Reducing planning gain and cutting the cost of building could radically alter Britain’s housing market, writes Geoff Beacon
I grew up in Kent in a house built by my father in 1946 on land given as a wedding present. The area had been divided into plots by the landowner and sold off separately. It was an example of plotland development.
Our house was one of the last plotland houses built because in 1947 the Labour government’s Planning Act established that planning permission was required for the development of land: ownership alone no longer conferred the right to develop the land. