28 October 2020

We must seize the chance to start a British building boom


The deadline is looming for the political event which could profoundly shape Britain’s economic and social destiny for decades to come. No, not a Brexit deal. I’m talking about the deadline for responses to the Government’s consultation on its planning and housing white paper.

The comparison is made only partly in jest. Almost all forecasts of the long-term impact on per capita GDP of Brexit are in single digit percentage figures, and most are below 5%. That’s nothing compared to the huge gains that many respected economists estimate could be achieved by fixing the planning system. Professor Nicholas Crafts puts the potential GDP uplift at 20%, while professors Hsieh and Moretti found the much smaller restrictions in the US reduced growth by 36% between 1964 and 2009. Of course, it doesn’t raise the questions of identity or sovereignty like Brexit, but in terms of bread-and-butter living standards, planning reform really is a big deal.

The housing crisis has been stealthily mounting for decades, but only in recent years has it risen to prominence in mainstream public debate. That’s because its social effects have become much harder to ignore. Unusually slow growth in floor space per person was easy to slip under the radar, but when it started to plummet in London for private renters, the radar began to bleep much more noisily.

Increasingly not particularly young professionals are finding themselves flat-sharing or even living with their parents as the proportion of people at a given age who own their own home drops precipitously. Among those born in the 1950s, 62% were home-owners at the age of 30. That figure falls to 60% for children of the 60s, 56% for 70s children and just 41% for 80s kids. Without action, that number is likely to fall even further as today’s 20-somethings reach their 30th birthday.

The housing crisis is, fundamentally, a shortage of homes in the places where we need them. In other words, reasonably near where the jobs are. The obvious consequences of the shortage: smaller homes, more people having to share flats, more homelessness, higher rents, more difficulty in being able to buy a home, are sadly only the tip of the iceberg. A whole host of broader social, environmental and economic problems are bubbling up under the surface, not quite so apparent at first glance but evident in the economic data.

The biggest economic consequence involves labour markets. It’s much harder than it should be to move to take up a good job because there aren’t enough homes near good jobs, so the cost of housing rises until some people can no longer afford to move. That means people are having to accept lower incomes than we really deserve. But it also means it’s harder for companies to grow because it’s harder to find employees from near where they find it productive to operate their business.

Planning restrictions don’t just apply to residential property, of course. Business premises are also affected. Shortages of commercial properties mean it’s harder to set up new businesses, reducing the dynamism and flexibility of the economy. It also means that more management effort is devoted to being efficient with space instead of being efficient with employees’ time. For example, a shop might stack shelves higher with aisles closer together. That saves money on rent, which is artificially important because rents are artificially high. But it might mean employees move around more slowly because the aisles are more likely to be blocked and stacking the top shelves is more time-consuming. So worker productivity is reduced and wages suffer.

Higher rents and house prices mean that fewer people can afford the space they need to start a family. People are starting families later, unsurprising when more 20-somethings and often 30-somethings find themselves unable to afford their own home. Homelessness, too, is inevitably worsened by the crisis. Problems with addictions, abuse and employment are the primary drivers of homelessness, but inflated rents make life that bit harder for those on the edge of financial stability.

Environmentally, it’s not much better. On the one hand, height restrictions on new buildings, together with rules on things like daylight and shadows which restrict extensions, radically reduce the density of new development. That means people live further apart from each other, as well as from workplaces and shops. The consequence is that fewer trips are walkable (or cyclable) than would be the case if buildings were as dense as they would be without the restrictions (and as dense as many much-loved Victorian terraces and Edwardian mansion blocks used to be). Low densities mean public transport is often not viable and the only practical option is the car.

Meanwhile, so-called ‘green belts’ around cities just push new developments further out, leading to longer journeys into the employment centre, which often means more driving or unnecessarily long train commutes.

Despite all the restrictions, many consider new development near them to be ugly and unwelcome. The restrictions and controls might actually be causing the dissatisfaction, however, rather than minimising it. What if the difficulty of winning permission to build means that developers put attention into navigating the planning system which otherwise might be spent on improving design? What if the cost of housing means that people feel less able to ‘splash out’ on designs that complement their settings and attach more importance to saving money?

Fortunately, at long last, the Government seems to be taking the problem seriously. They have proposed some excellent reforms which stand a chance of turning round the crisis and unleashing an economic boom. These reforms simplify planning into three zones: the first, ‘protect’, covers conservation areas, areas of outstanding natural beauty and green belts, and these would operate largely as they do now. Most of the rest of the country, however, would be split into ‘growth’ or ‘renewal’ zones, with fast-track planning procedures for proposals which meet pre-agreed standards for beauty.

Most powerfully of all, individual streets might be able to vote themselves into a new category, subject to certain limits. This idea promoted by an excellent group called London YIMBY would mean that, where residents vote in favour, a road of two-storey semi-detached homes might opt to automatically allow four, five or even six storey terraced homes with a ‘deeper’ footprint. Housing on the street would be increased by perhaps a factor of five, but only where residents themselves want it, and without building towers or waiting for a change of plan from a distant town hall.

All of this means it is vital that as many people as possible reply to the consultation. Along with the Adam Smith Institute, the TaxPayers’ Alliance has created an automatic response tool to help reply yourself. If you haven’t already, please do add your name before the consultation ends on Thursday 29 October at 11:45pm.

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Rory Meakin is a Research Fellow at the TaxPayers' Alliance.

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