You may have read about the dramatic proposal for planning reforms in the news recently. But what do they mean for community-led housing and democratic planning?
The chair of our board Dr. Bob Colenutt joined other academics to respond to the proposals and counter misconceptions driving the Government’s planning reform agenda, in a report “The Wrong Answers to the Wrong Questions”.
We are please to re-print Bob’s article, “Will the free market build the houses we need?” here on our blog:
One of the great myths of housing in the UK, perpetuated in the Planning White Paper, is that the planning system is stopping housebuilders from building the homes ‘the nation needs’. This myth promoted by the housebuilders and the property lobby goes like this: if only the planners would give out more planning consents with fewer ‘onerous’ conditions (like wanting a proportion of affordable housing); and if local authorities were not swayed by vocal NIMBY objectors to new housing, all would be well. More homes would be built, prices would fall, first-time buyers would get onto the housing ladder and the housing crisis would be over.
A simple argument- but false. First, we have to ask, what do we mean by ‘the homes we need’? Are the homes we need only those produced by the volume builders such as Barretts, Persimmon, and Bellway, or are they homes needed by the homeless, those on housing waiting lists, and those needing specialized homes because they are elderly, disabled or have health problems. The latter group are certainly not provided by the free market nor by the volume housebuilders. Building for communities is not their job - they build a standard for sale product from Lands End to John o’Groats with one aim -creating shareholder value.
As Quintin Bradley argues in the report, the housebuilders have among them around 1 million plots with planning permission but have not built them out. In addition to this, they own or have options on thousands of hectares of ‘strategic’ land in their land banks. It is simply not part of their business model to build out their consents or land banks because that would bring down house prices and land prices, reducing the asset base on which their share price is valued. Their business model relies upon restricting supply – drip feeding land and housing units onto the market - to keep up prices. Hardly a free market.
The underlying purpose of the Planning White Paper is to open up opportunities in Growth Zones and Renewal Zones for housebuilders to acquire or obtain options on thousands more hectares of land. But why do the housebuilders want more land and planning consents if they do not want to build on what they already have? The answer is that land banking is the key business function of the housebuilders and their finance backers. Assembly of a pipeline of development land for many years ahead is their insurance, their asset value. It is estimated that over the last ten years, the top ten housebuilders have acquired over 2 million plots of development land (1). Trading in this land and capturing its rising value over time is at the heart of their business model. The planning reforms assure this will continue. They contain no mechanisms to compel a speedy build out of land banks.
Let us not also forget that on top of the land banking, the housebuilders and landowners and their financial backers have over decades been quietly capturing the lion’s share of the gigantic amount of land value created by the grant of planning permission. They have captured £billions of this increase in value, while the community gets crumbs. The National Housing Federation estimates that in 2016/17, landowners in England made £13 billion in profit from land sales (up from £9 billion in 2014/15), more than double the total profits of Amazon, McDonalds and Coca-Cola put together (2). Of the increase in land value due to planning permission, Bentley (2017) estimated that 73% of this value went straight to landowners and developers (3). Colenutt (2020, p111) estimates that if we measure land value increases over time resulting from development, including from infrastructure such as roads and railways, the amount of value captured by the property and finance sector is closer to 95% (4). This immense value capture is the true currency of the housebuilding sector – not the number, affordability or quality of homes built.
Why is this not clawed back for the community? The measures that exist, Section 106 ‘planning obligations’ and Community Infrastructure Levy (CIL) payments, are totally inadequate – and the property system is expert at gaming the planning system so they can escape from these obligations (5). As Shelter research has shown, thousands of affordable homes have been lost in this way. Michael Edwards in his contribution to this report explains why the proposed system of capturing land values in the White Paper can also be ‘gamed’ and will fail to deliver the social and affordable housing the nation needs.
Part of the reason for its unparalleled success in getting what they want from Government is that the property lobby plays the blame game. ‘The planners’ are consistently blamed for non-delivery of housing despite the truth being that they do not build anything. They determine planning applications and give consent to 88% of the applications they receive but if the housebuilders will not implement these permissions there is nothing planners can do about it. The supply of housing is in the hands of landowners, housebuilders and financiers NOT the planners. Yet the blame game is also part of the housebuilders business model because they can claim that because planners are ‘holding back development’ they need more development land zoned for housing.
