Planning matters

After the ‘longest job interview in history’ the new Prime Minister now takes on, what the BBC describes as the “gargantum task of Governing when millions are confronted by unpayable bills. Governing during a war in Europe and in the aftermath of a pandemic. And governing a party that's already been in power for 12 years.”  In the context of the myriad crises, political priorities might lie elsewhere, but housing cannot be ignored.

Recently, in the context of the energy supply crisis ten year old footage of various political leaders writing off investing in nuclear power infrastructure has emerged, declaring a decade ‘too long to wait’ for a stable, functioning energy market given the affordability crisis of the day. It reminded me of the costs of temptation across the political spectrum of grasping quick wins to alleviate demand rather than addressing the long term fundamentals of supply. It might be ‘Unprecedented Times’, but if the last few years of perma-crises have taught us anything, it is that the Government cannot afford to wait for calmer waters tomorrow to take the tough decisions and this is the case for housing and planning.

Looking for clues as to how the Prime Minister might see housing and planning policy is complicated. As the crises mount up, housing is slipping down the priority list. The new Prime Minister has highlighted the primacy of building more homes to ensure home ownership is an option for future generations (of potential Conservative voters) but she has distanced herself from the previous plan for a million homes on London’s green belt.

The Prime Minister has favoured (during the leadership debates) a ‘free market philosophy’ to the housing crisis but housing requires effective planning. Ms Truss also supports local areas’ having more say in where homes are built, but the familiar realities of local planning politics will take hold quickly. The party leadership debates might have seen her appetite soften for planning reform but the political reality is that house prices, productivity, and well being will all suffer if the trajectory of housing supply continues downwards.

Through the Standard Method (denounced as creating Stalinist targets during the debate) local planning authorities are tasked with, assessing, and planning for enough homes to meet their ‘local housing need’. In many areas, the local political incentive is firmly behind building the least amount of homes possible, despite the cost nationally to higher house prices and lower productivity growth. If house building targets which are designed to counter the local political challenges, are removed in favour of an incentive based approach, it will take a colossal shift in the tax system and economic orthodoxy of the country towards something akin to a land value tax with significant local benefits to new building to outweigh the local political costs which currently ‘win out’. If the PM really wants to deliver improved housing outcomes without causing a long hiatus in house building while changes trickle through, and clogging up the legislative agenda and political landscape for the remaining parliament and beyond, other less dramatic improvements can be sought which could help achieve the ‘300,000 homes a year’ manifesto commitment. To address the housing crisis, the Prime Minister can make significant gains by working with the grain.

A reason to be optimistic is that it’s a good time to think about housing and planning policy, with The Levelling Up and Regeneration Bill in Commons committee, the PM can drive forward the Bill’s passage. As we have previously covered, the Bill itself is far from its revolutionary roots and now its focus is on tweaking and smoothing the planning system ‘as is’. It will however bring some positive changes.

To achieve some of the bolder changes required to build more homes, the most significant target should be the issues which are stymying and stultifying the local plan system at the moment – this can in part be done through the NPPF prospectus. This policy document will be at least as important for changes to planning and housing than the LURB itself. In this context, several important factors need to be considered.

The plan-led system can be effective in delivering the right amount of homes that are needed in each area, but at the moment it is slowing with local plan making grinding to a halt. The Government needs to be clearer about the expectations for local planning authorities to deliver homes, the standard method was a way of doing this, this is not about supporting ‘Stalinist policies’  or lining ‘greedy developer’s pockets’ (Feeding the Pipeline, Lichfields) but to deliver the homes we need, we must plan for sufficient homes to be built. This means supporting local planning authorities to make the tough local decisions needed to be pro-development and pro-growth, and genuinely disincentivising those authorities which are dragging their feet on the hard decisions. It also means slickening aspects like the duty to cooperate so that areas work together better (something the LURB is helping to support through more devolution).

The Prime Minister also wants to support an increase in home ownership. Lichfields research on the latest census showed around 600,000 households were prevented from forming over the last decade . The Prime Minister is right to say that supporting more of these households to become home owners, or renting a place of their own will dramatically improve their lives, local economies and improve the stability of house prices. The focus must however be on building more homes, rather than the politically appealing short term demand side boosts that cause house price rises in the absence of supportive supply side boosts.

In practice, to build the homes we need, we need to plan for significantly more homes than we do currently and in the absence of sufficient local incentives this needs to be driven nationally. Far from a ‘stalinist approach’ the housing market needs support and policy to be an effective market. Lichfields' research Tracking Progress shows that to deliver the 300,000 homes a year the current manifesto calls for -  all being equal we need 520,000 permissions per year need to be granted in the short-tomedium term to build up a bank of permissions - but are currently working with around 370,000.

During the leadership election, Ms Truss distanced herself from previous plans to build on the greenbelt, as Mr Sunak called for ‘gold-plating’ the greenbelt. Clearly much of this politicking was speaking directly to Conservative members, but the practical realities of governing must now prevail. Lichfields' Banking on Brownfield research showed that Brownfield land alone cannot provide the solution, especially in the highest demand, most productive areas. Alongside this, another myth aired throughout the Summer has been that ‘greedy developers’ just need to be incentivised through a ‘use it or lose it’ tax system, our analysis also shows why this neither the solution, or even a significant problem.

We need to do this now. The prospects for the next decade could arguably be worse than the current crisis unless measures are taken to address the planning system. The flow of new planning permissions is starting to decline. Recent data on permissions shows the steady upward trend seen between 2012 and 2018 has halted and in fact the flow of permissions has started to decline. If rates of permissions were sustained at around 372,000 per year there would be a shortfall of almost 293,000 permissions by 2023. This points to the need for an uptick in permissions in the next 1-2 years in order for these homes to be delivered by the mid-2020s. And this is worse for our more productive areas.

The politics of this are unquestionably hard, and with finite political capital and multiple crises to tackle, during the leadership debates both candidates might be forgiven for dodging talking about the most difficult trade offs. However now in post, the Prime Minister must act quickly to deliver on the LURB, and use the NPPF prospectus to project a clear unambiguous focus on ensuring local planning authorities have plans which deliver sufficient permissions to meet their housing needs. If we do not plan for the homes required, we will still be facing the same questions, and stuck in another housing crisis a decade from now.