Supply-Side Solutions to the Housing Crisis

Fiona Townsley calls for some level-headed thinking on planning reform.

Amidst the current housing crisis few policies address the main issue - we simply do not have enough housing. Britain has 0.99 homes per household compared to the European averageof 1.12, and since 1998 the ratio of UK house prices to average income has doubled, making them the worst in Europe. The average house price is now over eight times the average income, standing at £256,000.  It is clear housing affordability is a substantive issue that is not being corrected.

One of the main barriers to building homes is the complexity of the planning process. Planning systems should be predictable and certain, not subject to producer capture or to prior contacts. This lends itself to a rules-based approach, as is common in European countries. In England however, we operate on a case by case basis. Planning permission is granted by a planning officer based on a document giving principles and guidance but not rules. This creates uncertainty, which increases planning risk. 

An increase in planning risk creates a barrier to entry for small businesses, and makes the market easier to control by large developers. 30 years ago small builders were responsible for 40% of new homes compared to only 12% today. It seems that the clear way to encourage more house building is to change the planning system into one of direct planning with straightforward rules, thereby reducing  risk and allowing small companies to play their role. This would increase competition, leading to lower prices.

London is especially affected by the housing crisis, with Londoners paying 40% of their income on housing, up from 15% 30 years ago. While London is our largest city, it is not densely populated, with half of all homes in one or two floor buildings. Opposition to densification is generally underpinned by the idea that densely populated areas are less attractive. This is simply not the case in London. Kensington & Chelsea, and Westminster hosts double the number of homes per square mile as London as a whole, and are considered to be two of the prettiest boroughs.

The most effective and least intrusive way to increase housing density is to allow taller buildings of the same style to those in their vicinity to be constructed rather than building skyscrapers. However, restrictions such as the need for apartment blocks to have lifts and regulation staircases deter this kind of development. Instead they encourage large obtrusive skyscrapers as the marginal cost of these features is minimised. If people were able to increase the height of existing buildings with greater ease, or build more houses in keeping with traditional style, support for more densification in London would increase. And as a result of such popular densification, housing would become more affordable.  

The Government should also consider introducing street votes to encourage densification and house improvements. Street voting is a system whereby any given street can vote to allow a certain extension/improvement on all houses, such as whether an addition of one floor should be permitted. When this question is proposed it is in the homeowners best interest to vote in favour, especially if they pick the design code, as all owners will

benefit from the increased value of their property from the additional floor. This allows for individual circumstances to be appropriately analysed, without the current overbearing bureaucratic process. Using this process, densification would increase without sacrificing the approval of those who would be most affected i.e. their neighbours.

London, and other UK cities, are also cut off from growing due to the Green belt. The Metropolitan Green belt, an area four times the size of built London, encloses the city. This area was not designed for its natural beauty or environmental benefits, in fact half of the land consists of fields of rapeseed or other mono-crops sprayed with pesticides. If we were to build homes on a small percentage of this land, for example any area within a mile of a transport link, then we could build far more houses in desirable locations, without the feared environmental damage. In fact, since domestic gardens are more biodiverse than crop-fields, biodiversity would actually increase. 

Currently the planning system operates in a way that discourages  any future building by making the process a tedious bureaucratic nightmare. By converting the case by case system to one of rules, and then incorporating street votes and building on small areas of the Green belt, we could make significant strides towards mitigating the issue. An absolute must for any Government serious about increasing housing affordability.