It goes further than that. They have something even more serious to hide. Despite their protests of innocence whenever this is raised, the big housebuilders and landowners run local and regional cartels and oligopolies to limit supply and keep up prices so they all benefit. High house prices are caused by these practices not by the planners. Cahill who has undertaken exhaustive studies of landownership in Britain concludes that, ‘the market for development land in the UK is rigged’ (6). Thus, heaven forbid if someone started a mass sale of land banks. That would be a liberalisation of the market too far. So the housebuilding market is not a competitive market. Yet time and again government turns to the housebuilders, landowners and finance sector to ‘solve the housing crisis’ and meet government housing targets, or to ‘kick start the economy’; and time and again, they fail to deliver. But governments, particularly Conservative ones, never learn for the simple reason that the property lobby is their friend and political funder so it rewards the property industry with generous subsidies and tax breaks. In return, government gets the political donations that follow, but not the housing targets they also claim to need.
The now notorious Robert Jenrick (Secretary of State for Communities and Local Government) intervention in support of a wealthy Tory donor in a planning dispute over a major development of 1500 homes in London in 2020, is all too typical (7). Jenrick overrode his own planning inspector to allow a lower level of affordable housing and rushed the scheme through so that it evaded CIL charges. It is notable in this example that meeting real housing need did not feature in the transaction. Is that what Tory planning reformers mean by ‘freeing up the market’?
The central paradox of the ‘free market’ argument is that it flies completely in the face of the evident fact that the housing market is subsidized by the state through tax breaks, infrastructure funds, Help to Buy and now by Stamp Duty holidays. The current government cry of ‘Build, Build, Build’ is not about free markets but more subsidy to the housebuilders and landowners. And, as they will find out, the housebuilders will not deliver - except to expand their land banks.
Yet even this is not enough for them; this is the current housebuilder list of demands many of them helpfully met by the White Paper and other measures:
- A massive post COVID subsidy to prop up their share value, that is, more tax concessions, more planning consents, and continuation of Help to Buy.
- Relaxation of planning controls especially waiving affordable housing obligations, reducing CIL payments, and ditching planning obligations for affordable housing altogether in designated zones.
- Support for new sub-markets. The current fad is Build to Rent. Only around 100,000 completed so far but rising and popular with Ministers who have seized on Build to Rent as an answer to the lack of rental housing. It is in fact not an affordable housing product at all but a high-end rental product for professionals. Not exactly a contribution to meeting dire housing need.
The property lobby will not build the homes the nation needs. Government has to do this. Yet its funding for social rent housing is at pitiful levels and reveals the true conscience of Ministers. Only 6000 genuine social rent homes were built in 2017-18; meanwhile thousands are sold off under Right to Buy. If there was any morality in the cry of ‘Build, Build, Build’, government would prioritise building homes for social rent and break up the oligopolies running the UK housebuilding market.
To conclude, there is no free market in housebuilding. Nor will be there ever be because this is not what the housebuilding and finance sector wants. They want more land, more subsidies and lower taxes. That’s it. Anything that reduces prices like building housing the nation needs by reducing their profit take would be a disaster and they will not allow it.
(1) Colenutt, B (2020) The Property Lobby: The Hidden Reality Behind the Housing Crisis, Bristol: Policy Press, p37
(2) National Housing Federation (2018) Landowners make £13 billion profit in one year as high land prices stifle affordable housing, London: National Housing Federation.
(3) Bentley, D, (2017) The Land Question, London: Civitas
(4) Colenutt, B (2020) The Property Lobby: The Hidden Reality Behind the Housing Crisis, Bristol: Policy Press
(5) Grayston, R.(2017), Slipping through the loophole, London: Shelter.
(6) Cahill, K. (2001) Who Owns Britain?, Edinburgh: Canongate.
(7) Geoghegan, Peter, Exclusive: Robert Jenrick in new ‘cash for favours’ row, Open Democracy, July 4 2020.