28 May 2024

Labour’s housing plans rest on shaky foundations


Over the past few months, Labour has made a strategic choice to try and minimise the economic space between itself and the Conservatives. Rachel Reeves has pledged to match most of Jeremy Hunt’s spending plans, and her mission in the campaign seems to be reassuring right-leaning swing voters that they can trust Labour not to hike taxes.

That is all tactical good sense, I’m sure. But given the scale of the challenges facing Britain, a steady-as-she-goes agenda is not going to get Sir Keir Starmer through a five-year parliament. 

Labour supporters seem confident that he will prove more radical in office than he presents himself in opposition. Maybe so; New Labour was elected on a pledge to match Ken Clarke’s spending plans and look where they ended up. But Starmer’s housing policy is not a promising omen.

Housing is one area where Labour really ought to be able to make a decisive break with the Government. Whilst their MPs are in their own patches often as Nimby as any Tory, there are still plenty of areas in dire need of new homes where Labour has no hope of returning an MP anytime soon. 

Not only would unleashing development in Conservative and Liberal Democrat areas around our largest cities help to ease the housing crisis, it would do so by allowing those cities to radiate Labour-leaning voters into their commuter belts. It could even be a serious revenue raiser, if Starmer married the bold use of development orders to grant planning permission with a one-off value uplift tax on land that received it.

Unfortunately, the left is often just as antipathetic to housebuilding as the right, albeit for different reasons – most commonly a deep suspicion of developers and an ideological fixation on council and social housing over private stock. Unsurprisingly, therefore, Starmer looks set to fall well short of the sort of radical housebuilding programme Britain needs.

At first glance, Labour’s plans are superficially radical. Angela Rayner has promised ‘New Towns of the Future’ that will allegedly deliver green space, characterful design, high density, good infrastructure – and be 40% affordable to boot. Not only that, but all of this will be funded by the private sector!

Dig a little deeper, however, and the whole thing looks – and this will shock you – entirely unrealistic. In fact, the proposal is a worst-of-both-worlds combination of central government control and local authority veto power, leavened with a healthy dose of magical thinking.

Let’s start at the top: new towns are a popular solution with many MPs, of both parties, because they hold out the promise of dumping a lot of houses in a few places (and never the places the MP in question represents.) They also hold out exciting opportunities for settlement-wide urban design, as seen at the King’s personal project in Poundbury.

But the problems are many. A new town isn’t just about housing: it needs space for local businesses but, most importantly, excellent transport connections to a nearby city. A successful new town in today’s Britain would be a London dormitory; it’s no coincidence that Milton Keynes, as well as the garden cities Welwyn and Letchworth, all have good rail connections to London.

That means either building these towns on existing transport connections or building those connections with the town. Both options mean disruption for other areas, either from extra demand on existing services or from building a new line. Suddenly finishing HS2, thus allowing four tracks of commuter services on the West Coast Main Line, seems quite important.

But let’s assume that Labour have resolved that, and all the other challenges of doing a huge all-in-one infrastructure build, so that the case for new towns is solid in theory. Will their plans actually get them built? No.

The way Rayner et al seem to think it will work is something like this: the bodies overseeing each new town buy up land at agricultural value, grant planning permission to themselves, sell it on at huge profit to private developers, and use the proceeds to pay for all the nice things they want. 

Already there are a few problems with this. For one thing, it’s the premium attached to land with planning permission that incentivises landowners to sell it. A savvy farmer will know exactly what the development corporation’s game is and almost certainly demand some sort of premium.

But the bigger problem is that Labour aren’t planning to force through new towns. Whilst media reports talk of ministers ‘selecting’ the locations, what they’re actually proposing is to set up a quango, which will oversee a process in which local authorities bid for the privilege of having a new town in their patch.

Not explained is why on earth a council would do that. Local authorities like control, especially when it comes to development. The huge construction project needed to build a new town and all its associated infrastructure would cause local disruption, even if local residents didn’t object to having tens of thousands of new homes built in their area (which they probably would.)

Of course, a development corporation would (in theory) be insulated from those concerns. But the local council would not – especially if it had actively bid for the project. What happens if ministers don’t receive enough, or any, bids?

Even if we do, the retention of the local veto almost certainly means the government will have to buy off every council that’s prepared to deal, and that will get expensive. Combine that with modern politicians’ addiction to regulating for perfection, and the costs of each town will almost certainly balloon well beyond official estimates. 

Milton Keynes was built when it was considered acceptable for a new settlement to meet human need; a modern equivalent would be buried beneath bat surveys, hedgehog protection mandates, and biodiversity net gain requirements. Just look what happened to the budget for HS2 (and indeed, to the project itself) after MPs pegged thousands of extra requirements to it as the legislation passed through Parliament.

Finally, all this cost inflation is probably going to eat away at whatever pot of money ministers have set aside to bribe developers into building towns where 40% of the housing stock is price-controlled (‘affordable’.)

We have plenty of evidence that housebuilders are sensitive to such requirements, which heavily impact the margin they stand to make on any project. Remember, whilst housebuilders often enjoy high margins on individual developments, these need to offset the costs sunk in every project that fails to get through the planning system.

In London, research has found that the only reason so-called ‘inclusionary zoning’ mandates didn’t prove a major barrier to overall housebuilding is that developers shifted heavily towards smaller projects that weren’t subject to them. If the same thing were possible in the new towns, they wouldn’t end up 40% ‘affordable’; if not, it isn’t obvious why the private sector would have any incentive to build them.

Overall, then, Labour’s proposals look like a classic case of politicians trying to find an idealised way of solving a problem, that doesn’t anger any voters, and doesn’t cost the taxpayer any money. But we don’t live in a story book; there’s no reason to expect that to be possible.

If Starmer simply lived up to his rhetoric about hacking back our onerous planning system, developers would build plenty of homes and generate revenue that Labour could use for social goods. If, alternatively, he is going to insist on price-controlled stock, he will likely have little choice but to build it at taxpayers’ expense – or not end up with many new homes at all.

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Henry Hill is Deputy Editor of ConservativeHome.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.