10 November 2022

Giving back control: how to reform housing targets


Liz Truss may have dismissed them as ‘Stalinist’, but it’s worth examining how housebuilding targets actually work, and whether scrapping them altogether is a good idea.

If you want to build a house in modern England, you have to apply for permission from the local planning authority. Most local authorities draw up ‘local plans’ in which they designate the areas in which they intend to say yes to such applications. If you live in an area ‘allocated’ for development, your application will probably eventually be successful.  If you don’t, it will almost certainly be refused. The writing of a local plan is therefore a highly contentious process, in which the fears and aspirations of thousands of people are vested.  

In general, the political incentives for local authorities are to allocate relatively little land for development. The inconveniences caused by a given development are concentrated among their constituents, while its benefits are either diffused across the whole national housing market or hyper-concentrated in a handful of landowners. Slightly lowering rents and prices across the entire English housing market has essentially no electoral benefit for a given local authority, whereas infuriating some of its constituents carries great costs. This means that, even if the aggregated benefits of a development greatly outweigh the aggregated costs, local political incentives still frequently weigh against it.

Over the last decade, the national government has tried to address this through a system of housebuilding targets for local authorities. A target is generated for each local authority based on an assessment of local housing need and constraints on supply, and the local authority is then obliged to release enough land to meet this target: if it does not, its local plan can be declared invalid, eliminating most local control over development.

This system has been fairly successful in raising output. Housebuilding levels increased steadily since targets were introduced in their current form in 2012, rising from little over 125,000 to little under 250,000 on the eve of the pandemic. Several policies played a role in this, including permitted development, but the target system was the most important. Although this level of output is still not enough to end the housing shortage, it has certainly made it less severe than it would otherwise have been.

Unsurprisingly, however, it has also generated resistance. The whole point of the target system, after all, is to make local authorities build more than they would otherwise choose: if it did not have this effect, it would be superfluous. So although targets have almost certainly made Britain a more prosperous place with (somewhat) less unaffordable housing – an outcome that most people support – they are often and understandably resented as top-down impositions on local communities.

In recent months, this has led to proposals to revisit the target system. In our recent report for CPS, Alex Morton and I outline five of these. 

  1. Guaranteeing local authorities that local plans will be treated as up to date for a specified period after they have been approved. At present local plans can be rendered out of date by shifting national policy faster than it is possible to update them, allowing some developments to be permitted on appeal even where they contravene the local plan;
  2. Ceasing to throw out local plans that have only narrowly missed their housing targets;
  3. Cutting housing targets for greenfield and increasing them for brownfield (which would shift pressure from the South and rural areas to the North and urban areas);
  4. Ceasing to throw out local plans if they fail to allocate land for housing;
  5. Allowing councils to assess how much housing they need entirely locally.

All of these reforms would reduce housing output, but they would do so in widely varying degrees. (1) would result in slightly fewer developments being passed on appeal, and (2) would result in more councils narrowly missing their targets, since the disincentive to do so would have been removed. But in both cases, the fall in output would be modest, in the order of 5%. Both might also bring benefits: (1) could lead to the target system being seen as less arbitrary and unfair, and (2) could lead to its being seen as less rigid and punitive. They are genuinely worthy of consideration as measures for securing local consent for the target system and ensuring its political durability in the longer term.

The situation with (3) is more complex. Shifting development from greenfield to brownfield sites is a laudable objective. What complicates the situation is that brownfield targets are much more likely to be missed than greenfield ones, for a range of reasons including the greater cost of remediating brownfield sites and the greater likelihood that brownfield sites are in areas with low prices. The upshot of this is that a cut in greenfield targets that is seemingly compensated for by an increase in brownfield targets will almost certainly lead to a substantial fall in output in real terms, as met targets are replaced by unmet ones.

Proposals (4) and (5) essentially abolish the target system: (4) removes the sanction for not meeting targets, and (5) allows local authorities to set their targets as whatever they wanted to build anyway. Both would result in housing output falling back towards where it was before the target system was introduced – certainly a drop of 20%, and perhaps as high as 30% or 40%.

These falls would come at what is already a bad time for the housing sector. Recession and rising interest rates are expected to reduce demand for housing, depressing prices and making many developments financially unviable. This will lead to job cuts in the construction sector, concentrated among small builders who are less able to absorb economic uncertainty. A reduction in the supply of allocated sites would compound these problems. Given some four million people are employed in construction and related sectors, a fall of 20% in housing supply might lead to 400,000 job losses in those working in construction and maybe another 400,000 in the wider construction-related economy.

Britain’s system of targets is far from ideal. Any arrangement that systematically generates conflicts between local communities and the national interest is problematic, and in the long run it is probably right that we should aim to move towards a less adversarial model. Proposals like street votes show that the Government is interested in this too. However, it is important not to make this move hastily or blindly. Abolishing the target system before credible alternatives are in place will markedly reduce housing output, compounding housing unaffordability and destroying hundreds of thousands of jobs. For the time being, the Government should aim at reform rather than abolition, revising the target system in ways that reduce its perceived rigidity and arbitrariness, but without discarding one of the few credible instruments we have for building the homes the country needs. 

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Samuel Hughes is Head of Housing at the Centre for Policy Studies.