Planning matters

In the weeks ahead of a much-awaited Budget, the clarion calls from the home building sector for Government to reintroduce some form of substantive equity loan assistance for first time buyers (FTBs) have been increasing in volume (e.g. from the big builders,[1] industry bodies,[2] and other commentators[3]). In recent weeks, the rumour mill has been spinning with speculation as to whether a new scheme is on the way: in the 2025 Budget? Perhaps in the 2026 Spring Statement? Or perhaps not at all….

Whatever the truth, this blog considers the factors behind the current pressure and speculation, what lessons can be learned from previous rounds of equivalent assistance (notably Help to Buy) and what the evidence says about whether this might unlock more homes.

As any Econ 101 graduate will remember, markets are defined by the forces of supply and demand. Although fiendishly nuanced, this principle is as true when applied to housing markets as it is to commodities or indeed anything.

Up until this point, the Government has put supply side policies at the heart of the manifesto and its growth ambitions for housing.[4] Almost immediately on election, it instigated a reform of the NPPF and a new Standard Method which crystallised in December 2024. The impact of planning reform on house building and the economy was positively costed in to the OBR’s March 2025 forecasts for the economy – an additional 170,000 homes by 2029/30, a £6.8 billion economic boost, while also increasing tax revenues and reducing public debt interest by £3.4 billion. This confirmed what was self-evidently true: the supply of new homes is a critical part of the Government’s mission for sustained economic growth. But economic growth does not come principally from consenting new homes[5]; it comes from building them.

After a busy year of progressing Bills, publishing consultations and issuing policies (and notwithstanding the Planning and Infrastructure Bill, non-statutory National Development Management Policies and a new NPPF expected before the end of the year)[6] the Minister for Housing stated at the October Labour Conference, that the “bulk of the Labour government’s planned housing reforms has been done…[now] we’ve got to make the existing system work”.[7]  

However, while the Government’s supply-side changes to the NPPF, Standard Method, and the concept of Grey Belt, have been welcomed by many in the industry, the North Star ambition of delivering 1.5million homes within the parliament – or giving full force to the Secretary of State’s "build, baby, build" mantra[8] - remains distant, as last week’s housebuilding[9] and housing supply figures[10] showed. Just 208,600 net additional homes were delivered in 2024/25, 16% below their 2019/20 peak of 248,590, and down 6% on the previous year.

Some of this is down to the inevitable lag effect of policy change: it now takes an  average of two years to get an outline permission for residential development from the time an application is submitted, plus the time beforehand to prepare a scheme, and the period after to open up a site and start building. The pipeline of land for homes that are being built now will, to a large extent, be the product of the systemic hiatus that afflicted planning in the aftermath of the 2020 White Paper, and which culminated in the nadir for homebuilding of the December 2023 NPPF, which was forecast to have a calamitous impact on housing land availability. In London, the compounding of policy and regulatory layering with viability pressures that led to recent “emergency measures”[11] was clearly pointing to a downward trend in 2023/2024 (see London Plan Review). In simple terms, the planning inheritance of the new Government was never auspicious for its home building plans – as we postulated back in July 2024. 

But, the evidence points to the demand-side remaining a challenge. Housing unaffordability is acute: In 2024, the median average home in England, at £290,000, cost 7.7 times the median average earnings of a full-time employee (£37,600) and in London the ratio is 11.06.[12]  Raising a deposit to buy a home on these ratios is impossible for many desirous FTBs, and since 1990, home ownership rates among 19 to 29-year-olds have more than halved.[13]

Helping people onto the housing ladder has been part of Government policy going back to mortgage interest tax relief (MIRAS)[14], the subsidies of Right to Buy (not without adverse consequences for social housing supply)[15] and the various schemes like HomeBuy, First Buy and, most recently, Help to Buy, which was abolished in 2023[16]. The two years since are arguably the first time in the modern era of housing unaffordability that a Government has not had a serious programme in place for FTB support. Towards the end of 2022, many expected the lack of a replacement scheme for Help to Buy would lead to a drop in the number of homes being built.[17] And so it proved.

Of course, one might simply say that if there is a lack of demand from FTBs, then home builders should simply adapt their schemes and build larger homes for which there is demand. There is some evidence that doing so would improve affordability across the market.[18]  However, under policies introduced by the first NPPF in 2012, local planning authorities increasingly control what type and size of market homes can be built based on Strategic Housing Market Assessments (SHMAs). These reports use (often rather simplistic) analysis of demographic trends to observe the increase in smaller households (due to an ageing population) and then project a housing mix based on an assumed relationship with the number of bedrooms they notionally require. Policies are then produced that require sites to provide proportionately more (smaller) one and two-bed homes rather than (larger) family accommodation. Once the mix is set in a local plan, planning applications are expected to comply with its provisions.  Applications not complying face greater risk of delay or even refusal.

The situation is particularly acute in London, given the focus on apartment schemes and density standards. Yet research in 2024 suggested first time buyers made up only 27% of the new build market in the capital, down from 45% in 2021.[19]

So, if the planning system imposes expectations on building smaller homes for which realisable demand is lower, this will in turn reduce the sales rates and home build rates, and dampen the number of new homes that are built.[20]

With this in mind, the industry calls for Government to revisit the idea of equity support for first time buyers – and capitalise on its planning changes - is unsurprising. So far, the Government has resisted.

Recent HBF research shows that the value of the assets are such that through a combination of positive returns on equity loans and interest income, the government has now received £1.38 billion in profit from the original Help to Buy scheme.[25] Far from being a drain on public finances, it will support them. The report also assesses that the 387,000 Help to Buy purchases supported £86 billion generated in economic activity, more than 130,000 jobs supported each year at its peak, and over £10 billion in tax receipts.

By contrast, the ‘grey belt’ concept, introduced in the 2024 NPPF – plus the higher standard method need figures and complementary requirements for green belt reviews - should mean that future supply can be much more responsive to demand.

The research by Carozzi, Hilber and Yu[32] which is often cited as supporting the idea that Help to Buy was inflationary, is actually more nuanced. It showed that Help to Buy had differing impacts in different areas of the country depending on the supply constraints of the region – effectively pinpointing planning as a key reason for the inflationary impact. In areas with higher level of planning restriction (its analysis focused on the fringe of Greater London, dominated by Green Belt constraints), it concluded Help to Buy was inflationary: the paper found that housebuilding rates stayed the same while their prices rose, as effective demand was increased. However, crucially, it also showed that in areas with lower levels of planning constraints (it focused on the English/Welsh border), Help to Buy worked "as intended" with higher effective demand supporting increased rates of housebuilding and house prices remaining stable.

Advocates for the return of some form of FTB assistance will point to the potential for it to complement the Government’s supply-side reform agenda, in which we estimate around 65-80% of the country is now operating under the ‘presumption in favour of sustainable development’ due to out of date local plans (including no five year land supply, or failure to pass the housing delivery test). The next generation of local plans – and strategic planning (if the emerging model proves resilient to political volatility) – will be working towards achieving a level of housing provision across all parts of England that is well in excess of what has been planned for in recent decades. In theory, this should significantly improve the elasticity of supply in response to the increased demand.

The principle challenges arise from:

Whether or not Government introduces some new form of assistance for FTBs on 26^th November, or in Spring next year, some other time, or not at all, we can expect the debate over its impact on housing supply to continue.