Rory Meakin: We must acknowledge that our planning rules stop homes being built

Rory Meakin is Head of Tax Policy at the Taxpayers Alliance and was lead researcher to the UK Tax Commission. Follow Rory on Twitter.

Natalie Elphicke of Million Homes, Million Lives wrote earlier this week on this site, about the pressing need for more homes, saying that planning is not the problem that is stopping enough homes from being built. It’s great that she is bringing attention both to the root cause of the housing crisis and the problems it causes for people’s lives. She is right to call for Land Registry data to be made freely available, and right to identify tax as a major part of why house builders aren’t building enough houses. But we need to be realistic about the fact that planning restrictions are restricting builders and developers, too. Opening up Land Registry data and cutting taxes will help, but they won’t be enough alone to provide the million homes that Natalie Elphicke rightly says we need. So we must acknowledge the effect that restrictions are having on the supply of new homes and then we must look at what kind of reforms might help us get the homes we need.

Restrictions restrict

The entire and only point of the planning system is to stop certain buildings being built (and to stop a small proportion of existing buildings from being demolished, for heritage reasons). All the planning system does is approve applications for permission to build things, or refuse permission. It does this for homes in three main ways.

First, in urban areas, it stops applicants from building as many homes as they’d like to, on the grounds of the size of the proposed buildings. Secondly, in rural, commercial and industrial areas, it stops applicants from building as many homes as they’d like to, on the grounds that the law often demands that the land in question cannot be used for residential purposes. Thirdly, in all areas, it stops applicants from building homes that fail to meet various criteria such as expected energy efficiency, room dimensions and provision of space for things such as bicycles & bins, "amenity space" (typically in the form of a garden), and payments to fund government projects such as affordable housing or local infrastructure.

In every instance, these planning restrictions have one of two possible effects. Either the restriction has no effect because it stipulates that applicants must do what they would have done anyway. Or it stops applicants from building what they would have built, leaving them with the choice of either modifying their applications so that they satisfy the restriction, or abandoning them because it’s not worthwhile any more. Abandoned projects obviously result in fewer homes being built. But the result is the same in the other cases, too. In many cases, the restrictions directly restrict the number of homes that can be built. But even in cases where the system simply imposes additional requirements that the applicants would not have chosen otherwise, this reduces the profitability and risk of home-building which, in turn, means that asset managers allocate less capital to home building and more to other uses.

Most of these restrictions have very obvious benefits, particularly to neighbours. For example, they mean that people who already have a country home of their own get to keep unspoilt views across fields while those who already have their own home in urban areas get to keep development on their neighbours’ land at a density of their liking. And many of the restrictions, perhaps all, may be worth the cost they impose on applicants and the reduction in the housing supply that entails. After all, very few people are calling for the planning system to be abolished entirely. But it’s no good pretending that the laws of economics are mysteriously suspended in the housing market. We can’t just pretend that the costs don’t exist just because we think they are worth it for the benefits they give us.

Planning reform?

So what sort of reforms could make the system less restrictive so that it allows more homes to be built while maintaining the restrictions that people value most? First, we should look at unnecessary nanny state regulations on things like environmental efficiency, the dimensions of rooms and the provision of space for gardens, bicycle storage and bins. Adults who buy homes are old enough to decide for themselves what they are prepared to pay for on questions like these. And on environmental requirements, the EU’s Emissions Trading Scheme and other energy taxes mean that the objectives are already covered.

Secondly, we need to look at planning conditions which act like taxes. Section 106 agreements, the new Community Infrastructure Levy and affordable housing requirements impose a substantial burden on developers. They stop some projects and make investment in the others less attractive, which in a cruel irony ends up making homes less affordable.

Thirdly, we need to look at where we allow the extra homes we need to be built. There are two main options, high demand urban areas and the green belt. There is no getting away from the fact that we have to either intensify our cities and suburbs or build on more of the greenbelt. Those who want to preserve the greenbelt should look at relaxing planning restrictions on the scale of buildings in urban areas. Instead of restricting building heights to whatever the neighbours have, the rules should allow new buildings to be a little taller, allowing cities to gradually adjust as demand for more housing increases. It’s one thing to object to a sky-scraper next door if you live on a suburban street. But we can’t carry on freezing the heights and bulk of buildings in an area just because they made sense in the past. We need to seriously consider reforming planning concepts such the definition of whether the scale of buildings are “in keeping” with their surroundings.

But even if we don’t do this generally, we should consider radical deregulation in neighbourhoods where the planning system has delivered blighted communities. In run down estates and abandoned industrial and commercial areas, town planners should step away and remove all but the most basic of restrictions. The policy should be unashamedly aimed at encouraging private investment by making it as profitable as possible to fix the mess that central planning has creased to fix the mess that central planning has created.

Building homes

As Natalie Elphicke rightly says, planning restrictions aren’t the only cost which we lump onto potential developers. Tax is a big obstacle, too. Whether it’s general tax such as Income Tax, Capital Gains Tax and VAT (on extensions), or more specific taxes such as section 106 payments, affordable housing requirements, Stamp Duty, environmental taxes or fees for placing skips outside the property and planning applications, they all make development less attractive and for that reason reduce the number of homes built.

Cutting these taxes would boost home building. But it doesn’t make sense to further complicate the tax system with a special regime designed to avoid the system’s disastrous effects, but only for certain types of developer. Tax complexity is already a huge problem and making it worse won’t help. And big developers are to a large extent a product of big government. The effect of our tax system and planning restrictions is that only the biggest operators have the efficiency and economies of scale to comply with the rules. Home buyers in free, open markets with rules that apply equally to all should decide who builds their homes, not politicians and bureaucrats trying to fiddle with special rules.

I’m also sceptical that opening up Land Registry data will have a substantial impact, but open data is a good thing and should be the default for access to information the Government holds. That doesn’t mean building national databases but councils should release their planning applications data in a standard format so that people can build their own databases, if they want to.

So yes, let’s open up data on land ownership and planning to greater transparency. And yes, let’s lighten the tax burden we place on home builders. But let’s not complicate the tax system in the process. And let’s be honest and upfront about the effect planning restrictions have on housing supply. That doesn’t have to mean a “free for all”, but does mean only keeping restrictions that are worth the damage they cause. And it means relaxing regulations which aren’t worth the benefits.