Ben Southwood: Why planning reform may work this time round, delivering us the new homes that we need

14 May

Ben Southwood is Head of Housing, Transport and Urban Space at Policy Exchange

We have been here before. This is not the first time that a Government has, after years of housing troubles, hired advisers who really understand things, appointed a Housing Minister who ‘gets it’, and tried to tackle the planning system. All these previous attempts largely failed, from the late 1980s onwards. But I have a hunch that the latest wave might succeed – because of an appreciation of localism.

We really have been here before. The think tank paper Nimbyism: The disease and the cure is not a 2020 publication, but a 1990 one. It diagnosed our dilemma pretty much the same way as a newspaper column might today: everyone knows the country needs more homes, but no one wants those new homes plonked down next to them.

Indeed my father, who lives in the London suburbs, will tell you that our housing shortage is the country’s biggest problem, immediately before pointing out how the development of his neighbour’s plot killed two of his best mature trees, and caused months of constant vibrations, eight hours a day.

1990 was not even the beginning. Nicholas Ridley, the esolute free-marketeer Northumbrian who popularised the term NIMBY, was responsible for housing policy under the Thatcher government from 1987 to 1989. Ridley believed that planning was the problem, and that liberalisation was the answer. As well as trying to loosen up the rules, he attempted to use his powers as Minister to approve as many developments as possible – getting successful appeals against planning rejections up to their second highest rate ever.

Alas, this turned out to be extremely unpopular. When it was discovered that even Ridley himself opposed housing near his own home, and after a backbench revolt led by SANE Planning, Thatcher moved him over to Trade and Industry.

In the 30 years since, the problems have by and large got worse. Homeownership, accounting for age, peaked in the early 1990s. House price to income ratios have gone up dramatically. Even more people are delaying getting married, settling down, and having children. We have never managed, post war, to add net housing space to our fastest-growing cities at the rate we did in the 1820s or the 1930s. In the medium to long run, this will doom the Conservative party, whose election results seem more and more determined by homeownership in an area.

Many governments over the years have absorbed the same evidence and arguments. The Barker Review in 2004 confirmed them all, and once again Governments took this on board. The Cameron Government also grasped the problem. Like the current Government, it appointed Policy Exchange’s then Head of Housing as the housing special advisor in the Number Ten Policy Unit, and worked to unblock supply. Some things have improved since 2010, but the housing shortages in key places have got even worse.

Why did all of these Governments fail to really make a dent in the problem?

The fundamental reason is that they failed to win the support of existing communities for development near them. New Labour sought to dodge this problem by taking power out of the hands of local authorities and giving it to regional planning bodies, accountable only to the central government.

But in the long run, this doesn’t help. Voters choose their MPs too, and if they hate the housebuilding happening around them, they will eventually force the central government to stop it. This is indeed what has happened, with successive governments scaling back initially ambitious housebuilding targets.

It’s a simple thing for economists to model. The way we currently do things, those who benefit from new homes is everyone who might want to move to an area. Each new development makes it a tiny bit easier for them to move somewhere. But each new development makes things a whole lot worse for people living nearby.

So you have a huge group of people who benefit a tiny amount – so little they don’t even realise it – and a smaller group of people who see themselves as losing out a huge amount. This means an active group of opponents willing to argue and vote, and no strong proponents.

Why do I think the current Government may have seen a way around this?

If you read the Planning White Paper, which is the document summing up this Government’s aims on planning and housing, several themes are obvious. For my purposes, the key theme is local consent. You can see this in their plans to give locals more control over design.  No, design isn’t everything. But their drive to make things ‘provably popular’ is a clear indication that they grasp the fundamental condition of a durable system of housebuilding: they understand that if they deliver a housing reform that local communities hate, it won’t last.

Indeed, at Policy Exchange’s 2018 summer party, Theresa May, now one of the key opponents to planning reform said ‘I’ve long said that design quality is, I think, actually one of the keys to new housing’, referencing the ‘Building Beautiful’ movement.

