To deliver growth, Labour will need to overhaul the planning system

A housebuilding boom is key to growth. Planning reform is needed to make that happen.

Lisa Nandy

Anthony Breach is Senior Analyst at Centre for Cities, leading on housing and planning

The Labour leadership understands that there is a housing shortage in the UK. Both Lisa Nandy and Sir Keir Starmer have stressed the need for planning reform and more housebuilding – especially of council housing – in recent months. Even so, the scale of Britain’s housing problems is daunting.

Centre for Cities’ new report – the Housebuilding Crisis – shows that compared to the average European country, the UK is missing 4.3 million homes. Clearing this backlog would require a 15 per cent boost to the total number of homes in the UK, and England’s annual target of 300,000 homes would take at least half a century to clear it, even if we did manage to reach it.

The problem with the scale of the housing challenge is that it is competing with other pressing priorities. When Labour is setting out missions to deliver improvements to economic growth, health, policing, carbon emissions, and education, where does housing fit in when the economic outlook is so poor?

The answer is using housebuilding to turn Labour’s abstract ideas on growth into reality. A housebuilding boom to close the backlog would create jobs, directly reduce housing costs, and increase disposable incomes.

Growth through housebuilding has been done before. The eminent economic historian Nicholas Crafts has previously shown that one third of Britain’s recovery from the Great Depression was driven by Britain’s highest ever rate of housebuilding in the 1930s.

So, in practical terms – how do we increase UK housebuilding?

It is sometimes argued that Britain’s housing supply problems are relatively recent. The decline of council housebuilding after Right to Buy was introduced in 1980 is in this view presented as the key problem. Returning to an extensive council housebuilding programme, and the subsidies they require, is the only way to increase housing supply.

However, this is at best only partially true. Our new report shows that Britain’s housing supply issues began in 1947, not 1980.

By analysing United Nations statistical annals that contain a wide variety of international housing data from the Second World War, Centre for Cities has compared housing and housebuilding between the UK and ten other European countries.

We found that there was a decline in total housebuilding in England after 1980, primarily of council housebuilding. However, it was preceded by two bigger declines – one during the 1970s when both private and council housebuilding fell by roughly half, and another large decline straight after WWII.

These declines meant that even though council housebuilding increased after the Second World War under the Attlee Government, total housebuilding dropped by a third after 1947, as private housebuilding fell by more than half.

The cause of these earlier large drops to housebuilding was the Town and Country Planning Act 1947. The uncertain, case-by-case discretionary planning system it introduced immediately reduced housebuilding, and it then became more restrictive over time as the initial local plans were exhausted and designations like the green belt were created and expanded.

As a result, post-war Britain from 1947 to 1979 built much less housing than other European countries. The UK in 1955 enjoyed 5 per cent more homes per person than the average European country, but by 1979 this had fallen to the UK having 2 per cent fewer homes per person, and by 2015 it had fallen even further to at least 8 per cent fewer homes per person than the average European country.

It is planning restrictions that explain why the UK saw relative decline compared to the rest of Europe, not a lack of social housing. Finland – origin of the celebrated Housing First programme to tackle homelessness – went from being 14 per cent below the British ratio of homes per person in 1955 to 23 per cent above it by 2015, even though they built almost no social housing over that period.

Crucially, the lesson is not that council housing was a mistake – it’s that the UK could have built more private and more council housing if the planning system had been less restrictive. Had Britain built housing at rates similar to the Netherlands or Austria after 1955, we would today have between 2.8 and 7 million more private homes and 2 to 2.2 million more social homes.

So, what does this mean for Labour?

In sum, the English planning system was and is a barrier of new social housing, not its enabler.

The key to building more housing – council, social, and private – is planning reform to replace the current, discretionary planning system with a new flexible zoning system. Replacing the existing system’s uncertainty and case-by-case decision-making with a rules-based process. Instead of development being prohibited on all land unless a site is granted a planning permission, development would be allowed on more urban land and undeveloped land near cities unless it was specifically prohibited.

Other countries are already doing this. Jacinda Ardern’s Labour Government in New Zealand passed a major national planning reform in 2021, and rents have already fallen in Auckland since a municipal planning reform in 2016 with the biggest benefits flowing to low income renters.

Only reform of this scale will enable the country to build what is needed. To deliver a housebuilding boom, England must at least double from its current numbers of 220,000 a year – even the current target of 300,000 new homes a year will not be enough. England needs 442,000 new homes a year to close the 4.3 million home backlog in 25 years, or 654,000 to close it in ten years.

In addition, to get the greatest economic and social benefits, the lion’s share of the new homes will need to be located in and near the least affordable urban areas with the greatest need for new homes. High supply in low demand housing markets will have minimal or no benefits for affordability and the economy.

And finally – planning reform will have the greatest benefits if it is done as soon as possible. It takes time to build homes, and it will take even longer to build 4 million missing homes. Delivering growth will require Labour to deliver planning reform and a housebuilding boom to finally solve the housing crisis.

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