ourEconomy: Opinion

Boris Johnson's plan to 'build back better' is an attack on democracy

The prime minister wants to dismantle England’s planning system and hand over more power to private developers. He must be stopped before it's too late.

Laurie Macfarlane
4 July 2020
Paul Ellis/PA Wire/PA Images

This week Boris Johnson attracted ridicule for launching a ‘New Deal’ that contained precious little that was actually new.

But among the bluff and bluster, one pledge stood out. The prime minister promised to undertake “the most radical reforms to our planning system since the Second World War”. This, we were told, will help us “build back better, build back greener, build back faster”.

For most people, the planning system is an obscure black box. Unless you happen to be a councillor, a housing nerd, a property investor or an avid NIMBY, the chances are that you have never had to engage with it. But the way that land is allocated, used and managed has an enormous impact on how the economy works, and in whose interests.

The basic pillars of England’s planning system have remained more or less the same since they were introduced by the 1947 Town and Country Planning Act. The legislation was an elegant attempt by Clement Attlee’s Labour government to balance public and private interests: land was kept in private ownership, but the right to develop it was nationalised. This meant that landowners and developers had to apply to their local authority for planning permission to build new property or convert existing buildings from one use to another.

Even Margaret Thatcher, who presided over the most radical housing reforms in living memory, stopped short of trying to overhaul the planning system. Instead, she opted for a strategy of “consistent incremental erosion” – a process that has continued ever since.

In recent years this has been accelerated further by austerity. According to the National Audit Office, local authority funding for planning and development was cut by 53% between 2010 and 2017. As the Royal Town Planning Institute has highlighted, years of under-resourcing and market-oriented reforms have relegated planning to a largely reactive, regulatory function driven by a ‘box-ticking’ culture.

While the basic architecture of the 1947 settlement continues to exist on paper, in practice the proactive, strategic type of planning it was designed to support has long ceased to exist. The winners of this have been private developers, who have greater leeway than ever before to manipulate the planning system and wriggle out of their social housing obligations.

Now, however, there are signs that Boris Johnson wants to go one step further than any of his predecessors.

This week the prime minister announced plans to make it easier to build on brownfield sites, change buildings from commercial use to residential use, and build on top of existing properties without applying for normal planning permission. “Developers will still need to adhere to high standards and regulations, just without the unnecessary red tape”, he claimed.

These steps are only the beginning. Dominic Cummings, the prime minister’s most senior advisor, has made no secret of his desire to “take an axe” to the “appalling” planning system. Robert Jenrick, the communities secretary, has made it clear that the government wants to “rethink planning from first principles”. The government’s plan for ‘comprehensive reform’ of the planning system is expected to be unveiled in a policy paper later this month.

What might this radical overhaul look like? A taster can be found in a recent paper published by the think tank Policy Exchange. The paper recommends making “a clean break” with the land use planning system that has been in place since 1947 and replacing it with a ‘binary zoning system’. Under this system, all land would be designated simply as either 'development land' or 'non-development land'. ‘Development land’ would cover all existing urban areas and planned extensions, and would have no restrictions on permitted land use. The role of local elected representatives would be “streamlined”, so that they would have no say over planning applications.

In other words, development would become a private sector free-for-all.

It’s difficult to overstate how monumental a change this would be. It would bring an end to nearly a century of urban planning in England, and represent the greatest transfer of power from public to private since Thatcher’s Right to Buy. More than anything else, it would be a ferocious attack on democracy.

The author of the Policy Exchange report, Jack Airey, is now the prime minister's Special Advisor on Housing and Planning. According to the Financial Times, plans for a “zonal planning system and the creation of special development zones” are at the centre of the government’s thinking.

Whether or not the government will go as far as the Policy Exchange report remains to be seen. But the direction of travel is clear – and the consequences could be severe.

The root of the housing crisis?

The case for dismantling the planning system typically rests on a number of key assumptions. The first is that the planning system is to blame for a shortage of housing, and that this in turn is to blame for the housing affordability crisis.

Although the idea that ‘we aren’t building enough homes’ has become a universal truth in politics, the evidence is far from conclusive. Since the 1996, the English housing stock has grown by 168,000 units per year on average, while growth in the number of households has averaged 147,000 per year. While there were 660,000 more dwellings than households in England in 1996, by 2018 this surplus had grown to over 1.1 million.

If this is the case, why have house prices skyrocketed? The answer lies in the demand side of the equation. Demand for housing is not only limited only by people’s incomes or savings: it is also shaped by the relative attractiveness of home ownership compared to renting; the relative attractiveness of homes as financial assets; and, crucially, the amount of money that banks are willing and able to lend.

In recent decades falling interest rates, mortgage credit liberalisation, buy-to-let deregulation and a favourable tax system have produced a tidal wave of money flowing into the housing market, fuelling a house price boom. The normalisation of double-digit house price growth, combined with the expectation that house prices will continually increase, has fuelled demand for houses as financial assets.

If a shortage of supply is not the cause of the housing affordability crisis, then trying to build our way out of it can’t be the solution, as those who want to dismantle the planning system like to suggest.

