Planning changes will not resolve the housing crisis

Labour’s first housing priority should be council housing

The proposed changes by the new government to the National Planning Policy Framework will not resolve the housing crisis. The key to doing that is funding the building and acquisition of social rent homes on the scale or 100,000 and more a year.

The Town and Country Planning Association is right when it says that “Our current planning system has many problems, but it is not, and has never been, the root cause of the housing crisis.”

It says there are two systemic problems – “an overwhelming lack of investment by government in homes for social rent”, and “the repeated mistake” of four decades of planning reform focusing on “the generation of planning consents for housing with no effective strategy for their delivery”.

There has been a consistent gap between planning consents for housing, running at an average of 311,000 a year over the last decade, and building, which ran at 220,000 over the same timeframe. This is because house building is dominated by an oligopoly, the shrinking number of large volume builders, who build only to maximise profits, and at a rate which does not risk depressing unit prices. Social needs, the acute shortage of social rent homes, in particular, are not on the radar of the oligopoly. Changing planning law will not make them build at a pace which will cut house prices and depress their returns. The house building oligopoly will not resolve the housing crisis.

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If you look at the statistics for house building after the war you will find that from 1953 to 1977 (the last year when 300,000 homes were built), of the 22 years when that many or more were built, in 17 of them, 40% or more were council homes. Of the other five there were never less than one third council homes. Therefore, to imagine that you can set a 370,000 target, which the new government is proposing, and to rely on the market and speculative builders to ramp up building, is illusory.

The TCPA’s recent White paper argues for “a radical departure from orthodox approaches to housing delivery by advocating democratic, comprehensive, and strategic planning as the solution to unlocking housing delivery”. They call for “giving the public sector and the communities they serve a much more prominent role as master developer”. This was the control that councils had under the 1947 Town and Country Planning Act when they determined what was built. Private builders needed their proposals to be approved by an elected council.¹

No democracy in mandatory targets

There is a contradiction between the government talking of devolving power from Westminster to the local level yet imposing mandatory house building targets. The TCPA says that “planning is the solution to the complex job of developing our communities in ways that meet economic, environmental and social goals in a democratic context”. But there is no democracy in mandatory targets. Moreover, there is no target for ‘social housing’ despite the fact that central government grant can easily determine a specific number of homes to be built, unlike reliance on speculative builders and the market. When Aneurin Bevan tripled the grant for building council housing after the second world war, he made the point that “the speculative builder is not a plannable instrument”. That’s why council housing was made the first priority and councils were told to develop plans based on need. They were, and still are, “a plannable instrument”.

Experience tells us that where councils do not meet their targets then developers can use that to overturn objections to planning applications, on the basis of ‘needing’ to meet the numbers regardless of tenure. Councillors around the country are saying that the new targets being set are unachievable.

The TCPA suggests that there needs to be “a fundamental policy shift to focus on strategic delivery by giving the public sector and the communities they serve a much more prominent role as master developer”. That cannot happen if mandatory targets are used to force councils to promote any house building to meet the numbers, especially when there is as yet no prospect of the government increasing the funding available in the previous government’s Affordable Homes Programme to facilitate a step change in council house building.

The TCPA, like other organisations such as Shelter, Crisis, the Local Government Association, talks of the need of prioritising socially rented homes. Angela Rayner has spoken of “the biggest increase in social and affordable housing in a generation”.

Yet without a significant increase in government grant for building/acquisition this will not materialise. And there is a problem with that term “affordable” (see below).

The National Policy Planning Framework says that the best way to deliver the “much needed affordable housing” is through improving the existing system of developer contributions; the section 106 agreements which developers enter into with local authorities. But so long as councils do not have the resources to build their own housing on a larger scale than currently (half of councils in England do not have any council homes, having sold them off, many under New Labour) then the big developers and builders have them over the proverbial barrel.

Moreover, there has developed a clear trend whereby housing associations are deciding not to buy “affordable” homes built by developers, partly because of the expense, the poor quality and the fact that they are not the right sort; i.e. often just one bed properties rather than family homes.

