Sharing Planning Gain to Build More Housing

Sharing Planning Gain to Build More Housing

Liam Halligan is the author of the book, “Home Truths: the UK’s Chronic Housing Shortage”. Lots of good ideas are in it especially his idea about sharing planning gains in order to build more housing.

His book is an excellent read for those keen to fix the lack of homes in the UK.

He goes through all the problems that there are with housing in the UK – the lack of homes being built, especially the lack of good quality homes, the overcrowding, the homelessness, the falling owner occupancy rate etc.

He rightly tears into the Conservative government for their silly Help to Buy scheme, which he correctly says, simply stokes demand more and bungs huge profits into the coffers of the large developers, who then build poor quality, often sub-standard homes for young home buyers. (Help to Buy and similar schemes are surely the crack cocaine of the housing market – and the government is now scared of turning off the supply in case all the addicts go “cold turkey”).

He is also bang on the money when he says what is needed is reform on the supply side of housing – not least in the house building industry, which is “over-mighty” and clearly oligopolistic.

By way of example, he shows how the big developers have staged a “go slow”, making bigger overall profits by deliberately producing fewer homes, so that housing prices keep on rising. This can be contrasted with smaller builders – those producing less than 100 homes a year – who always build out fast. They have to build fast because their cash flow does not allow for any other way to do things.

But the smaller house builders share of new house building has declined to around just 10 per cent of all output, a huge drop from one third in 2008 when the financial crisis hit, a crisis which drove so many of the smaller firms to the wall.

Planning Gain and the Big Builders Oligopoly

Meanwhile, at the top end of the scale, the top ten developers now build a whopping two thirds of new supply. This prompted the Lords Economic Affairs committee to say that UK house building has “all the characteristics of oligopoly”. Halligan is one of many commentators asking for a full Competition Commission enquiry.

Keep in mind the fact that the UK’s lenders are “in on things too” – at least 70% of their loans are for property. They are not keen on changing the status quo.

Halligan points to the huge profits made by the house builders from “planning gains” – these are made when residential permissions are granted and land values rocket, with the profits going mainly to landowners, developers and “land agents”. (I have to admit, I’m one who has benefited from this too in a small way, though more from infrastructure changes. We always bought in places where there was going to be a new tube or train line ahead of the project being completed).

Sharing Planning Gain with Local Authorities

He says the big planning gains should instead be shared with local authorities, which he says, would result in less land speculation, cheaper land and hence more affordable homes while also generating money for schools, hospitals and other infrastructure.

Under existing “Section 106” regulations, he says, powerful developers often negotiate away their obligations to build communal assets and affordable housing by threatening local authorities with delays. The local authorities, under pressure from central government, often give in. This, he says, is less likely to be the case with smaller builders who do not have the same power.

He argues that much of the green belt is actually urban scrub land, which now accounts for 13 per cent of England’s land while housing (and gardens) accounts for just over 1 per cent, so the idea that there is no space is simply untrue.

Sharing Planning Gain 50:50 for More Housing

Halligan would like to see a system where planning gain is split 50:50 between developers and local authorities. For him, this is a far better approach than all the interventions on the demand side like first time buyer discounts and punitive, spiteful mansion taxes.

I like his ideas. Being against mansion taxes shows he is no Corbynite zealot. He just wants the supply side to work for the benefit of all. He’s in favour of social housing, for example, because it is necessary that people on lower incomes have a chance of living near the cities where they work – essential to keep a mixed/ free market economy moving.

I have not read his comments on the private rented sector but I’d imagine that as a pragmatic person, he could see that interventions like Corbyn/Khan’s rent controls, (another demand side approach), would only kill off the sector by crashing the supply of rented accommodation and hugely lowering the quality of what rented accommodation would remain.

Link to the book: “Home Truths: the UK’s Chronic Housing Shortage”.

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