Will planning reform make housing more affordable?

Article

It is undeniable that housing in England is in crisis. 

Far too many people lack an affordable, safe, secure, decent place to call home. Far too many homes are disconnected from the spaces and services that make the economy tick and allow communities to thrive: public transport, working doctors' surgeries, parks and playgrounds, shops and pubs.  

In response, recent governments have focussed on boosting market housing supply through a combination of changes to planning rules, liberalising access to mortgage finance, stamp duty land tax cuts and holidays, and other demand-side measures like help to buy equity loans.  

But supply has remained lacklustre, and a raft of unintended consequences has followed. The rapid growth of buy to let mortgages has expanded the private rented sector, now home to 24 per cent of households with dependent children in England, up from 9 per cent in 2003/04, where many face high rents and poor security. Planning reforms and help to buy schemes have created opportunities for new housing estates to spring up along motorways, far away from public transport, schools, shops and other basic amenities - while some nearby communities have seen their town centres hollowed out and existing homes left empty. And the country’s stock of social homes has continued its long-term decline, leaving more households with no alternative to the scramble for inadequate market supply.

In the meantime, affordability has worsened dramatically. Housing costs push over  one million children into poverty. Private rents have been higher than 30 per cent of median incomes for a decade. Councils pay out millions each day for temporary accommodation while the numbers of rough sleepers continue to rise. A combination of high prices, high deposit requirements, high mortgage payments and increasingly insecure work is locking millions of 25-44 year olds out of homeownership. 

A cruel irony of this situation is that recent first-time buyers have had to take out such massive mortgages to keep up with ballooning house prices that many now face real financial risks if mortgage rates rise or house prices fall – even modestly. A typical first time buyer who took out their mortgage in 2021 will see their monthly costs rise by £200 this year as higher interest rates feed through to people’s pockets.  

Housing costs push over one million children into poverty

All this points to a deep perversity in housing policy: increasing market supply is supposed to improve affordability, but that could only happen now by bringing down prices, which would hurt the 7.5 million households who have already taken out a mortgage. In the dash to deliver as many units as possible, policy-makers risk forgetting what they were trying to do in the first place: make sure people have good quality, affordable, secure homes in places where they want to live. 

The current government’s approach to solving the housing crisis by delivering 1.5 million homes by 2030 is just the latest chapter in this decades-long story. The ambition is welcome, and the Renters’ Rights Act is a crucial step forward for the growing numbers of households now renting privately. But the central strategy remains planning reform: higher housing targets (370,000 annually), mandatory land allocations, building on ‘grey belt’ land removed from the green belt, and relaxed environmental protections. 

There is no doubt these are significant reforms to a planning process that has become slow and sclerotic – but there are two big reasons to doubt they will succeed.  

  1. Treating symptoms, not causes 

Planning delays often reflect systemic failures elsewhere. Environmental regulation, for example, has become a bottleneck not because planning is overzealous, but because agencies like the Environment Agency — with hundreds of vacancies — lack capacity after more than a decade of cuts. In the end, problems which are not solved upstream can only flow downstream, straight into the local authority planning departments, which act as a ‘last line of defence’ in a failing system. 

Research from IPPR last year emphasised the role of strategic planning from mayors and combined authorities in proactively resolving these problems, which is precisely where the government ultimately wants to get to. But it will take years to get strategic planning up and running across the country. In the meantime, cuts to regulation risk further degrading nature, water systems and the environment. 

  1. Permit, baby, permit 

Secondly, the drive to increase planning permissions for homes is tenure blind. That means planning reforms aren’t targeting the kinds of permissions that will build out quickly – like social homes, which millions of people could afford and would happily move into as soon as they could be built. Instead, councils are being instructed to approve the planning applications they receive – and the applications they receive are heavily weighted towards market sale housing.  

The problem is that developers can only build market homes as quickly as households come forward to buy them at current prices: what one review into build out rates called ‘the value-unaffecting rate of sale’. That’s because England’s housebuilding system has become over-dependent on a speculative model of development, in which developers acquire land in the expectation that they will be able to get planning permission, build homes, and sell them at some point in the future for a price that recompenses them for all the costs incurred, plus a return. Developers building to the speculative model take on significant risk when they buy land, as they are betting on the future sale value of the homes covering the costs of building, planning and regulatory requirements, and the developer’s profit. 

The government’s current approach is less ‘build, baby, build’ and more ‘permit, baby, permit’

If house prices were to fall, developers would therefore lose money. But if prices stay where they are, too few households will be able to afford them, and supply will continue to stagnate. The result is that many of the market housing schemes councils approve do not get built, or only build out over very long timeframes.  The government’s current approach is less ‘build, baby, build’ and more ‘permit, baby, permit’. 

The same features of the speculative housebuilding model that bake in slow build out rates also give developers the opportunity to seek higher returns than the minimum needed to make development viable, or would be considered normal in more productive sectors. As developers building to the speculative model put it themselves, their business strategy is generally to target margin over volume. 

The way out of this bind is to diversify planning permissions, so that councils are approving schemes with a wide mix of homes at different price points affordable to the people who need them. Instead, the government has proposed reducing or delaying requirements to provide social and affordable homes through the planning system.  

Beyond undermining delivery, the deregulatory approach runs the risk of damaging public support for the housing agenda. Polling from last year suggests that a majority of people do not think that building more housing will lower house prices or reduce rents, and voters across the political spectrum prioritise nature, green spaces and GP surgeries over numbers of homes. Rather than focussing on one big housing supply target, government should set a clear agenda for what it wants it housing policy to achieve and how it should change people’s everyday lives, then develop the right tools for the job. 

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