The NPPF draft proposes for the grey belt² sites that there will be 50% “affordable housing”. Yet with the big builders only interested in increasing their margins, they will either not agree to council proposals if they prioritise social rent, or else will demand that the 50% consists of the tenures which are more remunerative to them, such as “affordable rent”, shared ownership and “affordable home ownership”.

Unfortunately, the government proposes that “Provision of affordable housing should not be sought for residential developments that are not major developments, other than in designated rural areas…”

“Affordable housing” a misnomer

The big problem here is that the government appears to support the previous government’s definition of “affordable housing”. For instance, the NPPF accepts “affordable rent” (up to 80% of market rent) as such. This was introduced by the coalition government as a means of cutting grant for new build. Not only is it unaffordable for many but it drives up the benefit bill because of the considerably higher rent than ‘social rent’³. The government should end “affordable rent” and only provide grant for social rent.

The NPPF says that the government “believes that local areas are best placed to decide the right mix of affordable housing for their communities” and proposes to include social rent in their housing needs assessments. If “local areas are best placed” then let them decide. The fact is that if grant for social rent homes is provided then councils will build them because of the acute shortage they face and the growing pressure on their general funds of the cost of temporary accommodation.

Mixed tenures

The document has a presumption that a mix of tenures creates “diverse communities”. The government is proposing to promote them by introducing “a new policy that expects local planning authorities to take a positive approach to them through both plans and decisions”. There is much nonsense talked about the benefits of mixed tenure as opposed to “monolithic single tenure estates”. In reality, certainly after the second world war, before the introduction of right to buy, council estates were not “housing apartheid” but socially mixed, with tenants comprising the school teacher and the school cleaner, the factory worker and the office worker, and more besides. Today it is common to see on ‘mixed estates’, the social housing tucked away from the home owners in some far corner. Behind the rhetoric lies the real motive of builders maximising their profits by limiting the amount of social housing as far as possible.

The NPPF does accept that “there will be circumstances where developments that are predominantly (or exclusively) single tenure will be appropriate and should be supported”; “development that delivers a high percentage of social rent (alas it says “or other “affordable” housing tenures) should be supported”. However, without funding this is not likely to happen. Unfortunately they are consulting on whether there should be a maximum size on sites of this type and leaves open the possibility that the 50% target might be lowered on “low land value areas”.

Land Values

The government’s proposal in relation to land value is more timid than the Atlee government. They are proposing arrangements which determine that land will be sold at a “fair” price. They offer three options.

a) The government sets “benchmark land values” to be used in viability assessments. These should be set “at a fair level”, which is a nebulous term which will be subject to being contested.

b) The government sets policy parameters so that where land transacts at a price above the benchmark land value, a viability assessment should not be undertaken.

c) The government sets out that where development proposals comply with the benchmark land value requirements and a viability negotiation occurs.

Annexe 4 seeks to define a national policy basis for adopting an existing use value plus “a reasonable and proportionate premium” when calculating Benchmark Land Value as opposed to “the minimum return at which it is considered a reasonable landowner would be willing to sell their land”. That again will be subject to contestation, most likely lead to an increases in viability assessments and the probability of developers ‘downing tools’.

Much simpler would be to repeal the 1961 Land Compensation Act (which introduced ‘hope value’ through which developers gain through a huge increase in land value when planning permission is granted) and to restrict prices to use value. This was the basis on which much of the post second world war council housing was built, on cheap land. What the government is proposing instead would involve possibly three to ten times existing use values, we are told.

Tenure

Ultimately local authorities should be able to determine the tenure break-down on the land that they own or buy. Under the current system the big builders and developers have leverage over local authorities rather than the other way round. The TCPA writes that

“This crude application of supply and demand economics ignores the fact that house prices are themselves the product of complex systems shaped by, for example, macro-economic policy in terms of interest rates and taxation and the degree to which property rather than productivity attract investment. It’s precisely because house prices result from a complex web of factors that the government’s radical deregulation of the planning regime had failed to shift the dial on delivery.”