The most exciting element of the Planning White Paper for me was their suggestion that they might go ‘down’ instead of ‘up’, giving streets more powers to control the sort of development they want to see, as we proposed in Strong Suburbs. This might mean keeping things just as they are, or it might mean turning semi detached houses into a terrace, so everyone has more space for family, or even a lodger. It might just mean neighbours all agreeing to replace uPVC windows with timber.

Robert Conquest said that everyone is conservative about what they know best. The reason people are NIMBYs is that their neighbourhood is one of the things they know best. This instinct is not just reasonable, but inevitable, and governments of the past have inevitably failed when they have attempted to control things from the top, without the consent of the governed. I think this Government might just have found the alternative that works.

Ben Southwood: The Government’s housing plans need to be refined – not scrapped. They will work if the detail is got right.

7 Sep

Ben Southwood is Head of Housing, Transport and the Urban Space at Policy Exchange.

Any major policy programme is bound to meet with some cautious responses. The Government’s housebuilding programme, manifested in its White Paper, Planning for the Future, as well as its reforms to the housing need targets, is no exception.

People are quite rightly conservative about their neighbourhoods, and are risk-averse when it comes to any change in the rules of the game – especially one that could affect the value of their homes. Ultimately, planning is about the places people live, and the lives they lead. This must be kept in mind.

Still, the issues, described well by Neil O’Brien, the Conservative MP for Harborough, Oadby and Wigston, in these pages on Monday 24th, though worthy of consideration, are not nearly as concerning as he suggests, and should not lead the Government to junk its plans.

Getting the details right on local control, building beautiful, and sharing the benefits of development with local people could go a long way to making existing homeowners, especially in the countryside, happy, while preserving the most important parts of the proposals.

All of the UK cities with the highest paying jobs, lowest unemployment, and fastest economic growth have severe housing shortages. Governments of the past ten years have been cognisant of this growing problem, and in the Planning White Paper we have our first real attempt at alleviating the problem. Achieving it would greatly reduce housing costs, allowing people to move better jobs, afford space for more kids, and avoid painfully long commutes.

It would also create a huge building boom – generating exactly the sort of outdoor jobs of all skill levels that would help generate a lasting post-Covid recovery. Our last large such boom, during the 1930s, pulled Britain out of the Great Depression, added an entire percentage point to GDP growth every year, and made its architect, Neville Chamberlain, temporarily the most popular politician in the UK.

The White Paper would do this by streamlining (yet raising) developer contributions, and implementing a zoning regime that takes Britain closer to the system it lived under for practically all of its history until 1947.

This system would have local authorities divide areas into three zones, one (‘Growth’) allowing almost all development, without specific planning permission, if it meets regulation and follows design codes. Another (‘Renewal’) would give locals some ability to extend their properties up. A third (‘Protection’) would place the same restrictions on development than today.

Governments have complemented planning policy with assessments of housing ‘need’ since 1963. On the same day that it released the White Paper, the Government previewed part of an early version of a new algorithm for calculating how many houses an area ‘needs’. The main change is that prices – the best indicator of scarcity in any given area – play a much bigger role in the calculations than before.

However, in his ConHome article, O’Brien points out that, at least using this early and incomplete version of the new algorithm, these new assessments do not seem to square with the Government’s overall goals to add more houses where they are most needed.

It’s true, he says, that numbers for the North East, North West, and Yorkshire come down from where they are using the existing algorithm. But within all regions (other than London and the South East), the targets for cities fall, while the targets for the shires rise. O’Brien reasonably thinks this may cause problems if those in these rural areas feel these higher targets are too much.

As he mentions, these figures will change substantially in the final version of the algorithm, especially because it will, unlike the present one, take into account greenbelt restrictions. Many of the areas O’Brien highlights as facing increased targets lie partly or completely within a green belt (e.g. the Ribble Valley), and the White Paper makes clear that these areas will ultimately see substantial downward adjustments in their targets to account for it. Nonetheless matter this remains a source of concern, especially for rural areas with no green belt.

