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  1. Business
  2. Economics
16 February 2012updated 26 Sep 2015 8:46pm

Housing stagnation is hardly a surprise

We need to change our housing policy to improve the quality and quantity of what is built.

By Alex Morton

The release of the 2011 figures showing stagnation in housing construction is unsurprising. Since the mid-Nineties, house prices have tripled but the number of new homes being built has fallen. This is seriously dysfunctional and is primarily due to a series of overlapping policy failures.

Firstly, there is our planning system. We release too little land for new homes: the amount of homes we built in the 2000s was the fewest since the war, and less than half of what we built in the 1960s. We preserve giant fields of wheat or low grade farmland, yet only 10 per cent of England is built on. We destroy gardens and build tiny homes, and then complain that this country is too cramped.

Our planning system also leads to poor quality housing, creating understandable NIMBYism. The current plan-led system of allocating land and housing has reams of quality control dictating what new development must look like. It fails. Almost everyone would rather live in a building built before our 1947 Town and Country Planning Act than after it. We have created a system where once developers have paid for land and made a payment to the council to obtain planning permission (entitled Section 106), they are probably out of pocket to the tune of £50,000 to £100,000. On top of that, people are so desperate for a home you can put up almost anything and make a profit. And instead of homes being what people want, they must satisfy council planners.

Allied to planning is the bubble created by our banking and finance system. By the peak of the bubble in 2007 around 75 per cent of all bank lending was going to property, almost all speculation. The only parts of the world that didn’t see a property bubble were outside the euro and released enough land to keep housing costs close to construction (largely in the Southern US).” Banks funded a self-perpetuating bubble on the back of inelastic land supply.

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Currently, our planning system allows developers to make abnormally high profits, which they choose over better homes or increased supply. Mortgage lending is up, while business lending falls. Land is still too expensive. Meanwhile nearly 10 per cent of mortgages are in forebearance even with interest rates at 0 per cent — but everyone pretends the show must (and can) go on. We are repeating past mistakes.

In the last couple of years Policy Exchange has argued for a series of changes to accelerate the provision of new housing, from converting derelict office and retail space to allowing new large-scale suburbs and new Garden Cities supported by local people. We support a move away from the top down council-led planning system. Instead, we propose that local people can block development if 50 per cent vote against it. We also propose compensation for green field development along with parks and more green spaces attached to new development. We need fewer 500-page, incomprehensible council plans and more land released for attractive development with attractive green space attached.

This could be a key plank of the growth strategy that the government urgently needs; particularly as it would see construction accelerate most around the future growth hubs like Oxford, Cambridge, Leeds, York and London. We pretend we are desperate for growth but refuse to allow it where business needs it — accelerating the shift of economic power to Asia.

Nothing that the government has proposed so far will shift the essential fundamentals. Unless the relevant Ministers, Greg Clark and Grant Shapps, are preparing models that will change things (that won’t blow up when interest rates normalise), we can expect this situation to continue.

Alex Morton is a senior research fellow at Policy Exchange

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