This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.

MONTAGU EVANS PRESENTS...NEWS & ARTICLES

| 9 minutes read

GE24: WHY HOUSING AND PLANNING ARE TAKING CENTRE STAGE IN THIS ELECTION

Looking back over the past few decades, it’s hard to think of a time when housing and planning policy was as central a part of a party’s pitch to the public as it is likely to be in Labour’s manifesto, which is released tomorrow. 

You’d probably have to go back to the 1979 and 1983 general elections when Margaret Thatcher’s Conservative party promised to introduce the ‘right to buy’ and then greater discounts to market value, or perhaps to the elections of the 1950s and 1960s, when Conservative and Labour parties traded increasingly inflated promises about how many houses they would build. So why has the issue become so critical? And why now? These are important questions given that, at the time of writing, Labour looks very likely to become the next party of Government.

There are two underlying reasons why it is dominating its thinking on domestic policy. The first is political and generational, and the second is more economic. The best way to understand how and why this has happened is to go back to 1997.

A BIT OF HISTORY

Judging from the polls, the Labour Party can expect a similar (if not bigger) landslide than in that year, which swept Tony Blair to Downing Street. But there was remarkably little about housing and planning policy – as we would understand it – in that manifesto. 

The main promise appears to have been to allow councils to keep right-to-buy receipts, alongside pledges around reducing homelessness and licensing Houses in Multiple Occupation (HMOs). This is hardly surprising – Labour’s main attack line at that election was around health, education, and the alleged instability of the economy, typified by the economic crises and housing crash of the late 80s and early 90s.

That same crash, though, meant that housing was cheap, compared not just to now but during the boom of the previous decade. The median price in England was just over 3.5 times the average income compared to today’s 7.7. Even in London, this ratio was only slightly higher at around 4; last year, that figure was 12.66. So, with homeownership accessible, the focus was on those at the bottom of the pile – people experiencing homelessness and those seeking social housing.

Source: National Statistics

That cheap housing also had its casualties. The manifesto also majored on ‘getting rid of boom-and-bust in the housing market’. This is hardly surprising given that perhaps the most significant house price crash ever – that of the late 1980s/early 1990s – had occurred only a few years before. People were still licking their wounds and dealing with the aftermath of negative equity or even repossession. It’s perhaps no surprise, then, that for much of the New Labour government, rising house prices were seen as desirable. 

Indeed, some may have also been influenced by the road protests of the early 1990s, which culminated in the encampments on the route of the M3 extension over Twyford Down and the A30 in Devon, the latter making ‘Swampy’,  a tunnel-dwelling campaigner, into something of a national celebrity. 

This combined, on the one hand, with the rave-banning Criminal Justice Bill and on the other with more middle-class disquiet around car-orientated out-of-town expansion in the 1980s – driven by anti-planning Environment Minister Nicholas Ridley, who probably popularised the term ‘nimby’ – to make pro-development positions deeply unfashionable. Starting with John Major’s administration and continuing with the early days of New Labour, there was an implicit promise to contain development, with the introduction of policies aimed at prioritising brownfield land and increasing density.

For all these reasons, increasing supply (which might have prevented the huge house price increases of the following decade) was not a priority, nor was it something that young people particularly cared about. After all, in 1996, over half of all 16-34-year-olds living independently owned their own home, compared to just over a third today. (The private rented sector was tiny; while there was a reasonable proportion (18.5%) of independent 25-34 year olds renting, this fell to 8.5% for 35-44 year olds. Today, those figures are 42.9% and 24.9% respectively.) The difference between generations is shown brilliantly in this graph below from National Statistics; c. 80% of 39-year-olds were homeowners in 1997, compared to about 75% in 2007 and about 65% now. The gap is perhaps most dramatic in people’s early thirties.

Source: National Statistics

That is not to say housing and planning have not been a part of political manifestos in previous elections. The later New Labour years saw increasing concern over low housebuilding numbers, often radiating from the Treasury and then Chancellor Gordon Brown – although this was actually more driven by concern over how house price volatility was affecting economic stability rather than housing affordability and supply per se. Nevertheless, economist Kate Barker was commissioned to produce two reports, one looking at housing supply and the other at planning policy more generally. This led to a reinforced system of housing targets, which had some limited success in increasing building, at least until the GFC happened. 

However, this, too, produced a reaction in the physical form of Eric Pickles, who became Communities Minister under David Cameron’s coalition government in 2010. Conservatives in leafy areas adjacent to big cities had been particularly offended by the Labour Government’s insistence on development. Pickles, a former councillor himself, immediately dissolved the (non-elected) regional assemblies, ripped up their planning guidance and removed their housing targets, leaving all this to individual councils. Attempts to use carrots to attract younger voters have tended to focus on supporting demand rather than directly increasing supply – from removing stamp duty to introducing packages such as help-to-buy. 

