Planning and Housing: Why the Continuing Tensions?

Christine M E WhiteheadLondon School of Economics

The Bartlett School of PlanningUniversity College London

November 27th, 2014

The Fundamental Problem • Housing now regularly comes top of the list of political concerns,

especially in London;• Problems include affordability; access to owner-occupation and

generation rent; lack of social housing; and most importantly low levels of new supply;

• New build is currently adding less than half of one percent to total housing supply even in good years. So the effect of improving economic conditions is to push up prices well before any new supply appears;

• Evidence on the long run elasticity of supply with respect to changes in house prices shows the UK to be amongst the least responsive;

• But why is new supply so constrained? The main culprit is still seen to be the land use planning system.

Is It Planning’s Fault?• The planning system not only constrains the supply of a key factor of production,

but it also significantly distorts behaviour in the market (FTI Report for Shelter 2011);

• Regulatory constraints imposed by the British planning system can to a large extent explain the high house prices in much of southern England (Hilber and Vermeulen, Report for DCLG 2010);

• Restrictive planning regulations, in combination with inadequate incentives for local authorities to grant building permits, have resulted in a low house price elasticity of residential investment in the UK (IMF, 2014);

• Making the land use planning system more flexible, more predictable and more responsive to market signals, without compromising its social and environmental objectives, is essential (OECD Economic Survey of UK, 2011);

• Planning liberalisation is the closest thing there is to an economic silver bullet (Ryan Bourne, IEA, 2014);

• The truth is that Britain’s housing crisis is almost entirely about the use of land, which is determined largely by planning policy. A hectare of agricultural land on the edge of Oxford may cost £6,000-£10,000. Similar land with planning permission can be worth £4 million. (The Economist, 2014)

Differing Views Planning not the cause:• Planning is not responsible for the lack of housebuilding …. Providing more

land for housing through planning will not necessarily reduce house prices (RTPI, 2014);

• Too often the planning system is accused of limiting the land available for housing and, therefore, holding back supply. There is no solid evidence that an overall lack of land supply has hindered the provision of housing (CPRE, 2014);

Other reasons: • When this country built enough houses, for 35 years after the war, the

public sector built more than half of them. Private sector supply has remained fairly steady throughout the post-war period, allowing for the economic cycle (Shaun Spiers, CPRE, 2014);

• In England the perceived constraints on the supply of land include a lack of incentives for local authorities to support new development; the nature of the house-building industry; and existing disincentives to make land available in the light of future price increases (Monk et al for JRF, 2013) .

Some Evidence• The UK’s price elasticity of supply is undoubtedly low although other

countries seem to be facing same issues - even those with traditionally responsive planning systems – eg the Netherlands, Germany and Switzerland;

• Private sector output levels in the UK did not rise when public sector output was reduced – although some econometric evidence of response;

• We are currently building less than half the numbers needed to meet housing requirements in England based on household projections /demographic data;

• Clearly not a simple story – not just about the planning framework but about many other factors including macro-economic drivers, market volatility; lack of demand at current prices; and NIMBYISM effects which impact on how the planning process operates;

• But the cost and availability of land undoubtedly lies at the heart of the problem of housing affordability and access.

Price responsiveness of housing supply: selected countries

Source: OECD estimates

Housing Completions by Tenure

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Planning v. Economics?• You will note that most of the ‘anti- planning’ comments are by economic

commentators;• While, unsurprisingly, most of the more ‘pro-planning’ ones are by planners;• And underlying both is the political dimension: in the main voters are pro land use

planning and are fearful of lifting controls in case the outcome is ‘concreting over the South East’, loss of amenity and poor quality development - little belief that changing the system would lower prices and increase affordability;

• Both planners and economists want the same thing – a well operating system which can increase welfare and ensure social inclusion;

• In this context good planning decisions can improve the economy and the quality of life for all – it does not have to be a zero or negative sum game;

• A big tension however lies between whether planning’s role is seen to be to replace the market and meet social objectives – a traditional planning view;

• Or whether planning should be complementary to the market, ie having the objective of making markets work better to achieve highest value uses – the economists’ view based on offsetting market failures;

• But all planning systems are fundamentally systems of constraint in that they are regulating the market to ensure that outcomes are different from those that would happen under individual decisions – so even operating well there will be objections.

