Alex Morton is Head of Policy at the CPS and a former Number Ten Policy Unit Member.
Today the Centre for Policy Studies publishes The Housing Guarantee, which looks at how to increase housing supply in this country to get it to over 250,000 homes every year.
The report does not go into the need for a sustained drop in net immigration, or policies to reduce inflated demand for housing, though I would agree these are needed too. But the report shows that housing supply is simply too low as well.
Some argue for simply scrapping the planning system, but this is never going to happen. Others argue for more reforms like those initiated by George Osborne in the early 2010s, but this assumes any increase in planning permissions means the same number of extra homes.
After the 2010 planning reforms, permissions soared to substantially over 350,000 a year – while new build numbers rose more slowly, to peak at around 200,000 a year. The increase in permissions took place entirely through an increase in large sites, which often are built out very slowly, and are often on green field sites, making them politically painful.
The CPS report takes a more pragmatic approach, by assuming that the local plan system will remain in place. It also sets out why another push to grant slightly more permissions will not get us to the levels needed, and what an alternative might look like.
Today, the large house builders have a dominant role in the land market, with their strategic land banks making up nearly a million plots – not far off the one to 1.25 million plots which the Government requires councils to make available ready for planning permission. Boosting the land available is unlikely to drive up supply much further as it will be captured by the larger house builders.
Meanwhile, unable to get land with permission, SMEs, who build out the land they can get faster, and often on smaller or brownfield sites, have been squeezed out of the market – with the smallest falling from delivering 40 per cent of supply in the 1980s to just 10 per cent now.
Some argue that the big developers ‘land bank’, meaning to amass huge amounts of land without any intention to build out. This is unfair in a sense. The large house builders build as fast as they can sell homes at the current market price, a ‘build to sell’ model. This means total transactions and new build market share are crucial – and is why Help to Buy, which pushes buyers toward new build homes is so important for the large house builders. It increases the market share of new builds for any given level of transactions.
It is important to understand too, the house builders do not just capture land with permission. They also generate permissions in line with demand. Over the 2010s, it was mainly the sales rate of new-build homes that determined both housing supply and boosted the total of permissions, as new plots were created to match demand by house builders drawing on the strategic land banks. Supply of homes and land related to total new build sales.
This build to sell model is coupled with a slow build out, a fact that puzzled the Letwin Review of build out. This slow build out rate is due to the low market share of new builds, related to the fact new homes are not attractive enough. Because of the need to recession proof their company, being able to lay off workers and terminate supply contracts in a downturn, the larger house builders cannot invest in modern construction methods, and usually rely on standardised products and a sub-contracted workforce and supply chains. This makes them recession-proof, while making it hard to drive up quality for new homes.
So we have the worst of all worlds – lots of pain, yet too few homes.
Our new report sets out proposals to help ensure each area meets local need – but does this through a genuine local plan process.
The first element is to turn planning permissions into delivery contracts, with permission granted in return for an agreed trajectory of new build homes (subject to economic conditions). So house builders have to agree with councils how fast they will build out – particularly important for larger sites.
Where house builders cannot deliver as promised, they would have to pass the land on at an agreed price to builders who could, making up any shortfall. This would turn permissions from a one-way bet into a mutually beneficial exchange – and mean that as land came forward for development, it was actually translated into new homes.
Councils could thus agree on brownfield sites realistic build out trajectories and know that these would actually be delivered, while blocking the most controversial – though not all – greenfield development. These changes would only apply to future planning permissions, giving house builders time to adapt, but revolutionising the system.
Allied to this should be a renewed emphasis on the Housing Delivery Test. This judgescouncils on whether they enable the building of sufficient homes. Currently houses are allowed on appeal where councils fail to have sufficient land – not where they fail to deliver. This should change. Sanctions should relate to failing to ensure delivery.
Planning should not be about a few large sites for large house builders, but about ensuring a mix of sites are available to a range of house builders with distinct market niches, including brownfield/greenfield sites, varying tenures such as retirement homes, and using more SME companies which offer different products to each other. This is how housing need can be met in each area.
We have spoken to multiple SMEs who would accept delivery contracts in return for greater access to land. On top of this we would also propose a review of council powers over development, to allow greater intervention by the Planning Inspectorate where councils are continually holding up sites, as well as separate reforms allowing action to be taken by house builders against statutory consultees and others who can hold up delivery. Just as builders would commit to build out their sites, the state would commit to enabling them to do so.
Finally, councils and Government need to ensure that public sector land, when sold, does not just end up in strategic land banks, but actually sees new homes being built on it – in a way that ensures the quality and diversity of local housing supply, and supports competition within the sector. We propose that there should be panels of local SME house builders that public sector land is sold to, with challenging, but realistic, delivery targets.
Planning proposals have to be politically realistic. The local plan process must remain at the heart of planning. We have to move on from simply assuming we can scrap the planning system, or just increasing permissions for larger house builders and expecting sufficient supply to emerge, and instead find a way to work within the existing framework.
We were heartened by the endorsement of the Minister for Housing for our report. Along with measures he and the Secretary of State are pushing on better quality design, then a more diverse mix of house builders, especially SMEs, alongside a focus on delivery can guarantee we get the homes we want in the places we want, while fixing our housing supply problem.