How will the government’s new planning reforms affect house prices?

    5 August 2020

    Predictably enough, communities secretary Robert Jenrick launched his proposed planning reforms by raising the plight of young people. Among 16 to 34 year olds, he noted, rates of home ownership are only half what they are among 35 to 64 years olds – which is not entirely surprising, given that most 16 year olds are still doing their GCSEs.

    The announcement of planning reforms – of which we have had numerous attempts in recent years – tends to proceed in the same way each time. The government raises the plight of frustrated young buyers, implying that easier planning rules will result in lower house prices. The planners themselves counter by saying that low rates of housebuilding are not their fault – they are giving permission for enough homes, but developers are deliberately restricting supply, and thus keeping prices high, by not building fast enough.

    These are pretty stale old arguments – and neither stand up to examination.    It is true that a lot of smaller housebuilders have gone out of business over the past couple of recessions, helping to concentrate power in the hands of the big guys.   But there are enough large housebuilders to make sure that no company can control the rate of supply of new stock in the market. Actually, the rate of private housebuilding over the past few decades has held up well – it is social housing where volumes have tumbled. If there is a problem with reluctant house builders it lies with housing associations, which seem to shy away from significant new developments, preferring to see their role as managing existing stock.   Meanwhile, local authorities – which were huge developers of housing prior to Mrs Thatcher’s time – have dropped out of the market, in large part because they were discouraged from building homes through rules on borrowing.

    But the government’s case for planning reforms scarcely holds up much better.   Anyone who is expecting house prices to fall as a result of more liberal planning laws may be in for disappointment. True, open up more land to development and you might expect land values – a very large element of the price of a finished home – to fall. Trouble is, you would have to open an awful lot of land for development in order to see a collapse in land values, and it is hard to imagine a Conservative party really doing that. More likely is that the government will open a little more land for development and take some control away from local authorities (reversing David Cameron’s policy in 2010 of abolishing regional planning bodies and returning planning powers to local authorities).

    The bones of Jenrick’s proposals are these: all land will be placed into one of three categories: ‘growth’, ‘renewal’, or ‘protected’. If land is zoned for growth, then planning permission will be automatic, so long as developers stick to certain parameters on size, density and possibly style. But how much rural land will be designated for ‘growth’? That is the great unknowable, and Jenrick gave us little idea when launching his reforms at the weekend.

    Until he does so, he can expect a boom in farmland prices as speculators move in to guess which parcels of land might become available for development. That will help to undermine any hope of cheaper housing as a result of planning reforms.    If Jenrick really wanted to bring down the cost of housing, there is an alternative: he could do as government’s of both colours did when designating new towns in the postwar era: compulsorily-purchase land at agricultural value, grant it planning permission and then sell it on to developers, using the uplift in value to fund infrastructure. That would not only end speculation, putting downwards pressure on land prices; it would allow development taxes such as the Community Infrastructure Levy – and possibly stamp duty on new homes – to be abolished.

    Some Conservatives have come round to thinking that this would be an acceptable approach. Others dismiss it as communism. But if the government is serious about reducing the price of new housing it will give the idea proper consideration.