Planning restrictions
The planning system regulates what can be built where. Any significant new developments and redevelopments of land must be granted planning permission before construction can proceed. Planning is administered by local authorities and overseen by the Department for Levelling Up, Housing and Communities (DLUHC) (until recently called the Ministry of Housing, Communities and Local Government (MHCLG)) in England; planning is devolved in Scotland, Wales and Northern Ireland though the broad features of each system are very similar across the nations of the UK [1].
Local authorities – county, city, district, borough and town councils – are responsible for most planning processes and decisions. Local authorities and sometimes smaller bodies draw up local and neighbourhood plans which set out development goals and form part of the standards against which planning applications are judged. Most planning decisions are made by appointed planning officers exercising delegated powers, with larger and more controversial developments decided by broader committees of local representatives.
While local authorities handle the bulk of the work, national government does play a role in directing overall planning strategy and intervening in selected decisions. The DLUHC sets out the National Planning Policy Framework (NPPF) which guides the development of local plans. The NPPF as it is currently written is intended to create a presumption in favour of sustainable development, promoting economic growth, a sufficient number and range of homes, and protection of the natural environment [2]. Local planning decisions can be appealed to the Secretary of State in charge of the DLUHC who can also choose to take over selected application processes rather than let the local authority decide, usually if the development in question would have broader than local impacts [3].
N.B. the present planning system in England is subject to review and the government has recently published plans for substantial reforms. Most of the following discussion will be concerned with the present and historic problems of the planning system with appropriate policy responses, including the extent to which government proposals are likely to work, evaluated towards the end of this piece.
Rationing development.
The Centre for Cities think tank has criticised the UK’s planning system as a form of rationing for land usage, even comparing it to Soviet-style central planning systems. Because planning permission is granted on a discretionary basis, subject to frequently arbitrary decisions of local politicians and stakeholders, the system is inevitably unpredictable and inefficient leading to shortages and misallocation of resources. They argue that the UK’s housing crisis can be directly blamed on the institutional design of the planning system [4]. A research paper from 2014 estimated that the constraints imposed by the planning system are responsible for 35% of English house prices, i.e., housing could be up to 35% cheaper with under a more liberal and efficient system [5].
Local authorities tend to respond to such portrayals by pointing out that even many developments which have been granted planning permission remain unbuilt. According to the Local Government Association planning permission has been granted for the construction of 2.56 million homes since 2009-10 but only 1.53 million of those have been completed to date meaning there is a backlog of about 1 million homes that could be built but haven’t been yet. They also note that the number of planning permissions granted for new homes has almost doubled since 2012-13 but new build completions have risen by only half as much in that time period, suggesting that this is not solely due to the inevitable time lag between the approval of developments and their construction being completed [6].
A common accusation is that housing developers are engaged in “land banking”: holding on to land with or without planning permission as a speculative financial investment, waiting for it to appreciate in value rather than having any genuine intention to develop it [7]. A review by the former Conservative MP and minister Sir Oliver Letwin concluded that this accusation is implausible because developers’ profits are primarily accrued from selling homes rather than land. His explanation for the backlog of developments with planning permission was not really much better, however. He found that developers’ deliberately avoided releasing too many homes onto the market at once in order to avoid creating a housing “glut” and reducing house prices in the local area. As a result it takes, on average, 15.5 years from planning permission being granted for a large housing development to be completed [8].
Recent trends in the housebuilding industry have seen the sector increasingly dominated by a few large developers. In 1980 there were more than 10,000 small and medium housebuilders constructing the majority of homes, by 2015 this had fallen to fewer than 3,000 firms delivering just over a quarter of output; meanwhile the top ten housebuilders have increased their share of construction to 47% and saw their profits multiply several times over during 2010-15 [9]. Meanwhile, public housebuilding has declined massively since the 1970s which means that private developers are responsible for the vast majority of output [10]. However, rather than a boom in private output from the state stepping aside, private housebuilding has remained broadly steady over the long run (Chart 1).
