Opinion: Will fixing the planning system improve the housing supply?

It is a truth universally acknowledged that Britain has a housing problem. There are problems of shortage and, consequently, access and affordability.

There are three principal mechanisms for dealing with significant housing shortage and indirectly reducing the affordability problems that go with it: (1) You can reduce the number of households needing to be housed; (2) You can increase the number of properties available; and (3) You can improve the utilization of the existing stock of properties.

You can try to do something on all three fronts. A couple of weeks ago LibDemVoice co-editor Mark Pack identified six options, covering all three of these mechanisms. The options differ in their desirability and political feasibility.

Government efforts to increase supply have so far focused on the planning reforms ushered in by the Localism Act, while the New Homes Bonus is intended to incentivise communities to welcome such development. Whether the planning reforms will deliver is still open to question. On the day the Localism Bill was signed into law the Federation of Master Builders warned that top-down targets may need to be re-introduced if sufficient supply is to be secured. They are, it appears, expecting localism to equal NIMBYism.

One issue that has received limited attention in the debate so far is the construction industry. Developers and the Government are happy to point the finger at planners being the major barrier to new build. But planning is at best facilitative. Designating land for residential development doesn’t, in itself, get properties built.

A recent report by the IPPR floated the idea that reforming the construction industry was part of the solution to Britain’s problems with housing supply. A follow-up report making an extended case for reform is due soon.

The last four decades have witnessed steady concentration in the construction industry through merger and acquisition. And merged companies have, almost without exception, reduced output. The proportion of production accounted for by volume builders (and latterly so-called super builders) progressively increased. Many of these large builders suffered badly in the economic downturn: they have been forced into major balance sheet writedowns on the value of their assets, usually land for development bought at over-inflated prices.

The structure of the construction industry in the UK is distinctive in the way it unifies land acquisition, site preparation and construction within single firms — the speculative builders. These are separable activities that are separate in other countries. The industry is also distinctive in having a relatively small community and self-build sector.

Some commentators think this structure signals competition problems. A particular concern is in the acquisition and banking of land equivalent to several years’ future development. Individual builders can have market power in particular localities. For example, in their representation to the 2007 Callcutt Review of Housebuilding Delivery the Chartered Institute of Housing stated that:

We have some concerns that landbanking for profit (rather than to ensure a smooth supply of land as development opportunities arise) and purchase of options on land … have a negative impact on both land supply and land price: restricting supply and reinforcing fluctuations in the housing market.

Others disagree. They argue that the whole practice of landbanking is simply a strategy to manage risk in the face of a cumbersome planning system. In fact, some have attributed the distinctive structure of the entire industry to the existence of the planning system. The Government’s Localism proposals, if they not only increase land supply but also speed the planning approval process, may lead to new organisational forms being sustainable in the ecology of the construction industry.

The more recent enquiry into industry practices by the Office of Fair Trading did not find clear evidence of anti-competitive practices. But there are other concerns.

The market volatility the industry faces — again attributed by many to the planning system — requires production flexibility, which takes the form of extensive subcontracting, which has resulted in a tradition of standardisation and low technology production methods. This can lead to quality concerns. The OFT sought to change the regulatory structures to enhance quality, but without in the first instance being strongly interventionist.

Smaller and medium-sized housebuilders continue to play a key role in new housing supply. Smaller builders are valuable because they are often interested in developing smaller parcels of land. But the sector is small by international standards. And it is suffering badly as a result of the credit crunch.

The recent housing report by the CBI recommended that the Government needed to ensure that funds were flowing to SMEs in housebuilding under Project Merlin. The absence of a strong community and self-build sector in the UK is also identified as a problem. This is a sector that plays a much bigger role in housing supply in other countries.

It is also a sector that will typically deliver higher quality. One reason for this is that community builders retain a stake in the development after completion. They have an incentive to build to last. Speculative builders typically do not. During the downturn some speculative builders have experimented with schemes whereby they retain an interest in a site over the longer term. This is an area in which, if quality concerns are to be addressed, there may be scope for novel solutions.

