The housing shortage, and the resultant problem of unaffordable homes, is rightly on Sajid Javid’s mind. His latest initiative to improve the housing supply, which he announced yesterday, is a change to the planning requirements for local authorities which would drastically increase the number of properties that councils aim to build – requiring them to designate more land, and making them more likely to grant more planning permissions.
The planning system is obviously an essential tool in increasing the supply of housing. Indeed, planning reforms in recent years have had a positive impact in increasing the number of approved applications for new housing – permission was granted for 304,000 new homes in the year to March 2017.
However, that statistic points to the fact that securing planning permission is not the only issue in increasing the housing supply. In the same period, April 2016-March 2017, construction actually began on only 162,880 homes. There’s always going to be some lag between getting permission and starting to build, but it seems pretty clear that there’s an issue that means driving up planing approvals does not directly correlate to driving up construction. If Javid’s new measures raise the supply of permissions but not of houses, then he’ll be back where he started.
There are a number of possible reasons why the link between approving and building appears to have broken. If the extra permissions are going to the same developers, then it may be that the effect is simply to provide them with more choice of where to build – switching their resources within their pool of approved sites to build on the easiest or most profitable. It’s easy to see how that could happen, if a firm has a fixed number of construction workers and doesn’t want to increase its overheads.
Similarly, if what’s happening is that a development that might once have been of 400 hundred homes is now being approved for 500 homes, we might get more built in the long run, but the pace of construction remains the same because few companies get permission for a new estate then start building every single unit all at the same time.
In both circumstances, the issue is that the UK has an under-supply not just of homes but of construction firms. Huge numbers of companies, particularly small companies, were lost in the recession and its aftermath, and are mostly yet to be replaced. That inevitably makes the industry less flexible, and less likely to drastically increase the number of housing starts in a short period of time.
We all know that the remarkable increase in jobs has been driven to a large degree by small- and medium-sized employers, many of which have put on small numbers of staff each, producing a large effect nationally. The construction issue is the reverse. With more small building firms, there’d be more capacity to take up the opportunity to build out smaller planning permissions, more impetus to build on approved sites which aren’t simply the easiest or most profitable, and more new homes being started simultaneously, rather than sequentially.
The problem for Javid is that while planning policy is within his power, the shape and scale of the construction industry is not.