How Shelter, the Conservatives and Labour are wrong about housing policy

We need to get beyond the managerialist tinkering that dominates housing policy-making and allow our towns and cities to expand.

About fifteen years ago I sat down next to Huw Jones and learned about housing. This wasn’t a deliberate act on my part but Huw, a genuine if unassuming expert, wanted to talk about housing and planning. We were, part of the time, providing a housing-focused consultancy service so talking about the problems with housing policy was part of the day job. And the first thing I learned from Huw was that the biggest problem in housing policy was planning and the planning system. Plus local councillors like me campaigning hard to stop housing development (and, in Huw’s eyes, especially affordable housing development).

Today, for the first time since the reality of housing changed my views on policy, we have a national debate about how we fix the problems with that policy so people can enjoy comfortable, safe and affordable homes. The national opposition party has even adopted a cute slogan about backing the ‘builders not the blockers’ while the government preens at its underwhelming performance in getting new homes built. Every think tank worth its salt has produced a report or two filled with exciting graphs explaining how this one simple trick will solve the housing crisis.

The problem is that they are all - government, opposition, think tanks, media experts - wrong. Not in their analysis (it is hard to avoid the stark reality of our housing problems) but in simply avoiding the elephant in the room because it hurts too much to talk about that beast. We have at least moved on from where we were a few years ago when we pretended the elephant either didn’t exist or worse that its presence was entirely benign. Now we talk about the elephant, agree that it is a problem, and then choose to not to do the right thing and gently herd the animal out of the door. The elephant is our planning system.

We have a planning system that was specifically and deliberately designed to prevent development. I know you’ll say that we built lots of houses between 1951 and 1972 so obviously planning isn’t a problem but this misses the reality of both that housing programme and the planning system. And because we built lots of houses by letting councils seize land and borrow money against the value of that seized land doesn’t mean that the planning system is pro-development. Quite the opposite - the only way to get development under this system is by giving public authorities the powers and money to ignore the planning rules that apply to everyone else. It is the least efficient way of getting new development.

The problem is the political consensus around planning. The view that, even if we think the system is a massive economic drag and the main reason for our housing crisis, it is politically impossible to reform (let alone scrap) the system. So the result is tinkering and a managerialist view that the solution lies in giving the government the powers to seize land and use an artificial land value created by that government’s planning system, to fund the development of new homes. There’s a lot of talk about ‘hope value’ and how it isn’t right that landowners get a huge cash windfall from having the council permit housing development on their land.

This position is best illustrated by the views of the UK’s biggest housing charity, Shelter:

“Hope value must be scrapped to make building social housing around 40% cheaper. It will also make brownfield, urban land more likely to be used to build the homes communities need.”

This huge and influential charity has almost nothing to say about reforming the planning system except to argue for a compulsory purchase system they claim will mean we don’t need to use greenfield and suburban sites for housing development. Plus a higher tax on development earmarked for building social housing. Shelter also indulge in one of the biggest fallacies in the debate around housing - the argument that market housing built for sale is part of the problem:

“Instead of providing decent, quality, genuinely affordable homes for local people, the planning system prioritises maximum delivery of unaffordable homes that can be sold to the highest bidder. Instead of well-planned developments with affordable family homes, we get blocks of expensive leasehold flats.”

In the same report, Shelter claims that the “...existing system, where central government pressures local authorities to build as many market homes as possible is nonsensical.” The argument here is that we have more than one housing market and these different markets don’t interact. Shelter tell us that the housing crisis is caused by the lack of social housing and that its solution is to use public borrowing (set against the fiction of a ‘hope’ value created by land use constraint) to build lots more new council housing.

The real situation is very different. Britain is at least 4 million homes short of the number it needs to meet current needs. And most of that need isn’t for social housing but for market housing. In international terms the UK has high levels of social housing with just short of a fifth of households living in this tenure. The million or so people, mostly young professionals with good incomes, living in poor quality rented accommodation want the same opportunity as earlier generations of young people in good jobs - the chance to buy a home.