Growth is no panacea

One of the key premises of the planning changes is that “economic growth is the only route to improving the prosperity of our country and the living standards of working people”. This is wrong. GDP is simply a measure of economic activity, socially and environmentally useful, or destructive. ‘Success’ cannot be measured simply by an increase in GDP. Likewise economic growth can be socially and environmentally healthy, or it can have negative social and environmental consequences. Some things we need to do less of. For instance we need to cut the energy we use, replacing gas central heating with heat pumps.

This is clear when you consider house building. Increased building by the oligopoly is not socially positive. Increasing the number of homes for sale will not resolve the problem of homelessness. The more than 117,000 households in temporary accommodation and 1.2 million households on council waiting lists are not going to be able to buy a home.

The big builders have made super-profits in the period since Help to Buy was introduced. A report by academics for the UK Centre for Housing Evidence has recorded that

“In February 2022, British Petroleum (BP) reported annual profits of £23bn, more than double that reported the previous year, and equating to 30% return on capital employed (ROCE). Outrage predictably ensued, but as the Financial Times (Eley, 2023) pointed out, just two days later, Barratt Developments, the largest housebuilder in the UK, reported a similar ROCE for June-December 2022, and this was despite house prices falling over much of this period. This was no anomaly. Since 2014, the largest housebuilders, and in particular the three largest housebuilders by volume (Taylor Wimpey, Barratt and Persimmon – herein, the ‘big three’) have consistently reported supernormal levels of profitability, with gross profit margins reaching 32% and never falling below 17%.”

Not only do the big builders rip off their customers on price, new housing in Britain is notoriously small, and much of it poor quality. State support for home ownership, as exemplified by Help to Buy, has merely served as a subsidy for the big builders and driven up house prices, making a mortgage more unaffordable for increasing numbers of people. From 2010 to 2022 new build house prices increased by 84% both for median and lower quartile homes.

Council housing should be the government’s first housing priority

The key to resolving the housing crisis is to make council housing the government’s first housing priority – a combination of new build and acquisitions. They cannot control what the market does but they can determine what councils do by providing a big increase in funding to produce a step change in the council housing stock available. There is a wide range of organisations calling for at least 90,000 social rent homes a year, including Shelter, the magazine Inside Housing and tenant groups.

The market, the private housebuilders, have never sought to address the housing crisis because they build to maximise their profit, not to build for social need. In March of this year there were 117,450 households in temporary accommodation in England, including 151,630 children. These people won’t be freed from temporary accommodation by homes built for sale by the big builders. Only a significant increase in available social rent homes can get them out of temporary accommodation. Planning changes that deliver that are necessary.

In their press release for its ‘Housebuilding Market Study’, the Competition and Market Authority (CMA) said:

“Around 60 per cent of all houses built in 2021 to 2022 were delivered by speculative private development, which is when builders obtain land, secure planning permission, and construct homes without knowing in advance who will buy them or for how much…the country’s reliance on this model has seen the gap widen considerably between what the market will deliver and what communities need…’

Research by Big Issue last year found that the land held by the top eight housebuilders alone had soared to 918,823 plots, an increase of 49% on 2018 and enough to keep them going until around 2040 at their current output. But the reality is that housebuilders only develop the land they hold when they can maximise their profit.

The housing crisis can only be resolved if government policy is driven by need rather than speculative private development. Council housing should be its first priority.

Martin Wicks

1In fact because council housing was seen as the main priority, builders had to apply to build and homes for market sale were limited to 20%.

2“For the purposes of plan-making and decision-making, ‘grey belt’ is defined as land in the green belt comprising Previously Developed Land and any other parcels and/or areas of Green Belt land that make a limited contribution to the five Green Belt purposes (as defined in para 140 of this Framework), but excluding those areas or assets of particular importance listed in footnote 7 of this Framework (other than land designated as Green Belt)”.

3The Regulator of Social Housing reports that the average social rent in 2022-23 for England was £93.10 as compared to £137.65 for “affordable rent”.