David Gauke is a former Justice Secretary and was an independent candidate in South-West Hertfordshire at the 2019 general election.
The country needs growth.
It was a message that Labour in opposition was keen to convey. One of its five missions was to achieve the highest growth rate in the G7. Keir Starmer promised to make “wealth creation” his first priority.
The disappointment was that Labour lacked much of a growth plan.
It hoped that by not being the Conservatives – with the frequent churn of Prime Ministers and Chancellors of the Exchequer, some of whom appeared to take leave of their economic senses – this would be sufficient for investors to flood to the UK. To the extent that there was a policy response to the objective, it was planning reform.
Labour, it was promised, would get Britain building again.
Planning reform had long been a troublesome issue for the Conservatives.
Think-tankers on the centre-right had consistently argued that the planning regime established by the post-War Attlee government had held back economic growth. A succession of Housing Secretaries and Chancellors of the Exchequer had sought radical reform. But the political reality was that the parts of the country where demand for new housing was at its greatest were also where local opposition was at its strongest and, more often than not, these areas were represented by Conservative MPs.
The last attempt at Tory planning reform, pursued enthusiastically by Robert Jenrick, came a cropper when the result of the Chesham & Amersham by-election revealed that these seats might not stay Conservative for long if the policy was implemented.
This left an opening for Labour.
Their early steps in government were not altogether encouraging in that they seemed to advocate increasing house building in those parts of the country where demand was weakest, such as North East England, while taking a more relaxed approach to house building where demand was highest, such as London. But that error has been partially corrected and, particularly in recent days, there are signs of renewed energy in this policy agenda.
Judicial reviews on infrastructure projects are to be curtailed; there is a more practical approach to addressing environmental objections; a zoning system is to be introduced for housing developments near transport hubs. Given the market turmoil of the first few days of the year, growth is the priority and planning reform is to be at the heart of it.
When it comes to house building, however, few expect the Government’s target of building 1.5mn homes over the course of the Parliament to be met. Planning concerns are becoming much less of a problem but a lack of economic confidence and relatively high interest rates mean that developers are still reluctant to expand their plans for development. The good news for the Government is that they could do something about it. The bad news is that it would be politically difficult, especially for a Labour government. What they should do is change their approach to requiring developers to build affordable homes.
House builders are commercial entities. They do not build homes as acts of charity but to make a profit. The Government, rightly, wants them to build more homes but they will only do so if they can make a profit. The more affordable homes they have to build at a loss, the more they need to make on the market-priced homes. But with the housing market subdued, this becomes hard to do, do it makes sense to wait until prices rise again.
For a Government hoping that house building might drive an economic recovery, this is not good news. A surge in house building will follow an economic recovery, not lead it. At the moment, developers are spending their time arguing with planning authorities about whether their affordable housing requirements make a development unviable, not getting on and building.
It is a hard argument to make, because we are all supposed to be sympathetic to building new affordable homes. After all, those of us who support more housebuilding usually frame our arguments on the basis of those who aspire to get on the housing ladder, bemoaning the fact that previous generations could afford to buy a home in their 20s, beyond the dreams of those of an equivalent age today. The answer, it is argued, is to build lots of houses within the price range of first time buyers.
The assumption, however, that the way to make housing more affordable is to build affordable homes needs challenging for two reasons.
First, if we want to subsidise housing for the poorest, it is not obvious that this cross-subsidy approach is the most efficient way of doing so. Any government will want to capture some of the uplift in value of land that is granted planning permission, but it does not follow that the right priority is to use that captured value on subsidised housing on that land. In some developments, the inclusion of affordable homes destroys value in that purchasers will pay less for a property in a mixed development than one that is entirely market-priced. In any event, strict requirements can easily make a development unviable, especially in an uncertain economic environment.
Second, international studies in the US, Sweden and Finland show that building any type of housing makes housing overall more affordable. And when one thinks about it, of course it does. It is true that a first time buyer is unlikely to purchase a newly built five bedroom detached house, but the family that does will almost certainly have moved out of another property. A chain will have begun, and at the bottom of that chain will often be a property that has become newly available to a first time buyer.
This is why the objections to new housebuilding that we so often hear (“greedy developers just want to build executive homes that nobody can afford to buy” – I am looking at you, Liberal Democrats) are so nonsensical. The types of homes developers want to buy are precisely the homes for which demand is highest (what is an “executive home”, other than the type of house most families aspire to live in?) but, in any event, they increase the overall supply.
As it is, we already live in smaller homes than many other comparable countries. If we only built affordable homes, our housing market would become increasingly distorted which is all well and good for those already owning “executive homes” because the premium for them would become greater and greater, while most of country would have to make do with more modest housing, with little chance of aspiring to something better.
The Government has been right to reform the planning system. That is necessary but not sufficient to deliver higher levels of house building. To make further progress, they should revisit the received wisdom on affordable housing and take a less interventionist, more market-based approach.