Smaller builders can suffer from difficulties in accessing development land, particular in localities where it has been banked or optioned by large developers. One possibility is to change the tax treatment of land to discourage extensive landbanking. LVT could help, but it could be some more targeted incentive for large developers to pass land on to smaller builders.

Seeking to improve housing supply raises complex questions. Here we’re scratched the surface. The key point is to ensure that debate is wide-ranging and we’re willing to seek improvements wherever they can be found in development process.

* Alex Marsh is a member of Bristol North Liberal Democrats and blogs at alexsarchives.org.

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14 Comments

  • Localism bill, which forces a presumption in favour of development on councils. So the Lib Dems idea of localism, is more dictates from central government. My god, your party went native quickly. There is a massive land bank, enough land with planning permission to build on for years. Here are the real reasons for the housing shortage:

    1)No social housing, due to councils unable to reinvest right to buy money in council houses. Is this fixed in localism bill, to allow councils to control own housing policy? Nope, because the Libs Dems have not got the backbone to force the Tories to do anything.

    2)Buy to Let. First time buyers have to compete with buy to let landlords, who have significant advantages in getting a mortgage, and in tax breaks. Of course the same first time buyers are then forced to pay outrageous rents to the buy to let landlords. Due to weak tenant rights, buy to let is a blight. There are in entire neighbourhoods in my area falling to pieces, because tenants won’t invest in houses they don’t have a long term stake in and landlords just don’t care.

    3)Uneven economic development. The North has been left to rot by your government, there are plenty of houses up here, but no jobs. You could try rebalancing the economy from the South East, but because your stuck with Tory austerity and their disastrous economic policies, that won’t happen. What am I saying, you are the Tories.

    These reform will simply lead to greenbelt land and the South East being concreted over, so developers can build houses for the rich. They will do absolutely nothing for those who can’t get on the housing ladder, but what else can we expect from this useless government.

  • LondonLiberal 18th Nov '11 - 1:12pm

    wow, exdem, you really have let anger cloud your judgement.

    to answer your points:

    1) Actually, it is fixed in the localism bill, through devolution of the Housing Revenue Account.
    2) Buy to let is a symptom, not a cause. Loose lending and high prices are locking people out, not landlords, who are merely taking advantage of the situation.
    3) The North has been rotting more or less for about thirty years, with honourable attempts at regeneration in the core cities. i agree that the economy needs to be geographically rebalanced, I don’t think 13 years of labour actually helped in building a genuinely sustainable in the north. While i agree that the tories are scum of the lowest order, the common agenda of devolution that we share with them shoudl help release the energy of local councils, of all colours, to get on with growing their economic base without needing the nod from westminster.

    By the way, the presumption in favour of development is in the NPPF, not the localism act.

    I give you a ten for enthusiasm, and a two for content.

  • @exdem
    1) Remind me how many council houses Labour were building when they got kicked out? I believe the rate was about 300 a year, so clearly you should vote for them and you can rely on them to re-establish plentiful council housing.
    2) Unless there are loads of buy to let properties empty, then their existence doesn’t have a great impact on the housing shortage. Personally I would change the tax treatment of these properties to force landlords to drop rents, but I also think that the way housing benefit works causes a lot of problems with rented housing in terms of inflating rents – something this government is acting on. There are more things that should be done for tenants, options for longer terms etc, but fundamentally there aren’t enough houses and shrinking the buy to let sector down to nothing would just give us an economy where it was even harder to relocate for a new job.
    3) I agree that the economy should be rebalanced, not just in terms of the North but also areas like South Wales. When you consider the massive majorities and all the money that Labour had to spend its amazing how little they did for their own heartlands. I’m not a proponent of HS2, but those kinds of projects can help to spread prosperity around the country more evenly.

