If the Government’s current planning reforms aren’t going to create the affordable homes the UK desperately needs, what else needs to happen?
There is no doubt that a lot is wrong with the current housing situation in the UK. In fact, it’s difficult to know where to start. There are at least 280,000 homeless people in this country, either sleeping rough or living in temporary accommodation. Young people cannot afford to buy their first home, while exorbitant rents make it difficult to save; especially if they live in cities like London. All the while, affordable homes are not being built quickly enough.
The Government’s plan to reform the planning system to make building homes simpler looks to be on the rocks, at the time of writing. However, it was always debatable whether they would lead to an increase in affordable homes being built. So how should the Government be looking to alter the planning system, if we are to get more affordable homes into the UK’s housing stock?
Why won’t the current plans work?
In an attempt to speed up the planning process and build more homes, the Government proposed to streamline the current planning system.
Currently, most of the time when a developer builds a new housing estate, they are required to set aside a proportion of homes as affordable housing. On average, 25% of these properties become part of the affordable housing stock. A housing association will allocate these properties to people who need them, for rental prices below market rates.
But, affordable housing cuts into developers’ revenue, because they cannot sell these homes at the market rate.
The Government’s new proposals put in a threshold, where builders of developments under 50 properties do not have to put aside homes for affordable housing at all. If your development is above the threshold, you instead pay an ‘infrastructure levy’. Affordable housing provision may come from this levy, along with other necessities.
It’s difficult to see how these reforms will lead to more affordable homes being built, as it removes the statutory requirement and puts affordable housing into a pot with everything else.
So, what else could work?
Supply and demand
Traditionally, people have looked at the housing crisis as a failure of supply and demand. That could be the mistake that means we cannot find a solution. Let me explain.
The accepted view seems to be that if you build more houses and eliminate the housing shortage, the price of homes would drop, meaning more people could afford to buy.
In the 1950s, 60s and 70s, we saw mass house-building programs, and people could generally buy their first homes once they got jobs. It all changed in the 1980s, when Margaret Thatcher brought in the ‘right to buy’ initiative, where council tenants could buy the properties they lived in. Councils were supposed to use this income to build more houses. However, this never happened, and the housing situation never recovered.
The concept behind the current Government’s plans – build more houses and watch prices go down – is a return to the original 1950s plan. Unfortunately, it is unlikely to work.
More factors than just supply and demand
The reason why simply building more houses is not the answer is that there are far more factors that affect house prices than supply and demand.
The clues are in the data. For over a decade, the number of houses built has exceeded the growth in population. Between 2018 and 2019, 203,900 new homes were built, to house 483,243 people. During the same period, the population rose by 395,321. However, prices still rose by 2.2%, pricing younger people out of the market.
So if it isn’t supply and demand, why can’t more people become property owners?
Young people find it hard to buy their first homes because they are generally on lower wages relative to first-time buyers a generation ago. Mortgage lenders are reluctant to give loans to people who may struggle to pay them back, especially after getting their fingers burned in the 2008 financial crisis.
Another issue is the price of land – the land where developers actually build the houses. Land available for building on is incredibly expensive. At National Affordable Homes, we found this out first-hand when we were looking at a project in the North-East near Gateshead. The price of building, when coupled with the cost of the land, was too high for us to be able to take the project on.
Why is this? It’s because of land banking, or land hoarding. Developers buy plots of land, but they don’t build on them. They hold it, get planning permission for a development project, wait for the value to go up, then sell it on to another developer, who will most likely do the same. In 2015, an investigation by The Guardian found that the UK’s largest homebuilders were sitting on more than 600,000 plots of land with valid planning permission. That’s almost three times the number of homes built last year!
The question we posed at the start of the article was what can be done to improve the provision of affordable homes through the planning system. The answer needs to start by ending land banking. Developers should not be given planning permission unless they are going to build on it straight away.
Next, the planning system needs to stop letting the market decide how many affordable homes can be built. They must ensure that the right number of affordable dwellings get built each year by upholding requirements on developers. There can be no more loopholes that are easy to wriggle out of.
It’s hard to envisage that this will happen. After all, lower house prices are not really a vote winner. We’re conditioned to see it as a mark of success when our property goes up in value.
Therefore, we have to take action ourselves, as we do at National Affordable Homes.