O’Brien’s points are likely to be more clearly addressed by the Government in the final version – especially for areas such as Leicestershire that are rural, yet have no green belt to prompt downrating. Indeed, Christopher Pincher, the Housing Minister, said as much here on Conservative Home.

The Government seems to agree with O’Brien that the greatest potential for development lies in increasing density within existing cities and at the edges of cities, not through mass housebuilding on England’s green and pleasant land.

There are some other areas in which the Government can assuage concerns substantially by getting a few details just right. Areas of Outstanding Natural Beauty and the Green Belt will, naturally, come under Protection. But the decision between Protection and Renewal (as the White Paper frames the other two zones), and the exact contours of Renewal, should be driven by local input.

Locals tend to oppose things that are foisted on them. However, huge value can be created by housebuilding in some places. The plot of one £800,000 bungalow near Summertown in North Oxford could instead accommodate two or even three £2 million four-storey townhouses.

If one homeowner in a street does this, and does it poorly, it’s a burden on their neighbours. But if we let the residents of that street collectively decide whether to allow it on every plot in the street, development is controlled and driven by those who stand to benefit – and lose out. Only streets that want to build up and out – either for more space for their family, a room to rent to a lodger, or to sell on, downsize, and have something to give to their children – will decide to.

As it stands, the White Paper says, “We are also interested in whether there is scope to extend and adapt the concept so that very small areas – such as individual streets – can set their own rules for the form of development which they are happy to see.”

The final version of this could end up as a scheme where individual streets can decide to opt between the ‘Protection’ or ‘Renewal’ categories. This would have those in ‘Renewal’ setting their own rules for plot usage, height, materials, and design, subject to rules to stop overshadowing that affects their neighbours. If the final version goes in this direction, it could take a huge amount of the sting out of the proposals for anxious suburbs and shires.

Locals are justifiably concerned about preserving the beauty of their local area. Britons are also concerned about the beauty of the country as a whole. So much new building has been ugly over the past 80 or so years that it often feels that we are simply not capable of or willing to build attractive buildings today.

Such pessimism is unwarranted. Policy Exchange’s work with Sir Roger Scruton on the Building Beautiful agenda showed us that it was indeed possible to build attractively in the modern era – and that that’s what the public wants.

It is very encouraging that Planning for the Future, the White Paper, makes very significant reference to this ‘building beautiful’ agenda. In many ways the paper is one that Scruton himself would have favoured, and it is clearly inspired by him and his work, including with Jack Airey in Policy Exchange research.

Getting the details perfectly right is also important here. This means embedding design codes (which determine what buildings can look like aesthetically) into all three of the zone types, and making sure these are popular through local plebiscites. It may also mean more extensive policies, such as retrospective approval voting to see what locals think about major projects – hopefully incentivising developers and architects to produce work that is popular.

Major planning reform of this nature was always going to meet objections. But politics is the art of building coalitions: reform programmes succeed when they can convince enough people that their changes will make the country richer, happier, and better. They fail when they cannot. The Government’s housing reforms have the potential to deliver so much value that many doubters can be brought round. Achieving this means getting the details right.

Ben Southwood: Yes, the current planning system really is at the root of Britain’s housing crisis

6 Aug

Ben Southwood is an independent researcher.

The Government means to reform planning in order to allow more houses to be built. The Local Government Association tells us the Government is wrong.

Changes to the planning system are unnecessary, they argue, for it is developers who hold back housing delivery, not planners.

They tell us that around 90 per cent of planning applications are being approved – far from being in thrall to NIMBYs, planners seem to say yes to virtually every application they receive. The real problem, the LGA says, is that once developers have got permission to build, they frequently fail to do so: permission for hundreds of thousands of houses has been given without those houses ever having been built.

But while these arguments are superficially persuasive, they are fundamentally mistaken. Planning as it currently operates is clearly an obstacle to development, and land banking is a consequence of the existing system.