As Ian Mulheirn has outlined, studies show that a 1% increase in the housing stock tends to lead to a decline in rents and house prices of between 1.5% and 2%. This means that even if the government was to meet its target of building 300,000 houses per year in England, house prices would only fall by around 0.8% per year. Given that prices have increased by 160% real terms since 1996, this a drop in the ocean.

This doesn’t mean that supply problems don’t exist, or that we shouldn’t build more homes. Instead, it means that the problem is primarily one of quality, price and distribution – not quantity. Put simply: there aren’t enough homes of the right kind, in the right locations, that people can afford to live in.

Is the planning system to blame for this? Again, the numbers tell a different story. According to the Local Government Association, nine out of every ten planning applications are approved by councils. At the same time however, more than a million homes that have given planning permission in the last decade have not yet been built.

What's causing the delay? The problem is not the planning system, but our reliance on a speculative, for-profit model of development. Ever since Margaret Thatcher brought an end to large scale public housebuilding in the 1980s, housebuilding in England has been reliant on private, for-profit developers. These firms typically operate a ‘speculative model’ of development, which is a cyclical process of raising finance, buying land, securing planning permission, constructing the homes and finally selling them.

Because they exist to serve their shareholders, they prioritise developments that maximise shareholder value, which often bear little resemblance to the type of buildings and tenures that communities actually need. Once land has been secured, they face a strong incentive to ‘drip feed’ new homes onto the market at a painfully slow rate. The reason for this is simple: their aim to maximise profits, and releasing too many homes at once would reduce house prices in the area, which in turn would reduce profits.

Housing supply is therefore determined not by housing need, but by the ‘market absorption rate’ – the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price. This is the real bottleneck in housing supply, and this was also confirmed by the government’s own independent review into build out rates that was published in 2018.

One might therefore reasonably ask: why is the government ignoring the findings of its own report in order to peddle the myth that the planning system is the problem?

We will never know for sure, but a cynic might point to the £11 million that the Conservative Party has received from property developers since Boris Johnson became prime minister. As Robert Jenrick can attest, these donors expect a return on their investment.

Zoning to the rescue?

At the heart of many criticisms of the planning system is the idea that it ‘distorts’ prices and prevents the market from allocating resources efficiently. This is typically informed by insights from neoclassical economic theory, which states that goods and services are most efficiently produced by private firms operating in a competitive market. Because the state supposedly has neither the knowledge nor the expertise to allocate resources better than the market, it should avoid ‘intervening’ in the market or 'picking winners', as this will lead to sub-optimal outcomes.

But of all the different areas of the economy, land is perhaps the area where this is most glaringly wrong. Land’s unique properties – scarcity, permanence, irreproducibility, immobility – mean that the land markets do not function particularly well, and are replete with failures. Because state intervention is essential for land to become property at all, any analysis that starts from the premise of minimising state involvement is fundamentally flawed.

According to the Policy Exchange report, planning restrictions “prevent dynamic places from growing naturally” under market forces. But what is ‘natural’ about allowing profit hungry developers to build towering luxury flats that most people can’t afford to live in?

To see what a world without planning looks like, we can look at Houston, Texas – a city that is renowned for having virtually no land use planning. Among its many draws are 600 square miles of urban sprawl and some of the ugliest urban landscapes in the United States.

As one writer puts it: “When driving around Houston, it often feels as if a giant Monopoly board was dropped on the floor and someone hastily placed the hotels and houses together on random properties.” The city’s ‘Wild West’ approach to development has also been causally linked to recent bouts of deadly flooding.

The kind of zoning system proposed by Policy Exchange wouldn’t see London turn into Houston any time soon. But by placing even more power in the hands of speculative developers, and undermining the ability of local authorities to act in the public interest, it would represent a major step backwards from the status quo.

We already know where this leads. In 2013 the coalition government introduced ‘Permitted Development Rights’ which allowed office blocks to be converted into flats without planning permission. The result has been a bonanza of low-quality developments, which many experts have compared to ‘modern day slums’. Councils have repeatedly warned that such developments present a threat to people’s health and wellbeing, but have been powerless to act.

Planning the future

None of this is to say that reform is not needed. The challenges of the housing crisis, environmental breakdown and inequality demand radical changes to the way that land is owned, used and governed.

But evidence from around the world, including from Britain's own history, indicates that this requires more planning – not less.

To flourish in the 21st century, our built environment must be designed to serve human and ecological wellbeing. This means building more affordable zero carbon housing, and less luxury ghost-towers. It means rolling out more public transport infrastructure, and phasing out car dependency. It means creating more open green space, and less urban sprawl. It means putting climate resilience, design and beauty, public health and accessibility ahead of profit and economic growth.

Stripping power away from democratic authorities and handing it over to unaccountable private developers will not achieve this. As Leigh Phillips and Michal Rozworski write: “What is profitable is not always useful, and what is useful is not always profitable”.

Now more than ever, we need a system of planning and development that serves the common good. How can we get there?

Planning authorities should be granted the resources and powers they need to plan strategically in the public interest, balancing social, environmental and economic objectives. Local communities should be given a greater say over the type of development that takes place through new models of engagement and participation. And most importantly, the speculative model of development must be replaced by a new public-led approach, with democratically accountable public bodies acting as the ‘prime mover’ in the land market, buying and selling land in the public interest.

We already live in a planned economy. The question we must ask is: who should do the planning, and in whose interests?

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