Planning reform will fail to address UK housing crisis without affordability requirements, think tank says

In a paper out today, the Social Market Foundation reviews evidence from comparable English-speaking countries – the USA, Australia, Canada, and New Zealand – and finds that planning reforms often fail due to insufficient ambition and a failure to insist upon affordability requirements for new construction.

Planning reform is increasingly seen as the ‘silver bullet’ to addressing the UK’s housing woes, with politicians promising that it will make homebuilding easier, increasing supply and, through that, decreasing price. Labour has pledged to increase housing capacity by requiring authorities in England to meet housing demand and, if necessary, stepping in to local plans to increase the capacity of existing property. Housing Secretary Michael Gove recently updated brownfield planning regulations – but due to the limited scope of his changes, the plan is likely to increase housing stock in selected towns and cities by just 0.78%, and increase UK housing stock by a mere 0.5%, SMF analysis notes.

Evidence from United States, Canada, Australia and New Zealand suggests that planning reform in these countries often fails to increase supply, and even where it does, it is uncertain if prices come down:

• In California, supply failed to increase because policymakers watered down regulations by limiting eligibility and reducing the covered areas. Further limits to building size, area, density, and design continues to slow housing construction.
• Even where new units are built, there is no guarantee they will be affordable. New York, Chicago, Seattle, and Brisbane all saw prices increase in areas where planning was reformed. This was the result of land value increasing, pushing up prices and pushing out residents.

The planning reform strategy adopted in Minneapolis shows the way forward, and should be emulated by the UK, the SMF said. Minneapolis targeted both supply and demand.

• To increase supply: city officials slashed burdensome minimum parking requirements, which would have meant losing many acres of land for parking space or costly basement car parks, while embarking on planning reforms between 2009 and 2018. Construction doubled over that time, and it now leads midwestern cities for dwelling units permitted.
• On the demand side: rental assistance and subsidies were increased, and affordable housing regulations introduced, so that prices remained low. Minneapolis’ affordability requirements follow a 60-30-20 rule, ensuring households earning 60% of the local area’s median income do not need to pay more than 30% of their wages on rent or mortgage payments in 20% of units. Rents have since stabilised, rising just 1% since 2017 while the average US rent increased 30%.

By boosting supply while introducing affordability requirements, Minneapolis has stopped the persistent price increases seen elsewhere, the SMF notes.

For planning reform to succeed in ensuring more genuinely affordable housing in the UK, government strategy has to be two-fold. To ensure reforms lead to more units being built, plans must be ambitious and holistic. They must apply to large geographic areas (such as cities or local authorities) and changed regulations must remove technical barriers like height limits, parking minimums, and floor-space requirements which are preventing multi-units from being built, while protecting quality and wellbeing. Secondly, to ensure the supply is affordable, current housing affordability requirements – which are simply based on 20% of the market rate – should be  replaced,  the SMF recommends.

Essentially, policymakers should:

• Ensure any planning reforms are ambitious enough to greatly increase supply at the scale required by:
  • Maximising the land which is available to housing development
  • Maximising the unit density which can be built on this land
• Undertake a holistic approach to planning reform in the National Planning Policy Framework (NPPF) and local plans by:
  • Recognising the need for granular reforms such as parking requirements, height minimums, and other constraints not targeted by certain reforms
  • Making certain regulations related to planning reform, capacity, and affordability mandatory for Local Planning Authorities
• Introduce blanket planning reforms rather than a piecemeal approach by:
• Applying reforms made to the NPPF across the UK and, where relevant, devolved nations
• Ensuring design codes and targets are introduced at a Local Authority level, and avoiding more specific targetting
• Include demand-side interventions which mandate affordability to avoid the gentrification that can result from planning reform by:
  • Establishing a definition of affordable housing based on household income and median local wages
  • Increasing the size and eligibility of housing benefits or by increasing the proportion of new housing units which must be made affordable

This SMF paper looking at planning reform, is the final part in a series, kindly funded by the Nuffield Foundation, exploring housing policy solutions across the Anglosphere (English-speaking countries). Previous papers explored homeownership financial policies, social housing and co-ops, and rental rights and support.

Gideon Salutin, Senior Researcher at Social Market Foundation, said:
“Contrary to popular belief, planning reform will not automatically unlock housing supply and make homes affordable. Advocates and politicians promising big payoffs are making a risky gamble.

It would be better to implement planning reforms more strategically, and have affordability baked into it so that new units are affordable. Planning reform needs to be ambitious in scale, remove all barriers to maximise dense building, and mandate affordability – to even get a start on addressing our housing woes. We have seen this strategy work in Minneapolis, and we should look to emulate it.”

Sam Richards, founder of Britain Remade, said:

“Reforming the planning system is the most important pro-growth policy lever we have. So, It’s vital that we get it right by learning from the reforms that actually got more homes built in cities around the world.

Not only is the lack of housing stopping people getting on the housing ladder, it’s crippling economic growth. If we build the homes Britain needs, tens of billions of pounds would be pumped into the economy, thousands of jobs would be created and Treasury coffers would swell. Politicians must act otherwise they’re condemning a generation of young people to sky-high rents while the dream of homeownership withers and dies.”

Dr Catherine Dennison, Programme Head at Nuffield Foundation, said:

“The next UK government will face a long list of challenges on housing, and planning policy will be a key area for reform. The SMF’s analysis tells us other countries have struggled with this, but crucially provides guiding principles from more successful international examples. The Foundation is funding this project ahead of the general election, to supply analytical context to contribute to the development of policies and pledges by political parties, and inform voters.”

Notes

1. The SMF report, Beyond the comfort zone, will be published at https://www.smf.co.uk/publications/beyond-the-comfort-zone/ on Tuesday 16th April 2024, at 5:15 PM.
2. The SMF is also hosting a launch event for the report, on Wednesday 17th April (2:30 PM), funded by the Nuffield Foundation – with a panel of experts, to examine if planning reform successes abroad can be replicated, and how failures may be avoided. See details and sign-up here: https://www.smf.co.uk/events/beyond-the-comfort-zone-how-can-planning-reform-boost-housing-supply-and-affordability/
3. The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds research that informs social policy, primarily in Education, Welfare, and Justice. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory. The Foundation has funded this project, but the views expressed are those of the authors and not necessarily the Foundation. Website: nuffieldfoundation.org Twitter: @NuffieldFound

Contact

• For media enquiries, please contact Impact Officer Richa Kapoor at richa@smf.co.uk

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