Planning Law v. Economic Behaviour• The planning approach is fundamentally a legal framework based on legislation and case

law, with local authorities and planning inspectors applying the law and appeals up to the Secretary of State; planners have to follow the rules

• The system fundamentally works in terms of quantities – how much land/how many homes/of what sort/etc;

• But housing delivery is a market operation based on demand and supply where stakeholders respond to incentives and constraints based on actual and implicit prices;

• So planning decisions change the costs and prices and the housing market responds – but the planning system does not directly take account of these changes when making decisions (indeed price effects are legally irrelevant in terms of permissions except now through financial viability tests);

• Economists argue that to be efficient and meet demands the planning framework and process must take account of behaviour and thus economic variables - notably prices, incomes and the opportunity cost of land;

• Thus (i) if national income rises by 2% pa – long term average - then we will demand nearly 50% more housing or prices must rise to decrease that demand; (ii) if land in residential use is worth 1000 times its agricultural value the land should be used for housing unless there are externality and other costs that are enough to offset the differential.

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The UK: A Unique Planning System• The fundamentals of the current system still lie in the 1947 Town and

Country Planning Act (although greenbelts, affordable housing and garden cities go back a lot further);

• Nationalisation of development rights – so separation of ownership and rights to use land;

• Planning permission required for any change of use;• Development control based on density, dwelling types, amenity, access

to transport etc – but not on economic variables and not on tenure;• In addition building regulations and codes; • General objectives to ensure the socially desirable (optimal) allocation

of land and to ensure all households can be properly accommodated;• Originally the main emphasis was on distributional issues – particularly

ensuring access to housing for all – with associated large scale public sector building programmes (own land/give permission/build) – but also taxing land values to support government spending programmes.

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Planning Policy Development since 1947 • The basics of the 1947 Act remained almost unchanged at least

until 2012;• The 1990 Town and Country Planning Act introduced local plans–

within which local authorities were formally required to allocate enough land for housing and other purposes. However these plans remained indicative – they do not give the right to develop even if that development conforms to the plan;

• The Coalition’s approach: a partial attempt to introduce incentives and reduce regulatory burden through a National Planning Policy Framework (tearing up a thousand pages of regulation?); financial incentives to local authorities through New Homes Bonus; increasing emphasis on evidence around financial viability; and strengthening the role of the local plan;

• Little immediate impact – initially fewer dwellings in plans although inspectors are now being tougher.

General Criticisms• Neither truly discretionary nor plan led? Don’t get the certainty of a

zoning system nor the freedom to take all factors into account;• But also rigid – difficult to adjust to changing circumstances – eg

green belt;• Process too complicated/time consuming/ expensive – and measure

of time for decision almost irrelevant;• Political pressure against development because of costs to

neighbours while benefits may go to those not yet living in the area;• Results often undesirable – easiest, low quality sites where likely to

be less opposition rather than higher cost/ higher valued sites - housing disproportionately built in lower demand areas;

• Emphasis on numbers together with high land prices results in small, poorly designed homes as compared to comparable countries;

• Current house prices include the expectation of continued constraint.

Exemplifying the Tensions 1: Ensuring Adequate Land Supply

• When determining land supply for housing in the local plan required to take account of objectively assessed need - based on population and household projections at the local level provided by ONS/DCLG;

• Underlying demographic data inadequate eg with respect to inter-authority mobility (based on last 5 years); impact of financial and housing market crisis on household formation;

• Whole inquiry often based on unreal figures and expectations – eg London Plan with presumption that 42,000 – 49,000 dwellings can be built each year;

• No requirement to take account of evidence about the housing market - eg worsening affordability;

• Feedback loops – worsening affordability leads to lower household formation leads to lower projected household growth leads to less land supply made available;

• Duty to co-operate but LA responsibility – so building in next door borough affects projections and therefore the next round of requirements.

