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Help to supply not help to buy

The UK housing market requires radical liberalisation of the planning system in order to make property much more affordable.

Recent weeks have seen a flurry of Government activity focused on the housing market and how to build more affordable homes. But, ultimately, we will only build enough affordable housing if there is radical reform of the supply side of the housing economy. The UK housing market desperately requires help to supply, not help to buy. The ultimate cause of our housing problem lies with the planning system and the price of land.

The UK housing market is grotesquely distorted by Government intervention through the planning system. Agricultural land can sell for around £10,000 per acre, but that same acre can sell for £1.5 million or even £2 million in the South East of England, if it has planning consent. A 150 or 200 fold differential in price is breathtaking in its economic stupidity.

We’re dealing with a housing market where the supply curve is so steep any increase in demand is more likely to result in higher prices than increased supply. Any government intervention quickly becomes capitalized in house prices. The end result is that we have the most expensive, densely concentrated and smallest properties in Europe. This is a system where any new property development will sell in weeks or a few months. Consequently developers pay little attention to innovative design architecture. They don’t need to when bog standard properties are easily sold off plan.

Over the past 60 years we’ve transformed land from being easily available, to being a very scarce resource. The madness of this policy is difficult to overstate. The left hand doesn’t know what the left hand is doing. The underlying problem is caused by Government intervention (the planning system) and then the Government attempts to correct the affordability problem with another state intervention (e.g. help to buy). You don’t know whether to laugh or cry!

The obvious counter to my argument is that the planning system fulfills a purpose and prevents our green and pleasant land from being concreted over. But I just don’t buy it. We can keep a green and pleasant land and build a lot more houses. 90% of the UK population lives on just 9% of the land. Done sensibly, a liberalisation of the planning system could have a transforming influence on house prices because 30-40% of the value of a new house is in the land it occupies.

There’s plenty of land out there. Research shows that only very modest building on greenbelt would be required in order to provide more than enough land for housing for generations to come. Greenbelt is not always a green and pleasant land – parts of it are even grotty. Greenbelt really only provides value for those living within it, and all too often it doesn’t provide an amenity value to those outside – when used for intensive farming and/or lacking viable rights of way. One wit described the greenbelt as “a very British form of discriminatory zoning, keeping the urban unwashed out of the Home Counties, and of course helping turn houses into investment assets instead of places to live.” All too true.

One final important point is the allegation that developers are sitting on large land-banks and that what’s needed is for the developers to start developing. But this misses a crucial point, namely that the planning system provides a huge incentive for developers to sit on land banks. Given the limited supply of land developers know they’re sitting on an appreciating asset. Also, there’s an element of precautionary behavior, as developers make sure they will have enough land on which to build in the years ahead. Whichever way you look at it, the problem is in the planning system.