Chart 1
Reproduced from MHCLG “Housing supply: Indicators of new supply, England January to June 2020" [11].
The cause of the slow rate of new build completion could be described as a kind of double rationing. Firstly, the design of the planning system leads to local authorities limiting the total volume of housing that can be built. Secondly, the housebuilding industry does not behave like a competitive market where developers are driven to meet demand, but instead a few large developers are able to deliberately slow the rate of construction in order to keep house prices high and maximise their profits.
Complex and arbitrary systems.
The planning system is undoubtedly complicated with national frameworks, local and neighbourhood plans, statutory requirements and ad hoc objectives all interacting to create a web of rules and guidelines against which applications are to be assessed. Decisions are frequently made on an arbitrary and, as such, unpredictable basis. Local residents and stakeholders may organise to lobby against developments. Councils may decide for or against granting permission based on political expediency as much as the merits of an application. Appeals to or interventions from central government can override local decisions at the personal discretion of the Secretary of State.
All this makes seeking planning permission an imposing challenge. Would-be applicants must research all the various rules which could be used to judge their proposal, write up a compliant and legally sound application, and for large developments may have to engage in lobbying efforts to persuade local stakeholders, councillors, and perhaps even the DLUHC. This results in many choosing not to bother: those defending the current system will point out that about 90% of applications which reach the final stage of the process are approved, however this is likely a product of the fact that the cost and effort required mean that applications are only made if the applicant is confident they will be approved [12].
Even local authorities complain about being unable to compete with the resources that large corporations can bring to bear. Large supermarkets have been able to “aggressively” expand their reach by attaining permission to build hundreds of new stores; even when applications are rejected councils have complained about these corporations being able to bring more lawyers and expert consultants to hearings and win approval on appeal, while they also have the financial firepower to negotiate generous Section 106 agreements – payments to the local authority which are meant to capture some of the financial gain from receiving planning permission and contribute to the local area – by offering money that cash-strapped councils cannot turn down [13].
Social capital also plays an important role in determining the success of applications given the importance of local and personal decisions in the process. Local authority areas with a low level of democratic participation, as indicated by low turnout at elections, tend to see more planning applications approved while engaged communities can often exercise a veto power over developments [14]. Minority and marginalised groups tend to find the planning system even more difficult to navigate. Traveller communities, for instance, frequently find applications for planning permission on land they own turned down due to vocal opposition from local residents [15].
Given the arbitrary and personal nature of many stages of the planning system it should be unsurprising that accusations of corruption and cronyism periodically arise. In a recent high-profile controversy Robert Jenrick, the former Secretary of State for the MHCLG, intervened in a housing development application by Richard Desmond, a Conservative Party donor, to allow for a reduction in the proportion of affordable housing that would be required, against the wishes of both the local authority and the independent Planning Inspectorate, potentially saving Desmond more than £100 million. Following a legal challenge Jenrick quashed the approval, accepting that his decision had been “unlawful by reason of apparent bias”, and recused himself from further participation in the application [16].
It is clear that the complexity and arbitrary nature of the planning system does not just constrain the supply of housing overall. It also leads to unequal outcomes as those with substantial financial resources, access to expert advice and legal representation, and the social capital to influence key decision-makers are better able to secure planning permission than those with limited means. While affordable housing is in desperately short supply, approvals for luxury accommodation and retail outlets seem comparatively easy to come by.
Housing shortages.
Expansion in the supply of housing has been struggling to keep up with population growth in recent years and, barring very successful reforms, is likely to continue to lag behind over the next few decades. More than 200,000 new households are expected to be formed each year over the next few decades [17] while, as Chart 1 shows, the number of new homes built annually has been well under 200,000 most years since the later 1970s. The supply of housing is clearly failing to meet demand and this has been the case for a long time.
