Is planning responsible for the housing crisis?

UK Government ministers continue to blame the planning system for the affordability crisis in housing. They are not alone. Many economists also say that planning restrictions stop house-builders from building the amount of homes we need.

In April 2019 economist Christian Hilber gave evidence to the Lords Intergenerational Fairness Committee that the main cause of excessively high house prices in England was an inflexible planning system.

In her landmark report, economist Kate Barker said that planning constraints on land supply were the main reason why supply and demand in UK house-building did not work the way market theory says it should.

Barker asked why the house-building industry is so slow to respond to price signals. The answer she gave was that house-building depends on a supply of land and land is rationed by a regulatory system (planning), not by a market process. 

Barker’s solution was that planning should behave more like a market. Planners should make more land available when house prices rise.

In her 2004 report to government Barker promoted what we might call the ‘marketisation’ of planning. She called on planners to prioritise the interests of the private market. They should give house-builders a greater choice of sites to develop.

The Barker review led to changes in planning which have seen many restrictions on land supply lifted. But this still has not brought about a substantial increase in house-building. Instead, the Raynsford Review of Planning in 2018 argued it has skewed the planning system in favour of private profit at the expense of environmental and social sustainability.

Raynsford argued that planning serves an important public purpose by regulating the supply of land. A free market in land and development creates environmental and social harm.  Planning regulates land to make sure development is sustainable, its benefits are shared equally, it enhances the environment and makes places and lives better. 

The Raynsford Review stated: “Market mechanisms alone are unable to deliver a full range of public interest outcomes when confronted with the scale of the real-world challenges facing the nation…Decisions with a lasting impact on people and places should be subject to democratic accountability that goes beyond the exercise of individual property rights”.

Planning plays (or should play) a necessary and beneficial purpose in constraining land supply. The regulation of land makes the housing market more sustainable in the long term.

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