East Midlands Councils’ Director of Policy and Infrastructure, Andrew Pritchard, on planning reforms, housing targets and the challenges of housing delivery.

Like many of its predecessors, this Government believes that the key to solving the housing crisis lies in reforming the planning system.
All we have to do is to make the system produce more planning permissions at a faster rate, and housing delivery will rise to meet need – and everyone will be happy.
It’s a version of the ‘Field of Dreams’: consent them, and they will come.
But of course, whilst planning permission is necessary for development to take place, it is not sufficient. And no-none can live in a ‘planning consent’. In practice, building a house requires land control, finance, skilled labour, access to water, drainage, power and transport systems, and most crucially, a willing buyer at the right price for the builder.

Understanding Housing Market Dynamics

As local councillors and planning officers know, a private developer will not complete a house unless it can be sold at or around the price of similar houses in the area. This is what ex-Tory Minister Sir Oliver Letwin described as the ‘local market absorption rate’.
It is this that actually determines the number of homes completed in a given locality – not the number of planning consents given by councils.
We should not blame private developers for the practice. Their job is to provide a financial return for investors and to maintain a healthy share-price (that’s capitalism!) – not to house the nation.
However, it is puzzling that successive Governments (and in particular the Treasury), do not seem to understand this.

Bridging the Gap Between Consents and Delivery

Despite the blizzard of announcements focussed on building 1.5m new homes by the end of the Parliament, the new Government’s delivery strategy seems remarkably light on…measures to increase delivery.
So, what might a more effective strategy include?
Well firstly, it would be a good idea to properly understand how many homes are actually being consented and the stock of existing permissions on both new and partially built-out sites.
Surprisingly given the priority to ‘solving’ the planning problem, the Government does not collect this data. Instead, it contracts with a private sector company which ‘data scrapes’ details of permissions from council websites. Summary figures on the number of consents granted every quarter are published by MCHLG, but not by Housing Market Area or LPA. Nor is there any analysis on the rate of flow of consents through to delivery (i.e. the market absorption rate).
Let’s assume we do have accurate figures and a better understanding of what is going on…what can the Government do to speed up delivery given the private sector’s economic model?
Historically, Government invested directly and heavily in new social housing provision to drive up the numbers. This largely came to an end in the 1980s and instead Government switched support to housing benefit payments, the theory being that it is more economically efficient to subsidise the consumer of a service (the tenant) than the provider (the builder).
Roll forward 40 years and the nation now spends close to £30 billion a year on housing benefit payments…and around £2.3 billion a year on new affordable housing. Is this right balance? Would not spending more on bricks and mortar reduce the need to subsidise landlords and ultimately the ongoing burden on the taxpayer?

A New Development Model

But even if we invested more in social housing, we will still be reliant on the private sector for the majority of new homes – so how can we incentivise faster build out rates?
In the past the Development Corporations played a key role in de-risking sites by servicing land, enabling the private sector to develop under less financial pressure. This process requires Treasury backed loan guarantees, which clearly have an up-front cost.
However, the former New Towns Corporation famously delivered a profit for the Government when it was wound up, so it would be more of a long-term investment.
Interestingly, the Chancellor’s recent changes to the Government’s ‘fiscal rules’ appear to allow the value of assets created by investment to be offset against the costs of borrowing – making this approach potentially more attractive again.
In the absence of Development Corporations some private sector interests have experimented with the ‘master developer’ model, which looks to work in a similar way but utilising ‘patient capital’ instead of state-backed loans.
There are currently only a very limited number of players active in this space and it seems to require a bespoke ownership model. For example, Urban & Civic, who are currently bringing forward a major urban extension to Newark of over 3,000 homes, is owned by the Welcome Trust. But it clearly an approach that offers potential if it could be rolled out more widely.
Of course, there need to be some sticks as well as carrots – and there is clearly more that could be done to strengthen the hand of councils in dealing with developers. But ultimately the state cannot force the private sector to invest against its will.
What is clear is that the Government’s target of 1.5 million new homes by the end of the Parliament is very unlikely to be delivered by the current development model. Re-thinking this will require some serious commitment from Ministers. Chucking another brick through the Planning Office window won’t build the Field of Dreams.

Read our blog post on strategic planning here: https://www.emcouncils.gov.uk/some-thoughts-on-the-return-of-strategic-planning/