Even improving housebuilding rates to meet match household formation in the future would only prevent the situation from getting much worse. It would not fully resolve the present crisis because there is already a great shortage of affordable housing. House prices have increased dramatically over the past few decades, greatly outpacing wage growth meaning the relative affordability of housing for the average worker has declined. A typical full-time employee can now expect to pay nearly eight times their annual income on buying a home [18]. This has resulted in more people renting and living in overcrowded accommodation – the English Housing Survey 2018-19 found that about 3% of all households in England (788,000) were overcrowded, with the proportion rising to 6% in the private rented sector and 8% in social housing [19]. Overcrowded homes, especially those where multiple generations live together, have posed a serious risk during the Covid-19 pandemic as they allow for easy transmission of the virus to more vulnerable people [20].
Research by the National Housing Federation and the homelessness charity Crisis estimates that England has a “housing deficit” of four million homes, meaning that in order to provide a home for everyone who needs one – including homeless people, tenants paying excessive amounts of rent, and children unable to leave their family home – it will be necessary to build 340,000 homes per year until 2031 [21]. The shortage of affordable housing is particularly acute, with only a fraction of new builds being classified as affordable and more than three million UK households spending more than one-third of their income on housing costs. Affordable housing is not equally distributed across the country, with major cities and especially London and the South East of England having the least affordable houses relative to local incomes [22]. More than one million households are on waiting lists for council housing while the stock of such homes has fallen [23]. Estimates by the charity Shelter suggest that 280,000 people in England are homeless, about 0.5% of the entire population, and a further 220,000 are vulnerable to quickly becoming homeless if their circumstances worsen [24]. Most homeless people live in some form of temporary accommodation, but several thousand are sleeping rough [25].
The planning system is supposed to have several features which encourage and even mandate the construction of affordable housing, but these are unsurprisingly complex and essentially optional for many well-resourced developers. Section 106 agreements in expensive areas such as London boroughs are meant to require that any new development includes a certain amount of affordable housing, however these conditions can be dropped if “economic conditions” would make it an obstacle, so if developers can “prove” that including affordable housing would make their proposed development economically unviable they can be receive an exemption. Redevelopments of existing plots may also be exempted from creating affordable housing so long as no extra floorspace is created. Even when affordable housing is provided as part of large new developments it is often segregated with separate entrances or “poor doors” for tenants of affordable units to keep them away from luxury residents. In a particularly egregious case, a developer was able to gain an exemption from providing socially rented housing at a development in Elephant & Castle on the basis that the cost of segregating it from the rest of the accommodation would be too expensive! (They instead paid a contribution to other local developments.) [26]
Simplify the planning system.
To sum up, there is a severe shortage of affordable housing and if recent trends continue it is only going to get worse. The 2019 Conservative manifesto committed the government to building at least a million homes over the course of the current Parliament and to increase the annual rate of housebuilding to 300,000/year by the mid-2020s [27]. With the Covid-19 crisis having already caused a severe decline in construction the government will need to rapidly accelerate housebuilding to levels not seen since the 1960s in order to stand a chance of meeting these targets. This will require reforming the planning system and removing many of the obstacles to supplying an adequate number of homes.
In August 2020 the MHCLG published a white paper outlining its proposals to reform the planning system which could prove to be the most radical since the planning system was introduced in the 1940s. At the heart of these proposals are moves to make the system less discretionary and more rules-based. Local plans are to be simplified to focus on sorting land into three categories: “growth” areas suitable for substantial development where applications meeting pre-determined criteria should be automatically approved; “renewal” areas suitable for limited development such as regeneration and increased density; and “protected” areas where development is restricted. Decision-making and consultation with local residents and stakeholders is to be concentrated at the plan-making stage such that, once the plans are published, would-be developers are presented with a clear set of rules and can be sure whether or not a certain application will be approved in advance [28].
