Setting up the planning system to fail

Richard Bate, planning professional and long-time CPRE supporter, delivers a withering analysis of government housing policy

How often have you heard it said that if only the planning authorities would release more land for housing, then the builders would build more houses and prices would come down?
This is the fundamental belief across the government at present. To the Treasury this is the simple law of supply and demand. Furthermore, given that the market knows best and the planning system gets in the way of the market, it must be right to pull the teeth of the planning system. This is what the government has been doing.
The inconvenient reality is that housebuilders do not wish to reduce house prices discernibly.
At the site level they anticipate particular sale prices for particular products, subtract construction costs, financing and profit, and bid for the land as a residual cost.
If house prices come down, profits erode and enthusiasm to build deteriorates. That’s what happens in recessions. Strategically, businesses do not deliberately flood their own market with the objective of reducing their own sale price.

Release more land for housing?
Giving builders more land may help them to supply more houses, but only up to a point.
Firstly, there has to be a market at their chosen sale price. The government has generously aided this process through Help to Buy and other mechanisms, enabling purchasers to pay inflated prices.
The Chartered Institute of Housing has shown recently that more government subsidy is being ploughed into home ownership than into ‘affordable’ (sub-market) housing to rent. It’s hardly surprising house prices don’t come down.
Secondly, ‘more land’ has ceased to be the solution, because builders can’t use it fast enough. Data commissioned by the Local Government Association shows that planning permissions each year far outstrip completions, that unimplemented permissions are rising, and the period from permission to completion is lengthening.
Third, the greater the choice of sites available to builders, the more they can cherry-pick the financially attractive ones – often greenfield sites rather than recycling the urban sites the planning system would largely prefer. So planning is already less effective.

How many houses?
Despite plenty of planning permissions, annual completions in all tenures are below the estimated growth of some 230,000 a year in numbers of households in England.
Government policy is for the completion of 300,000 dwellings annually, almost twice the number achieved in 2017. You can guess its preferred means of achieving this aspiration: release more land!
To arm-twist planning authorities, the government changed the rules on housing need and supply in February this year.
Housing need is to be calculated by a new ‘standard method’. This is based on the well-established (but still volatile) household projections prepared by the Office for National Statistics every two years.
The 2016-based projections were generally lower than the 2014-based projections, so the government has decreed that the older set will be used. Never mind not using the most up-to-date information if it is inconvenient to the outcome…
The housing need figure for each authority is then adjusted to take account of affordability (a specific ratio of house prices to incomes). All but about five local authorities in the country have affordability ratios above the threshold at which, under the government’s method, their housing need figures will be raised. (The local housing need figure is capped at 40 per cent above the average annual housing requirement set out in existing Local Plans.)
The policy therefore builds into planning practice the government’s belief that releasing more land will bring down house prices.
Unsurprisingly, there is no mention of the degree to which affordability ratios are expected to fall for a given stimulus of land supply. The number of plots that must be provided will generally be well above the number of dwellings needed to match the household projections, so land must be made available for households that are not projected to exist.
Each authority must supply land for at least five years’ worth of building at the required rate.
The government wants ‘concealed’ households to obtain more readily their own homes and households to form that have allegedly been deterred from forming by the shortage of dwellings.
This is more economic gibberish.
The concealed and unformed households are in that position because they cannot afford to buy or rent on the open market and would be unable to obtain subsidised housing, so their needs will only be met by greatly increasing the provision of sub-market housing, ideally traditional social housing.
That is irrespective of the volume of land release. The extra sub-market housing planned is far short of real needs.

Is it all planning’s fault?
The government’s coup de grâce is on housing delivery. Instead of being assessed for their land supply, local authorities will be assessed on the number of dwellings built in their areas. This is despite local authorities barely building any houses these days: that’s the task of builders.
When housebuilding rates in a local authority fall below 85 per cent of its assessed requirement, the government assumes (again) that this is for want of land. The authority will then be obliged to find a 20 per cent extra ‘buffer’ of additional deliverable housing sites.
On current figures, that affects 86 councils in England. The instruction to release more land for housing at repeated stages in the process inevitably threatens more countryside, with builders likely to play the system to achieve that result.
The government is setting up requirements that it must know are wholly undeliverable for many local authorities. When housing supply falls short of the new proposed ‘needs’, the  government will berate the authorities and claim it’s all the fault of their planning practices.
That will make it easier to impose yet another round of significant weakening of planning powers – which are obviously getting in the way of housing the nation.
Meanwhile, the original culprit, high house prices, which could be tackled by policies on the ‘demand’ side rather than the ‘supply’ side, will go unchecked. Further, the government has announced its intention to fuel the fire with yet another extension of Help to Buy, beyond 2021.

Wednesday, May 1, 2019