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Richard Ehrman is a writer and a property developer. He was a member of the expert panel that advised Oliver Letwin on his review of build out rates in housebuilding.

The proposition that if developers would only build better and build beautiful, then opposition to new homes would be reduced and more could be built, should, on the face of it, be common sense. That this would be good for house builders seems equally obvious. But as I explain in Policy Exchange’s new essay collection, in this country, when it comes to housebuilding, common sense is unfortunately rarely the deciding factor.

That role is reserved for the planning system, the complexity of which grows year by year. The Town and Country Planning Act, conceived by the Attlee Government as a guiding light for post-war reconstruction, has morphed into a mechanism primarily concerned with rationing development – particularly of new homes, and particularly in the more prosperous and popular parts of the country where they are needed most.

In such a system, what matters for the housebuilder is not so much pleasing the customer as satisfying the intricate requirements of the planners. By the time the Section 106 contribution, the Community Infrastructure Levy, affordable home and shared purchase quotas, cycling provisions, environmental and wildlife assessments, and all the other myriad matters that make up a big planning application have been dealt with, it is hardly surprising that there is not much energy left for what the end product will actually look like.

What matters for the customer, meanwhile, is not so much the aesthetics and quality of their new home but getting a foot on (or up) the housing ladder. In such a market, if design and quality are not the deciding factors for the planners or the customers, there is little incentive for the builder to put much effort into them either.

With a greater diversity of builders this might not be the case. One of the unintended consequences of having such a complicated regulatory system is that the market has increasingly fallen into the hands of a few big players. Today, the top 13 house builders account for around 60 per cent of all new home completions. You need size to manage the bureaucratic overhead of the planning system and to finance a land bank to ensure continuity of workload.

In other sectors, companies have to compete on quality. But house building is not like most other industries. Increasingly, it has become an oligopoly whose members compete to obtain land far more than they do to improve their product.

So what would it take to change that?

To make a meaningful difference, the Government’s Building Better, Building Beautiful Commission will have to do more than simply mandate good design. To get developers to up their game, it will need to find the right balance of incentives to persuade them that it is in their own best interests to champion better quality materials, better architecture, and a better laid out, more spacious end product.

Since none of the above will come cheap, the key to making progress is likely to be where and how the resources to build better are found. One suggestion would be for planning authorities to reduce some of the obligations developers have to pay, and try instead to channel the money into design and build quality. But with the big house builders making large profits (underpinned by the Help to Buy public subsidy), this would be seen as doing them yet more favours. Politically, it would be a non-starter.

An alternative might be a windfall tax on the profits of the bigger developers. But windfall taxes have their problems too. They are usually one-off, and developers’ profits, notoriously, can go down as well as up.

Instead, to find the key to better quality and design we need to go one step further back to the developers’ raw material, land – and not just any land, but sites with planning permission in places where demand is high.

In our system, the decision on where and what to build rests firmly with the authorities. This gives local planners great power but also presents them with a dilemma. On the one hand, they are faced with demands from central government and frustrated would-be homeowners to speed up the system and provide more housing. On the other, they have to contend with local opposition which is often vociferous – especially if greenfield land is involved.

The answer, all too often, is to try to square the circle by cramming as much development as possible into as small an area as possible. This may help to defuse the conflicting pressures the planners face. But with competing land scarce or unavailable, the inevitable result is that sites with permission leap in value the moment they are designated – sometimes by as much 10,000 per cent.

It is a wonderful system for landowners who are lucky enough to have their sites picked for development. And it also suits builders because, although they have to pay dearly for land, they can be confident that a rival is unlikely to get another permission nearby and undercut them. But when it comes to encouraging better quality, the incentives are all facing the wrong way.

If a developer can sell what he produces without having to worry overmuch about competition, building to the lowest common denominator makes business sense. A more spacious lay out is also precluded by the price paid for the land and the density agreed with the planners – who, like the developer, usually want densities to be higher rather than lower.

To turn this round, either land has to become cheaper to allow real competition to develop in which quality and design play the part they do in most industries. Or the state has to intervene to capture more of the uplift that occurs when land gets planning permission, and use it to improve the resulting development.

Neither would be simple. If reducing the price of land means that more of it is released for building, it is likely to incense shire Conservatives and environmentalists alike. At the other end of the scale, a statist “land value capture” solution would raise fears on the free-market Right of land being expropriated, even though it is how the post-war new towns were built and is the model suggested for large sites in the recent Letwin report.

Land, its price and availability, is the key to better quality and design. We are not intrinsically short of it: Surrey has more of its surface area given over to golf courses than homes.

It is how we choose to use land that matters; do we allow a bit more to go for building if the result is better quality and design? Should we allow more encroachments on the green belt if people in inner cities do not like the new towers they are asked to accept? Or do we continue to cram as much development as possible into as small a space as possible, even though we know before it gets off the drawing board that we are not going to like it when it is built?

A version of this article first appeared in Policy Exchange’s new publication, Building Beautiful: A collection of essays on the design, style and economics of the built environment.

11 comments for: Richard Ehrman: How building beautiful homes can make good economic sense

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