Our housing problems are the result of poor planning not market failure

I’m sat in a board meeting for a large social housing company listening to a report on a mixed tenure development of ours. The development in question is in inner city Bradford on land that is in our ownership (we demolished some blocks of flats) and progress is good – the homes for rent are quickly let and the market rent property is shifting. But there’s a problem. Some of the houses to get a genuinely mixed community, are intended for market sale. We’ve put them up at a price that turns us a small profit (remember the land value is effectively zero) but they aren’t selling, not even a sniff. And there’s a reason that’s quickly evident by looking at the local market – similar sized properties in the area are selling for less than it cost us to build the new homes.

I tell you this story because the discussion of housing issues so often loses sight of market realities even while the eager proponents of a solution to housing problems wail about the failures of that market. Here in inner city Bradford, about ten minutes’ walk from the centre of the city, the market is telling us we have too many houses. It’s true that, by focusing on cheap rents, we can always attract customers. I recall a Liberal Democrat councillor saying (more than once) that Bradford’s offer to the region was cheap rents meaning that the people finding themselves in Bradford were the ones who needed cheap rents – the poor, the immigrant.

The central part of Bradford has what amounts to negative land values. Remember that the homes we built didn’t sell because we couldn’t get down to the price in the market without making a loss, even when we started with zero land costs. It doesn’t matter how many planning permissions you grant on land in this area, it’s never going to be viable to build new houses without subsidy or the willingness to make a loss.

This doesn’t, of course, stop landowners and property developers seeking planning approvals for ambitious schemes. Thousands of new homes each accompanied by a glowing little article in the local paper filled with excited quotations from eager local councillors and business leaders. Those owners aren’t cynical big house building companies, they’re people who’ve been told (often by poorly trained estate agents or opportunistic planning consultants) that getting a permission grants additional value and makes disposing of the land to one of those big housebuilders much easier.

What’s happening in Bradford is repeated across the North and Midlands – from Workington down through Blackpool and Burnley to Stoke. Even in lovely little villages, land that once had a planning permission sits undeveloped because the owner paid too much for the land or else the demands of planners for land decontamination, highways works and extravagant drainage schemes makes building houses loss-making.

Elsewhere land ownership disputes, access issues and a bewildering mess of regulatory demands or constraints act to make building houses unattractive. Two hectares sounds like a lot of land to you and me but it’s about 60-70 houses, barely enough to make a viable scheme given the demands of our planning system.

When the Local Government Association tells you “…over the last decade, more than a million homes have been granted planning permission that haven’t been built yet”, take a moment to ask why this is? Is blaming big house builders for landbanking the right answer? Or are we granting thousands of permissions for homes we can be pretty sure won’t get built?

When we look at the real world, rather than the one local councils seem to occupy, we find that the pipeline of development requires a lot of ready-to-build planning permissions:

…to achieve a long term average of 300,000 new homes per annum, a constant stock of around 0.9–1.1m dwellings in implementable planning permissions will be required, which means increasing the rate of permissions to between 410,000–460,000 units in the short term and then sustaining at just under 400,000 long term. In this context, the LGA’s estimate of 475,000 units with permission is evidence not of land banking, but an acute shortage of permissions.

And not only do we need those planning permissions, but we need them in places where there is sufficient demand for housing that the market prices allow the builder to turn a profit. Granting lots of planning permissions on former industrial sites in inner city Bradford or downtown Burnley won’t solve your problem. It would be possible to do this if you take the view (suggested here) that the way to get houses built is to subsidise the builder. A view that, yet again, simply ignores market realities (house prices in BD3 are below the cost of building new houses) so as to avoid discussing the problems that create the dysfunctional market in the first place.

At the heart of this dysfunction is the planning system but this reality gets quickly dismissed - "...stop blaming the planning system, or the green belt, or all other convenient scapegoats..." - by people who fail to realise that the situation described in that Lichfield’s research quoted above is as much a consequence of that system as our obsessing about five-year land supply and strategic new towns. 

This isn’t to say that we should have no planning system but rather that we should (as the government currently and misleading claims) go back to first principles. Which means asking whether we should reatain the system where the use of a given piece of land is not down to the land’s owner or tenant but is in the gift of government.

Rather than systems of coercion such as planning controls, compulsory purchase, or state-controlled land banks, we should look to free up the system and move to a partnership between landowners, developers, builders, and the government. This allows for the protection of important places (heritage, environment, flood protection, landscape), the protection of neighbour rights, and the prevention of sprawl through government investing directly in infrastructure rather than through a clunky, inconsistent, and inefficient developer contribution system.

Such an approach requires major changes to green belt (tactical and strategic) plus a set of plans that describe where the government proposes to open road and rail provision to facilitate new housing and new business. Rather than an entirely green field approach, this planning would focus on existing communities taking advantage of (and making more sustainable) existing social infrastructure: schools, medical facilities, high streets, and recreation provision.

We should also move away from the long-winded permission process since, in nearly all larger developments, the case for housing development is already made and the process has become a discussion of detail (highways design, flood and drainage management, development aesthetics, safety considerations, etc.) that gives communities, and the councillors who exploit these concerns, the false impression that the development can be prevented.

Through this less coercive approach we can successfully provide the homes to meet the needs of what’s been dubbed ‘Generation Rent’, can breathe new life into smaller towns, and can have a less dysfunctional housing and land market. Most importantly the approach refocuses government infrastructure investment into meeting community needs by stressing links between those communities and the rail or strategic road network, by investing in local social facilities, and by allowing for more active and local travel provision.

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