Exemplifying the Tensions 2: Densities

• Planning densities used to set mix of dwelling sizes based on projected household structures;

• Actual use of the properties depends not on what the planners say but on demand and supply for housing space and therefore on incomes and prices – smaller, richer households outbid larger households and as incomes increase over time people want more space;

• Constraining property types through planning rather than the market generates higher prices, particularly in a growing economy;

• Implications for use of infrastructure and local services and thus for investment.

Exemplifying the Tensions 3: The Implementation of S106

• In order to use S106 for affordable housing, must include required proportions in the local plan;

• The pressure from the point of view of developer is to limit the costs of meeting the requirement –often smaller units; in the least desirable parts of the site; not particularly suited for those who are going to live in them;

• Disproportionately in the form of shared ownership;• Technically doesn’t affect planning decision but modifies what the

developer puts forward and the numbers of units on the site; • Financial viability assessments increasingly important but work only one

way – reducing requirements;• Issues of relative negotiating power defined by the legal framework;• Result more affordable housing but not the most efficient and sustainable

outcome.

Exemplifying the Tensions 4: Green Belt• Greenbelt policy first introduced in London in 1935 – extended 1947 and in 1950s• Objectives – Not about conserving natural beauty of the land but rather reducing

sprawl; stop merger of towns/cities; urban lung; safeguard the countryside; maintain activity in central areas;

• Evidence that highly prized by public – if little understood/used? Much of it is accessible scrub land with little value in current use but often perceived as being of natural beauty – may include brownfield land;

• In 1979 greenbelt area was 720,000 hectares; now more than double at around 1,640,000 (12% of England in 14 locations – more than land in urban areas; London accounts for about 30%);

• ‘Green Belts constitute a major obstacle to development around cities, where housing is often needed. Replacing Green Belts by land-use restrictions that better reflect environmental designations would free up land for housing, while preserving the environment’ (OECD 2011);

• Economic logic would look at the costs and benefits and release the land with highest value in residential where no large social benefits – but many see any loss as meaning the beginning of the end for conservation;

• Some attempts at eg green belt swaps and using brownfield within the greenbelt but whole topic immensely politically sensitive.

Exemplifying the Tensions 5: Brownfield First

• In 1998 introduced a brownfield policy by which 60% of development was to be on reused sites within the urban footprint;

• Argument that developers do not pay the full social cost of greenfield development and regulation needed to ‘force’ development on to brownfield urban land to achieve social goals;

• By 2008 80% of development was on brownfield sites;• England has enough suitable "brownfield" land to build almost a million

new homes (CPRE 2014);• But often significant costs of developing on brownfield and many sites not

financially viable and no attempt to evaluate the social costs of using greenfield – just an assumption that not paying these costs;

• Economists would argue that in making choices between greenfield, greenbelt and brownfield it should depend on a better understanding of the costs and benefits by site.

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Conclusions: Planning and Housing:Tension or Partnership?

• Currently clearly tension – the legal system often rules out evidence based assessment of costs and benefits while the housing side misunderstands the legal requirements;

• While clearly many regulatory failures, there are very few people who would want much greater market freedom as opposed to a more responsive regulatory framework;

• The evidence on how the latest government changes are being implemented shows the continuing importance of plans and of inspectors in generating desired outcomes;

• But the way the planning system operates also helps to generate problems of NIMBYISM and BANANAISM – in particular because local voters see themselves as losing out not just because of the immediate neighbourhood effects but also through additional crowding, overstretched public services and poor design;

• The fundamental is therefore not so much about the tensions between planning and housing, or planners and economists – these can be addressed with goodwill. It is rather about the political courage to change policy to ensure more, better and cheaper homes;

• But does this situation actually differ greatly as compared to other rich/democratic countries, whatever their formal structures of land use planning?