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Improving housing supply requires planning reforms

How can we build more houses?

Leading business groups are calling for action on chronic UK housing shortage. This is the first time that housing has become a top priority for the Confederation of British Industry and for the British Chambers of Commerce.

The CBI argued in its Housing Britain report published earlier this week, that housing “is not just a social priority – it is a key business issue; high cost of moving home, and lack of decent and affordable housing, are barriers to attracting and retaining employees”. It sees the failure of successive governments to address housing supply as a growth issue – one of the issues that we are studying in our work on the political economy of growth. Real house prices grew by approximately 150%, in real terms, between the mid-1990s and 2008. Home ownership has declined for a couple of decades. In 2013, more than 3.3 million adults aged 20 to 34 were living with their parents (more than a quarter of the total). The average size of new houses has been decreasing and it is now smaller than in a number of other advanced economies such as the Netherlands, Germany and the US. It is widely acknowledged that more than 200,000 new houses are needed each year over the next few decades just to accommodate new demand. Yet, the latest figure for house completions in England was approximately 114,000. The problem is intimately related to constraints in housing supply associated with the peculiarities of the English planning system. Chief among them is the fact that planning decisions are made at the local level with little city-wide/regional coordination. This often fails to allow for a comprehensive, balanced representation of interests affected by development (eg landlords, owner-occupiers; private and social renters, as well as future residents). Later in the year we will publish new empirical evidence that suggests this failure is real and significant - planning decisions appear to be particularly responsive to the interests of owner-occupiers. This issue is likely to be amplified by a system dominated by “development control”, which requires all changes of land use to obtain planning permission, rather than simply to comply with a set of general rules. Another obstacle is local authorities’ limited fiscal autonomy which hinders their ability to accommodate more housing while avoiding placing undue burdens like transport congestion on local residents, who are thus incentivised to oppose development. Planning reform required Despite a number of attempts, various governments have struggled to reform the planning system in ways that effectively address housing supply problems. These difficulties are a direct reflection of conflicting messages that have come from the electorate. Rising numbers of owner-occupiers and soaring house prices from the late 70s onwards have fostered opposition to development in many local areas. Public support for government intervention shifted to policies designed to help with mortgages and making access to credit easier, rather than to improve supply. As a result, parties across the political spectrum have shown a significant degree of ambiguity regarding tensions between rising house prices (which part of the electorate, namely homeowners, sees as a benevolent trend), and problems of affordability (which a different part of the electorate, especially younger generations, see as a rising threat to their living standards). Evidence of such ambiguity is clear in recurrent swings between top-down planning interventions designed to increase supply and institutional changes designed to give local communities a greater say in planning decisions. The next Government to emerge from the 2015 election will find it difficult to avoid reforming the governance of housing supply. Rising demand, fuelled by ongoing demographic trends, immigration and rising real incomes will keep putting additional pressure on affordability. The recent message relayed by business groups is a reminder of the breadth of damage that will ensue. In the long-run, the situation is simply socially and economically unsustainable. The most recent British Social Attitudes Survey showed increasing public support for development, which could pave the way to reform . A new government should be prepared to respond to those changes, and realign the planning system with the long-term interests of the electorate. That is precisely what the public expect judging from a recent poll carried out by Populus for our Programme for Effective Government where 72% per cent asked that politicians prioritise “decisions about the long-term direction of the country” in the way they govern.

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