  • “1) Remind me how many council houses Labour were building when they got kicked out? I believe the rate was about 300 a year, so clearly you should vote for them and you can rely on them to re-establish plentiful council housing.”

    I don’t like the Labour party, in fact I would like a big asteroid to hit parliament during PMQ’s. Frankly every major political party in this country is corrupt, and out of touch. Besides who cares what Labour were doing, your in power, not them. It is very odd for a party committed to local politics to not free councils to build more social housing, or support a localisms bill that will force councils to back development, whatever, they and the locals think.

    “2) Unless there are loads of buy to let properties empty, then their existence doesn’t have a great impact on the housing shortage. Personally I would change the tax treatment of these properties to force landlords to drop rents, but I also think that the way housing benefit works causes a lot of problems with rented housing in terms of inflating rents – something this government is acting on. There are more things that should be done for tenants, options for longer terms etc, but fundamentally there aren’t enough houses and shrinking the buy to let sector down to nothing would just give us an economy where it was even harder to relocate for a new job.”

    It isn’t just a housing shortage, it is a shortage of secure housing. First time buyers are being outbid by buy to let landlords, with our tenancy laws, this means they are in a state of permanent insecurity. Of course you would know that if you actually bother to speak to us little people (when we wipe you out at the next election, you will regret your arrogance).
    As for cutting housing benefit, your recasting that as a policy that helps the poor. The City destroys the economy, record bonuses, and 49% pay increases, and you do nothing. Yet you have the nerve to recast a mean spirited attack on the poorest and weakest as a policy which helps them. Rents are sky rocketing, because of a lack of social housing and the impossibility of anyone buying a house. Cuting housing benefit will not lead to reduction in rents, it will lead to the poor being forced out of rich areas. It is electoral gerrymandering for your Tory friends.
    As for the housing shortage, there isn’t a shortage, There are plenty of houses in the North, but thanks to the Westminster elite, which you are now a part of, there are no jobs. My degree is in Civil Engineering, so I can tell you, you can’t simply build houses. You need enough water, you need transport links, schools, hospitasl, and sewage. None of which you have in abundance in the South East. A sensible government would move the jobs up here, but we have never learnt from history austerity Lib Dems are set on the course of economic suicide, so no chance of that.

    “3) I agree that the economy should be rebalanced, not just in terms of the North but also areas like South Wales. When you consider the massive majorities and all the money that Labour had to spend its amazing how little they did for their own heartlands. I’m not a proponent of HS2, but those kinds of projects can help to spread prosperity around the country more evenly.”

    Who cares what Labour did, I would like honest politicians that actually you know, try to run the country well. It is easy, rein in the City, make them long term investor in the real economy. Wake Cable up and get him to make sure all government contracts stay in this country. Borrow more to generate growth (paradox of thrift means austerity won’t cut the deficit), and invest it industry in the North. Heres a hint, look at Germany, look at what they make, then invest and do it better here.

    Lib dem solution to economic crisis, Cut red and attack unions (Germany has stronger unions and more regulation, yet they are doing better than us). Oh and reflate housing bubble by concreting over England. Of course this is what happens when the only people who can get into Westminster and politics are privately educated, and the vast majority are locked out. Government by mediocrity.

  • David Allen 18th Nov '11 - 5:33pm

    “Fundamentally there aren’t enough houses”

    I would love to know just how much truth there might be in that assertion. We don’t have millions of people camping out or sleeping rough. We do have lots of people renting who would like to buy, or sharing when they would rather live separately, but neither of those issues necessarily requires (or would necessarily be solved by) laying more bricks.

    Where I live, there is a lot of pressure not to concrete over the countryside. If we support the country lovers, does that mean we are making life hell for our young people who need somewhere to live? I am not convinced that we are. The builders have plenty of land in their landbanks, but they are not building, presumably because there is no market for the product. Now, I know that prices are falling, but, they are still high compared to what they were, so, I expect they are still high enough to deliver a good profit to the speculative builder. So, the reason he does not choose to try to make that profit is, presumably, because he fears that there will be no customers. In those circumstances, is anything achieved by finding ways to persuade the builder to build more houses, which will only lie empty?

