market for land.
Evidence base
More housing land equates to more housebuilding:
Take up of permissions: In 2012 LGA research indicated that, at 31 December 2011, the number of unimplemented homes [with a planning consent] was over six times the number of homes within 2011/12 completed developments and nearly three times the number of planning permissions granted in that year. The LGA estimated that three and a quarter years worth of homes existed in unimplemented permissions (based on the number of completed dwellings in England and Wales in 2011/12). This echoes the 2007 work published by the RTPI Opening up the Debate: Exploring housing land supply myths which, inter alia, showed that, at that time, outstanding permissions were held by the top ten housebuilders for nearly 225,000 homes, equating to 2.7 years supply. It would therefore appear that landholdings have increased, certainly they have not diminished, and housebuilders do not have enough available finance, effective demand (ie customers who can afford to buy their product) or confidence that a stable market has been reached.
Availability of loan finance:
One of the most factors inhibiting housebuilders from using the land with permission that they hold is the availability of loan finance, both to support the construction work and the prospective purchasers. Forever Blowing Bubbles (2011 from think-tank ippr) notes that high levels of financial leverage - already the case in the UK - are empirically proven to contribute to greater levels of house price growth and volatility.
More housebuilding equates to lower houseprices:
The RTPI pointed out in its evidence to the Barker Review of Housing Supply that such research as has been undertaken indicates that it would require an extremely large expansion of the house building programme to reduce house prices to any significant extent. For example, a study found that increasing plan targets by 75 per cent would raise output by 16 per cent on average over six years and lower prices by 7.5 per cent, so enabling an extra 3-4 per cent of new households to buy a new home. It can therefore be argued fairly that building houses is an extremely inefficient way of reducing house prices and improving affordability.
House prices locally reflect a number of community factors such as good schools, access to parks, council tax rates and perceived/real incidences of crime. No one is suggesting that good schools should close to reduce houseprices. The RIBA publication 'The way we live now: What people need and expect from their homes' (2012) noted that "a sense of a strong community and good local amenities were important to participants across the research, regardless of whether they were renting or buying a home". So well located housing is valued by consumers and good planning helps to deliver settlements that function well.
Controls on land supply can be helpful:
To be most beneficial growth in housing, jobs and infrastructure ought to be running in tandem. In recent years planners, developers and policymakers have increasingly looked towards designing a more compact city in order to achieve a more sustainable urban form. There are many perceived benefits of the compact city over urban sprawl, which include: less car dependency thus lower emissions, reduced energy consumption, better public transport services, increased overall accessibility, the re-use of infrastructure and previously developed land, a regeneration of existing urban areas and urban vitality, a higher quality of life, the preservation of green space, and the creation of a milieu for enhanced business and trading activities.
Our view
House price inflation is not solely the result of a lack of housebuilding: the Barker Review found that the effect was marginal taking into account the other determinants of supply and price, i.e. the availability of finance and demand. The unsustainable rise in house prices that ended with the credit crunch in 2006 was felt as badly in countries without constrained land supply such as the USA: these rises were the result of irresponsible lending. House prices in England are not only affected by demand arising from those first entering the market, but also those wishing to purchase second homes, buy-to-lets and redevelopment opportunities.
Planning is not responsible for the lack of housebuilding. Post-war, the private sector has only ever been able to contribute around 150-200,000 new homes a year across Great Britain (see evidence from Alan Wenban-Smith). Until the Government ended mass Council housing in the 1980s, the public sector helped to almost double this. If public sector housing had continued there might be at least 2 million more homes now. In Scotland, backed by over £115 million from the Scottish Government, Councils have been spearheading a new era of Council housebuilding; 2011-12 over 1,000 Council houses were built, which is the highest number of completions recorded in the last twenty years.
A recent report by DTZ, Pulling up the ladder 2, suggested that lack of access to finance is the major current obstacle to housebuilding. And another report commissioned by CPRE, Building in a Small Island, challenges claims that there is a shortage of brownfield land suitable for housing development, as does the more recent NHF Home Truths report.
The slow-down in planning permissions has been as a result of a lack of planning applications. There is not a lack of homes, premises to convert or sites to build on. In England, there has been shown to be around 750,000 empty homes, and in Scotland the figure is estimated to be more than 25,000 long-term empty homes; these situations have had policy responses from Governments. The Guardian recently published an article showing that there are now over 1.5 million second homes across the UK. And as noted above, developers have permission for nearly 400,000 homes (LGA research) they have not been building.
Providing more land for housing through planning will not necessarily reduce house prices. Studies have shown that increasing housing allocations by 75% might raise output by 16%. This could lower prices overall by 7.5%, so enabling an extra 3-4% of new households to buy a new home, but in many cases it will merely enable more existing homeowners to afford an investment property, such as a second home, holiday home or buy-to-let.
Successful, recent expansion and growth seems generally to have been achieved by close public and private co-operation and tandem investment in places such as Northampton, Kettering, Cambridge and Hampshire; this is particularly vital when public funding is modest (during the 2011-2015 spending review period, the Homes & Communities Agency have a £6.8bn capital spending budget for all housing and housing-related programmes, although the Government announced in September 2012 an additional £300 million for housing-related activity). Such an approach appears to be supported by the Government's expanding 'City Deals' programme, giving more support for local approaches, which in turn appears to chime well with the thrust of Lord Heseltine's Review 'No Stone Unturned In Pursuit Of Growth'. However, as note by Pinnock & Ashworth in a recent Practice & Law article for Estates Gazette (27/10/2012), "Plans will have to change and policies drafted so that they can accommodate change throughout the economic cycle". And they go further: "If no sites (or too few sites) can be identified that a willing owner would bring forward with a willing development partner……..it may be time to explore the use of compulsory purchase powers."
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