These proposals are promising and could resolve many of the problems with the present planning system, potentially creating a much simpler and transparent system which could be effectively navigated by large and small developers alike. Of course, its success remains to be seen and depends greatly on how well it is implemented. Growth areas where planning permission can be granted more or less automatically, subject to agreed-upon guidelines, could substantially increase the potential supply of housing and prompt developers to compete more aggressively and raise output so long as governments and local authorities are bold enough to designate large growth areas. If growth areas are limited to largely reflecting current allocations of planning permission they will have a limited impact [29].
Some of the objectives stated in the white paper are potentially contradictory. The proposals state a desire to both accelerate the consultation stages of applications while also giving local people greater access to consultations with digital tools such as satellite mapping made available through planning portals. A delicate balance would need to be achieved to ensure that a speedy system does not lead to residents feeling disempowered. The proposals also seek to reduce the amount of arbitrary discretion in the system while also writing in guidelines that local plans should promote sustainable and even beautiful new developments, improving the aesthetic value of the local area. While the reduction of case-by-case discretion would be welcome, if local plans are made overly restrictive and demanding they could still act as a significant constraint upon development.
The government’s plans also intend to retain the existing “green belt” which constrains developments on the edges of major cities like London by automatically designating green belts as protected areas. The rationale of the green belt has come under question and its preservation may ensure that an insufficient amount of land is made available for development in precisely the areas with the greatest demand. Talking about a green belt may conjure up images of meadows and forests, but much of it is in reality marginal land that was arbitrarily chosen to stop urban growth in its tracks [30]. Opening up green belt land, especially areas near existing public transport hubs, could provide for a massive expansion of housing supply precisely where it is most needed [31]. Environmental protection objectives could be better served by promoting reforesting and rewilding in rural areas and making new developments sufficiently dense that they do not lead to urban sprawl.
Reforming the rules for local authority plans alone may not sufficiently stimulate housebuilding given that it would still up to large private developers to do most of the construction. A reformed planning system may remove some of the incentives to constrain the supply of affordable housing but an oligopolistic housebuilding industry is unlikely to engage in genuinely competitive and pro-consumer behaviour unless specifically encouraged to do so. Imposing a levy on unused land with planning permission could incentivise developers to start and complete developments more quickly rather than rationing out constructing to protect their profit margins.
The MHCLG’s white paper proposes replacing negotiable Section 106 contributions and requirements with a fixed Infrastructure Levy on new developments; if this levy is sufficient to fund developments of affordable housing it could prove a beneficial change but otherwise it might further decrease the already patchy provision of affordable housing [32]. If private developers cannot be nudged or mandated to provide a sufficient supply of affordable housing it may be necessary for the public sector to return to housebuilding and providing social rented accommodation on a much greater scale.
5http://personal.lse.ac.uk/hilber/hilber_wp/hilber_vermeulen_ej_forthcoming.pdf
6https://www.local.gov.uk/housing-backlog-more-million-homes-planning-permission-not-yet-built
10https://www.local.gov.uk/topics/housing-and-planning/house-building-england
13https://www.bbc.co.uk/news/uk-england-11936734
14https://www.sciencedirect.com/science/article/abs/pii/S0264837709000635
17http://www.civitas.org.uk/content/files/housingsupplyandhouseholdgrowth.pdf
19https://researchbriefings.files.parliament.uk/documents/SN01013/SN01013.pdf
20https://www.kingsfund.org.uk/blog/2020/09/poor-housing-covid-19
21https://www.propertyreporter.co.uk/property/englands-housing-backlog-hits-4m-homes.html
22https://www.rtpi.org.uk/media/1926/betterplanninghousingaffordability-positionpaper2017.pdf
23https://www.nucleus.org.uk/council-housing-backlog-could-take-17-years-to-clear/
26https://citymonitor.ai/government/6-planning-loopholes-which-screw-over-affordable-housing-723
29https://www.centreforcities.org/publication/the-future-of-the-planning-system-in-england/#Q7
31https://www.centreforcities.org/publication/homes-on-the-right-tracks/