    Now I suppose there is an argument that says “OK, we should not encourage the over-construction of expensive high-profit housing, but instead we should find ways to get builders to build more affordable low-profit homes.” If we go for this argument, we have to explain why we should distort the market. If affordable houses are really what we are short of, why hasn’t the relative price risen to create an incentive to build?

    I guess the answer is that we have serious, rising social inequality. Building council houses, or any other form of cheap housing which comes with some form of subsidy, is a kind of work-around that copes with inequality without actually getting rid of it. Perhaps we need to do it, pragmatically, but I’d be happier to see the inequalities reversed and hence the root problem dealt with instead.

  • Andrew Duffield 18th Nov '11 - 6:48pm

    Will fixing the planning system improve the housing supply?

    Perhaps – but fixing the tax system definitely would.
    At least this article made passing reference to the solution.

  • David – we live in smaller houses than people of equivalent incomes in other countries. Lots of people – esp in London – share houses with strangers. That looks like evidence for insufficient housing to me.

    The current planning system makes it hard for new entrants to enter the market

    Developers will sit on landbanks if they think the value of those landbanks will increase, even if there is demand for housing now.

  • @exdem, I’m also an engineering graduate, I’m more than familiar with the grim reality that is renting in the UK. I’d like to see the government do a lot more, but I don’t believe that the relatively small number of Lib Dem MPs that there are can realistically be able to get their own way in the face of superior numbers of Tories and their vested interests. Realistically if you want prices to come down you need to build more or cut the number of households. You also need to choke off other inputs that push up prices, including irresponsible lending and a housing benefit structure that encourages absentee landlords and inflated their returns. Frankly I’ll believe all the fuss about new construction when I see it. If there is all this landbanked land, why is that not all concreted over already? Even if planning system was completely removed the South East wouldn’t be completely concreted over.

  • “@exdem, I’m also an engineering graduate, I’m more than familiar with the grim reality that is renting in the UK. I’d like to see the government do a lot more, but I don’t believe that the relatively small number of Lib Dem MPs that there are can realistically be able to get their own way in the face of superior numbers of Tories and their vested interests. Realistically if you want prices to come down you need to build more or cut the number of households. You also need to choke off other inputs that push up prices, including irresponsible lending and a housing benefit structure that encourages absentee landlords and inflated their returns. Frankly I’ll believe all the fuss about new construction when I see it. If there is all this landbanked land, why is that not all concreted over already? Even if planning system was completely removed the South East wouldn’t be completely concreted over.”

    If your small number of Lib Dem MPs are so ineffective, then why should we vote for the Lib Dems? they either have the strength to stand and fight thier own corner, or they are weak and should be booted out.

    You want house prices to come down, then you need a root and branch reform of this country. One, you need to increase tenancy rights, stop leaving it to the market to regulate everything. Actually give tenants security and remove this countries reliance on housing debt.

    Cutting housing benefit has nothing to do with fixing the housing market. It is a nasty attack on those that can’t fight back, well you already said Lib Dem MPs are weak, so they are hardly going to pick a fight with the City. You know the people who actually destroyed the economy. The people who also do most to distort the London housing market. Every bonus round leads to house price increases in the South East, but they are too strong for the Lib Dems to take one. So they go after the poor.

    The reason why it hasn’t been concreted over already, is developers like green belt land. It is cheaper to build on, and you can sell the houses to a more wealthy buyer. The idea that this reform is to help the poor find affordable housing is a joke. If that is the case, why does it remove the requirement for a minimum amount of affordable housing in new developments?

    The real reason for these reforms. Partly corruption, it would be interesting to luck at lib dem funding and Tory funding, to see how many bribes developers have given them. Partly a desperate attempt to reflate the housing bubble, now Lib Dem economic policies have utterly failed.