In the Planning White Paper released today, the Government announces its intention to bring in a zoning system which increases the amount of development that can be done without a planning application, similar to the system proposed by Jack Airey (then PX, now No10) in Rethinking the Planning System for the 21st Century.

Under such a system, households automatically have the right to develop land they own, assuming that it is within various basic rules (e.g. about height, overshadowing, safety, and aesthetics). This would be the biggest change to the system in seventy years.

As things stand, there are very significant restrictions on development. We can see this in two main ways: firstly, land with planning permission is worth dramatically more than land without planning permission. Secondly, the cost of building houses in places like London is far less than the price those houses fetch on the market – typically around a quarter – suggesting that something beyond build costs is preventing developers from building more homes.

This argument would be uncontroversial among most economists. However one popular response, most recently made by the Local Government Association, is that the shortfall in new homes is mostly not due to the planning system in general, and specifically not due to planning departments at local planning authorities, but due to the behaviour of property developers. They give two arguments on this point: the percentage of applications approved, and the problem of ‘land banking’.

With nine in ten planning applications approved by councils, and more than a million homes given planning permission in the last decade not yet built, planning is not the problem.

While planning officials do the job they are given as well as possible, and the LGA is correct that they have faced tough budgetary constraints, these facts do not exonerate the planning system as a whole in leading to the undersupply of housing we experience.

It is true that somewhere between eight and nine in every ten planning applications that get to the final stage are approved. But this statistic is misleading, because the cost and restrictiveness of the system means that applications are only made if the applicant expects them to be approved. This cannot tell us about the overall restrictiveness of the system, since it leaves out all the applications that people might want to make but do not because they expect them to be rejected.

If 95 per cent of criminal cases brought to trial got a conviction, that does not tell us much about whether a high percentage of people who actually committed crimes were being convicted – since it doesn’t include those cases that never see trial due to a lack of sufficient evidence.

Most potential planning applications never make it to that final stage, or indeed any stage. Were there no planning system at all, housing starts would be dramatically higher. A more relevant statistic is the percent of potential housing starts that are allowed by the planning system. One estimate, based on Ian Mulheirn’s estimates for the elasticity of prices to supply, would suggest that in London alone we would build 1.5 million more houses to meet pent-up demand, on top of the 600,000-700,000 we are likely to build in the next ten years under the current system.

In other words, the system is building around 30 per cent of the housing that would be demanded in a system where only supply and demand determined what was built.

The true figure demanded would be more like five million, if London was to grow to home a similar share of the national population as cities like Copenhagen and Dublin do. This suggests that planning is allowing just ten per cent of the housing that would be demanded in a freer system.

The most recent review found that around six per cent of annually granted permissions had not been started within 12 months of being granted. Over time, these six per cents build up. But why is land banking a feature of planning systems like ours?

The reason is that ‘banking’ makes sense for assets whose supply is scarce and uncertain. Property developers have a number of different factors of production that they combine to build houses: things like building equipment, workers, and land to build on. All are needed to build houses, but while the supply of things like equipment and workers is relatively guaranteed for the near future (because they own or lease the equipment, and have employment contracts with the workers or know they can hire them if they need them), the supply of land you can build on is less guaranteed – unless they “bank” it.

The alternative to “banking” developable land would be to risk being in a situation where they have paid for equipment and workers in advance but have no land on which to use them.

As the risk, cost, and time invested in getting hold of land and planning permissions rises, the amount of land that it’s rational to bank rises too.

This difficulty, complexity, and cost also leads to a situation where there is no alternative to big housebuilder development. Britain has one of the lowest self-build rates in the developed world: under ten per cent, compared to over 50 per cent in Germany, over 40 per cent in Japan, and nearly 30 per cent in France. SME builders and self builders have little incentive or need to land bank, but cannot negotiate a system where it is essential.

Thus while the statistic around permissions is misleading, the LGA’s concerns about land banking are understandable. But land banking is an entirely rational, and in itself reasonable, response to a system that makes land banking necessary. If the LGA is worried about land banking, they might be pleased with what these reforms deliver.