Shelter is not alone in this misconception. Conservative MP Neil O’Brian wrote a report for centre-right think tank Onward arguing:

“Give councils new Compulsory Purchase Order (CPO) powers and borrowing capacity so they can buy land and put more development into planned new villages, towns and cities. Require councils to plan infrastructure on the basis of cumulative impacts, not just individual applications.”

O’Brian goes on to argue, like Shelter, that the solution lies with this ‘hope’ value created by the containment of land supply - “...clarify that local and central governments can purchase land at current market use values, not inflated or speculative “hope” values.” As with the Shelter position Onward’s idea is predicated on government rather than landowners getting the benefit of uplift created by the government’s planning system. This is both a field day for lawyers and an incentive for local authorities to constrain land supply even more than it does under the current system.

It is correct that the problem is land values but quite wrong to argue that the way to fix the land value is to maintain a system that inflates land values while applying a value cap to the owners of land. Not only would we maintain (and both Shelter and O’Brien see this as a good thing) the mistaken idea that there is enough urban brownfield land to meet demand for housing but we would do so within a system that is entirely dependent on government action to build new houses. It is perhaps unsurprising (if a bit depressing) to see a national housing charity arguing that housing developers are the problem not the solution but quite bizarre to hear the same argument from a Tory MP.

Elsewhere the desire to avoid telling the truth about the planning system results in the sort of announcement we saw from Michael Gove the current levelling up minister. Because Gove cannot upset his fellow suburban Conservatives, his plans concentrate on urban densification - "unequivocally, unapologetically and intensively concentrating our biggest efforts in the hearts of our cities". This is, in essence, the position adopted by Shelter and Neil O’Brien (who is, of course, one of those suburban Conservative MPs) and Polly Neate, the Shelter boss, gave the minister some guarded praise for not being “afraid to build”.

Meanwhile the Labour Party, rather than talk in any sort of specifics about the planning system, has adopted the same line about ‘hope’ values:

“...the party would pass a law soon after entering government to allow local development authorities to buy up land under compulsory purchase orders without factoring in the hope value.”

Although the Party proposes to reintroduce housing targets for local planning authorities, it has again fallen into the trap of believing that the value increase resulting from the granting of planning permission is based on ‘hope’ not the fact that the planning authority has artificially constrained the supply of land for development. By granting those same authorities compulsory purchase powers, the system incentivises councils to further constrain housing land supply so as to maximise the gap between current use value and housing development value.

It looks likely that this will form the centrepiece, along with urban densification, of future housing policies. Local and national governments will be seen to be doing something, there will be some high profile projects (the proposal for a new ‘quarter’ in Cambridge, for example) and the housing problems will persist. There will probably be some extra money for social housing and we may get some YIMBY-friendly ideas implemented such as ‘street votes’, mansards and relaxed rules about building height and car parking, but the elephant of our planning system will remain sitting there in plain sight refusing to leave.

The planning system doesn’t work and the changes we can expect from both main parties are likely to make matters worse not better. The origins of the UK system, unlike systems almost everywhere else, lie in a desire to stop development and specifically to stop development at London’s urban fringe. In the preamble to his report for Onward, Neil O’Brian talks about France:

“France has built roughly twice as many new homes each year as Britain since 1970. France built 7.8 million more homes than the UK between 1970 and 2015”

The principal reason for France’s success in building houses has been that its major cities and especially Paris have been allowed to grow. It is true that France is a much bigger country but the urban boundary of London is essentially the same as it was in 1947 when the Town & Country Planning Act was passed. We will never get the levels of housebuilding we need so long as we have a planning system designed to prevent the development of suburbia. And we certainly won’t get this level of development if we provide a direct financial incentive for local planning authorities to constrain the supply of housing development land.

In the 1930s Britain saw its highest ever rate of housing development as hundreds of thousands of suburban homes were built around our major cities. People flocked to ‘metroland’ and away from the dense, unpleasant inner urban environments that they hated. The baby boom of the 1950s wasn’t simply a reaction to the privations of the war but was the result of suburbanisation. If we want, and I think we do, a hopeful future for families then we need to get beyond the managerialist tinkering that dominates housing policy-making and allow our towns and cities to expand. This means scrapping the current anti-development planning system and replacing it with one that supports the aspirations of people and businesses in Britain.