It’s time to be radical: The only way to fix the housing market is to liberalise planning

There is broad consensus that we have a problem with our housing market. It seems that for virtually all of my life politicians have been agonising over housing – are we building enough?, are they affordable?, are they in the right places? Etc etc etc. And in recent years and months the agony over this issue has intensified.

There are three angles to the UK’s housing problems:

  1. A lack of safety net in the form of social housing for those who need it
  2. Expensive, insecure, poor quality private rented housing which is leaving families vulnerable and in some cases making them ill
  3. Buying a house for the first time is increasingly difficult and expensive, leading to a gap between the haves and have-nots which is increasingly generational.

We need to build more houses

Virtually everyone agrees that house building across the UK needs to accelerate. The primary motivation is to make it easier for young people to buy their first home, and to stabilise – or bring down, depending on the numbers built – house prices.

Building more houses would also have a positive impact on the private rented housing sector, as a larger supply of housing would increase competition and mean that in order to make money landlords would need to up their games in terms of cost and quality.

And in turn, boosting the private rented sector would reduce the pressures on social housing, as fewer people would be in need of it.

The government has pledged to build 300,000 new houses each year. But this doesn’t mean BoJo putting on his hard hat and laying bricks – it means the government wants private developers to build houses, and it hopes to create the circumstances that will encourage them to do so.

And it is at this point that our political leaders get lost.

We have ill-conceived schemes like Help to Buy and Stamp Duty reliefs for particular groups of buyers. In March the Prime Minister announced plans which claim to speed up the planning process and remove appeals, whilst also putting local communities at the centre of the process – something of a contradiction in terms. Tough words for landlords and developers, including references to chief executives’ pay, featured in the same speech alongside a pledge to make more government (taxpayers’) capital available for house builders.

The wrong prescription

The government understands the importance of solving the problem of housing and house building, but all of its changes and plans for change are just fiddling. Things like Help to Buy horribly distort the housing market, with no visible boost to supply. The proposed changes to the planning process maintain the current (failing) system with just a few small changes.

Meanwhile the NIMBYs are out in force, and that often means Conservatives. The failings in local government and local services are used as an excuse to prevent development. Conservative MPs protest against something they call ‘house dumping’, where housing the local community doesn’t actually need is built, but weirdly enough developers still manage to sell the houses to someone. Environmentalists shout about concreting over the countryside, whilst only around 8-10% of all of the UK’s land is developed in any way at all (including housing, industrial, roads, etc).

The left declares that this is market failure; that government and local government does indeed need to step up its house building programme in order to house people in council and social housing. I disagree. When I look at the housing market, I see not a failure of the market, but a failure of regulation.

The planning system is broken

Regulation, in the form of the Town and Country Planning Act, chokes off the supply of land that can be built on, and therefore the supply of housing.

This might seem like an obvious point to the average CfL reader, but let’s take a few moments to explore what exactly this regulation means.

Land which can be built on has become a precious commodity. By artificially restricting the supply, we increase the price of land – from an average of £21,000 per hectare for agricultural land, to £6 million per hectare for land with planning permission.

This obviously adds to the end price of houses, but it also has another undesirable effect on the housing market: it makes buildable land itself an investment. And it’s this that leads to so-called ‘land banking’, as developers choose to balance their books by holding on to very valuable assets which can be relied on to steadily increase in value with much lower risks than building. And of course, this further limits the amount of land that can and is being built on, fuelling a vicious circle of limited supply of land.

But this isn’t all that our current planning laws do: they also make it harder for builders to do business. Getting planning permission to build new houses is a difficult, time consuming and expensive process. It can cost millions of pounds and take several years, a burden few can afford to take on. And so is it any wonder that the market for new houses is dominated by large companies that build at scale? They are the only people able to bear the cost of the planning process, and the only way for them to make it worthwhile is to build at scale – the large, local character changing estates that so many people do not like.

The little man, the small scale builder that puts up anything less than 100 houses at a time, is a rarity for precisely this reason.

Why should we care about the small scale builder when we need hundreds of thousands of houses? Two reasons: loads of small builders putting up a few houses here and there can easily add up to as many or more new homes than a few large scale developers can build on their own. And second, houses built by small, local developers are more likely to in keeping with local communities (after all, they live there too), and more likely to mean places grow gradually in a more manageable way than suddenly adding 3,000 houses at the edge of a village.

Time to be radical

And so we have the perfect storm: in a basic law of economics, restricted supply means higher prices; while the greatest enemy of free markets, corporatism – where the regulatory burden can only be met by large companies, pushes out the little guy, and kills competition – rules.

The housing market is the biggest and most serious example of regulatory failure in the UK today, and any attempt to fix it which does not address the fundamental problems at the root of that regulation is merely tinkering, and is bound to fail.

We at Conservatives for Liberty believe it is time to be bold and brave: the Conservative Party has historically been at its best when it has been its most radical, and liberalising planning law is a huge opportunity to make a real difference to the lives of ordinary people in a way that remembers the impact of repealing the Corn Laws.

Liberalising planning is always a scary prospect – what about protecting the countryside? Planning local services? Respecting local communities?

Well, let’s get real for a moment. 90% of the UK’s land mass is countryside – we could double the amount of land which is currently developed and the countryside would still cover 80% of the country. In short, though emotionally engaging this argument is not based in a real, legitimate concern.

Not building houses doesn’t stop pressure on public services: it just means that the same number of people are crammed into not-enough houses which may be in slightly different locations. And if we liberalise planning, development is likely to be more spread out across the country as builders do not have to concentrate on building in areas with the most accommodating local government.

Respecting local communities is a more difficult prospect, not least because this concept is ill-defined and the objections of local communities are not always reasonable. This is the political question: is it worth treading on a few toes to enable the building of the housing our young people so desperately need, with all the benefits that meeting our country’s housing needs would bring?

At the end of this long article the policy proposal is quite simple: scrap the Town and Country Planning Act. Establish a commission to monitor how much of the UK’s land mass is built on, and when it reaches 15% – which represents around 10 million new homes based on current building densities – send it back to parliament for review. Under this policy, development could only be prevented for reasons of safety, areas of outstanding natural beauty (not the same as the greenbelt), and places of historical significance. Minimal taxes on house building would be designed to meet the public costs of development, and allocated directly to local and national government in order to provide the infrastructure and public services needed to serve the new households.

That’s it. It might seem too simple to address what we’ve come to regard as a complex problem, but the reality is the only reason enough houses aren’t being built right now is that the government is in the way. Just watch and see what happens when we knock down those bureaucratic barriers.