Source: National Statistics

Ultimately, there has been policy inertia for thirty years in this area, with minor changes and reversals leading to minor relaxations and subsequent tightenings in land supply. This, combined with changes in mortgage rates, produced minor booms in development pre-GFC and in the past few years (although not over the past year). We have never come close to building the 300,000+ homes per annum that, according to most experts, are needed. Also, very little housing has been built in leafier rural or suburban areas, particularly in the South East; far more have been built in city centres or former industrial locations, which has in itself changed where young homebuyers and renters live. Take this graph below, which shows how many homes have been built per “addition” to the population over the past two decades. Every additional head in the North East has almost one and a half new homes to chase after; in London, it’s a fraction over a quarter.

Source: Montagu Evans / National Statistics

But this inertia has at least partly led to the problem we have today: a huge number of younger households locked out of homeownership and often paying high proportions of their income in rent. And over the past decade, it has become increasingly apparent that the leading cause of this is a long-term undersupply of housing, caused by an overly restrictive and insufficiently enabling planning system. Public opinion, too, has steadily moved in the direction of much more housebuilding, even if there is still huge controversy about where these homes should be built, who they should house, and what they should look like.

THE POLITICAL REASONS

The same processes have also led to the remarkable polarisation we see today in Britain, particularly when it comes to housing. Older people are much more likely to own their own home, to live in rural or outer suburban areas, and therefore to have an economic interest in not seeing any houses built, as the main selling point of such areas are peace, quiet and access to relatively uncrowded services. High house prices are also maintained by a lack of local supply, so they have personal economic reasons for opposing development. This combines with romantic ideas about the countryside, and perhaps anti-urban feelings picked up during the 1970s to create a demographic that is virulently anti-development. 

Meanwhile, younger people are more likely than ever to live in cities and rent. Not only will more housing probably improve their lives immediately (more amenities and activity locally, possibly lower rent), but it will also increase their chance of eventually owning a home, which surveys still show most want to do. 

According to the latest polling, Labour’s support skews strongly towards the latter. If they can enthuse this notoriously flaky demographic to get out and actually vote, it could turn what looks like a landslide into something even more significant. What’s more, if they do succeed in their policy aims, they could convert a whole generation of aspirational younger people into lifelong Labour voters. 

While many Conservative politicians may agree with pro-development policies from an ideological point of view, they are constrained by the attitudes of their core vote.

THE ECONOMIC REASONS

There are other, potentially far more impactful, set of reasons which Labour are presumably aware of, too. 

Britain is in the grip of a profound productivity crisis. Output per worker – having grown pretty consistently since the Second World War, even during the dark days of the 1970s – has been pretty much flat for a decade.

There are lots of potential explanations for this, but part of it must surely be that an overly restrictive (and insufficiently enabling) planning system has made it almost impossible to build. A highly localised democratic system has meant that local people can, in effect, veto any new development near them or at least slow it down considerably.

This is not just true for housing but also for new infrastructure, from reservoirs to power lines to data centres, and even for new employment-generating uses. Breaking this logjam is vital if productivity growth is to return. It’s also key if we want to see net zero, given the importance of new energy infrastructure.

Furthermore, there’s the work generated by the construction itself. Plenty of think tanks point at the boom in private sector development in the 1930s. It occurred at a time when the rest of the world was in the economic doldrums, and the scale of activity was one reason why the UK had a relatively good decade (at least compared to the 1920s, which were, in fact, torrid on this side of the pond).

Building more homes would also lead to lower housing costs – although this might take quite a bit of time – which would mean that younger people, in particular, would have more money to spend on other things, supporting economic growth.

There is clearly a hope that with public sector funding tight, such a boom could help to create relatively strong economic growth, helping to fund improved public services, and produce more electoral success for Labour.

BUT HOW?

The problem with Britain’s housing crisis is that as its causes are simple to understand (a lack of supply, fundamentally), too many people assume this means the solutions are easy. However, simple problems can sometimes be surprisingly hard to solve in the short term, particularly if they have created assumptions and ways of working – ‘institutional economics’ – that are hard to shift. Many parties have interests in land supply remaining constrained. Financial and economic cycles, as well as the supply of land, also influence development, a notoriously cyclical industry and one prone to bubbles even where regulation is minimal. 

Furthermore, the planning system is underfunded and understaffed. Even if we were to take the radical option and move to a more rules-based system – one in which the location and form of development are agreed and then landowners can build within these rules without further detailed applications – we would still need staff with the skills to allocate land, enable infrastructure and introduce design codes. Do these skills exist in sufficient quantities?

More importantly, the next Government will want to take action quickly. Demolishing a system and rebuilding it might eventually produce the results, but it could lead to a medium-term stasis. Tinkering with it might lead to moderate increases in activity seen during recent partial liberalisations. The route needs to be somewhere between these two extremes. There’s also likely to be a political reaction; the controversy around development is not going to go away quietly.

Over the next few weeks, Montagu Evans’ specialists will examine some of the key issues in planning and housing at stake in the upcoming election, from housing targets to new towns, to try to understand what might happen and what the implications might be for the industry.

Tags

housing, planning, general election, insight