Decades of planning policies that constrain the supply of houses and land and turn them into something like gold or artworks is to blame for the current housing crisis in the UK rather than foreign buyers, according to a new analysis.
The problem is not foreign speculators buying luxury flats as an investment in London which then lie empty but that for more than 30 years not enough homes have been built, says Paul Cheshire, Professor Emeritus of economic geography at the London School of Economics.
He also believes that homes that have been built have too often been in the wrong place or of the wrong type to meet demand. For example, twice as many houses were built in Doncaster and Barnsley in the five years to 2013 than in Oxford and Cambridge.
It means that in northern cities more homes have been built that in the southern part of the country where the demand and population is greater. Pace has also not kept up to demand. According to his analysis from 1969 to 1989 over 4.3 million houses were built in England but from 1994 to 2012 there were fewer than 2.7 million.
In 2009, the National Housing and Planning Advice Unit, which was set up as an independent technical source of advice in the wake of the Barker Reviews of housing supply and planning, estimated that to stabilise affordability, it would be necessary to build between 237,800 and 290,500 houses a year.
On a conservative estimate, that implies building 260,000 houses a year, which over 19 years would mean a total of over 4.9 million. Taking the difference between actual building between 1969 and 1989 and the advice unit’s estimate of necessary annual building, this implies that between 1994 and 2012, building fell short of what was needed by between 1.6 and 2.3 million houses.
‘This is what explains the crisis of housing affordability. We have a longstanding and endemic crisis of housing supply and it is caused primarily by policies that intentionally constrain the supply of housing land. It is not surprising to find that house prices increased by a factor of 3.36 from the start of 1998 to late 2013 in Britain as a whole and by a factor of 4.24 over the same period in London,’ said Cheshire.
He explained that it is a long standing problem as discounting inflation, house prices have gone up fivefold since 1955 but the price of the land needed to put houses on has increased in real terms by 15 fold over the same period.
He also explained that in the UK houses are converted from places in which to live into the most important financial asset people have and the little land you can build them on becomes not just an input into house construction but a financial asset in its own right.
‘In other words, what policy is doing is turning houses and housing land into something like gold or artworks, into an asset for which there is an underlying consumption demand but which is in more or less fixed supply. So the price increasingly reflects its expected value relative to other investment assets,’ said Cheshire.
‘The more tightly we control the supply of land and houses, the more housing and housing land become like investment assets. In turn, the stronger the incentives for their owners to treat them as an option to hold in the expectation of future price rises. So to blame speculators for housing shortages and rising prices is simply incorrect. It is our post-war public policy that has converted a good that is in principle in quite elastic supply into a scarce and appreciating asset,’ he pointed out.
‘We can see this from the behaviour of housing and land prices before we imposed our constraints on land supply in the mid-1950s. We can also see it from housing markets, such as Switzerland or Germany, where policy ensures adequate housing is supplied,’ he added.
His analysis says that additional barriers to building houses came from the UK’s pattern of government, how the local fiscal system interacts with property taxes and an insistence on using ‘development control’ which requires any legally defined development to get specific permission from the local planning authority rather than a rule-based system as in continental Europe or the United States, where there are plans covering local communities and as long as a development conforms to these, it can go ahead.
He also suggests it is a myth that previous greenbelt land is under threat from increased house building. ‘Supporters of urban containment policies argue that Britain is a small island and we are in danger of concreting it over. But this is a myth. Greenbelts in fact cover one and a half times as much land as all our towns and cities put together,’ he said.
‘Moreover, our towns and cities are far greener than greenbelts: not only is the biggest land use within them parks and gardens, but they also provide far richer biodiversity than intensively farmed land. Just less than 10% of England is built up, but gardens cover nearly half that area,’ he pointed out.
He also argues that it is a myth that greenbelts are environmentally valuable. ‘They are not because intensive farmland is not. Moreover, there is little or no public access to greenbelt land except where there are viable rights of way. Greenbelts are a handsome subsidy to horsey culture and golf. Since our planning system prevents housing competing, land for golf courses stays very cheap. More of Surrey is now under golf courses, about 2.65%, than has houses on it,’ he explained.
He also says it is a myth that greenbelts provide a social or amenity benefit. ‘The reality is that a child in Haringey gets no welfare from the fact that five miles away in Barnet, there are 2,380 hectares of greenbelt land or in Havering another 6,010 hectares,’ he added.
Indeed, according to research from the Spatial Economics Research Centre (SRC) the only value of greenbelts is for those who own houses within them. ‘What greenbelts really seem to be is a very British form of discriminatory zoning, keeping the urban unwashed out of the Home Counties and of course helping to turn houses into investment assets instead of places to live,’ said Cheshire.
‘So the solution to our crisis of housing affordability is not to blame speculators or foreign buyers but to sort ourselves out. We need to allow more land to be released for development while protecting our environmentally and amenity rich areas more rigorously than we do at present,’ he added.
He also pointed out that building on greenbelt land would only have to be very modest to provide more than enough land for housing for generations to come and said there is enough greenbelt land just within the confines of Greater London, some 32,500 hectares, to build 1.6 million houses at average densities. Building there would also reduce pressure to build on playing fields and amenity rich brownfield sites such as the Hoo Peninsula and improve the quality of housing.