  • @Alex Marsh

    You do a very good job of repeating the myths put out by vested interests every month. Rents in the UK are pretty much in line with wage inflation, increasing a total of ~6.5% over the last three years according to LSL. In fact, rents have been pretty much static in real terms for the last three decades. If there was a genuine shortage of housing then we would have expected to see rents rise. They aren’t – the only thing that’s rising is the number of press releases put out by letting agents telling everyone how much rents are going up and how there’s a shortage of property to rent. It’s all a bunch of lies aimed at persuading first-time buyers to bring forward their purchases and potential buy-to-letters to ‘invest’ their money.

    If base rates hadn’t been slashed then MOST buy-to-letters would have gone bust. The classic example is Fergus and Judith Wilson who own ~700 BTL properties around Ashford in Kent. They would have gone bust, but the bank (Bradford and Bingley) couldn’t afford to let them because they owed so much money – so gave them a preferential interest rate. The same thing has happened on a macro-scale with the Bank of England – they didn’t want to let the banks go bust so they slashed interest rates, bailing out the speculators (both the lenders and the borrowers). Buy-to-letters were a major cause of the housing bubble and they continue to be a major cause of the painfully slow crash (without so many continuing to make bad investments, prices would be falling a lot faster).

    There are serious problems with housing in the UK. The three big ones are:
    (a) a lack of social housing – easily solved by compulsory purchase of agricultural land/release of ex-MOD land for house building – the houses could be built and sold for profit at values well below the 2007 peak given the purchase at agricultural prices
    (b) the fact that speculators are still out-competing first-time buyers – this is easily solved by putting up the costs for landlords – landlords cannot pass on any costs to tenants as it’s economically impossible, so prices would fall in order to restore yields – this would benefit first-time buyers enormously. Good ways of putting costs up would be increasing base rates, introducing/increasing property/land/capital taxes.
    (c) dreadful lack of regulation for tenants – our tenancy laws are a disgrace and the proposed regulation (by the last government) was promptly binned by the tories as soon as they came to power (please don’t pretend the lib dems have a backbone and any influence in the coalition – a coalition they could disband at any time, but won’t for fear of electoral oblivion).

    Buy to let makes no financial sense at the moment. It’s nothing more than a continued mal-investment caused by the intervention of the government and central bank to prevent a needed market correction.

    Unfortunately, the tories look like they’re going to do everything possible to make these problems worse by (a) flogging off public assets (council houses) on the cheap at 50% of market price to bribe voters (b) using taxpayers to underwrite idiotic lending (95% LTV), socialising future losses from the private sector as house prices inevitably decline over the long term and (c) they’ve already scrapped the regulation of the private-rented sector.

    The worst of all this is the underwriting of mortgages – to an uninformed first-time buyer this probably looks like help, whereas in reality it is helping them buy something that isn’t worth as much as they’re paying for it, sustaining unsustainable house prices for a while longer and preventing economic recovery by continuing to bail out the bad lenders/borrowers that created the current global financial mess.

  • Matthew Huntbach 21st Nov '11 - 5:29pm

    When I was a London Borough councillor sitting on planning committees, I seemed to spend quite a lot of time being shouted down by residents who accused me and my fellow planning committee members of “being bribed” by the developers or similar, because we voted in favour of their plans. The reason, which few residents seemed to understand, are that planning applications can only be rejected if there are legal grounds to do so, and the laws under which planning committees can do that are much tighter than many imagine. That is, if one votes “Agreed” to a proposal it does not express a belief that one personally likes what is being done, instead it expresses one’s view in a quasi-judicial role that there are no legal grounds to reject the proposed development.

    I certainly did not see evidence of rigid plans laws stopping development in these times, rather I saw a process by which so many of the little scraps of land that used to exist in an urban setting get housing squeezed on them.

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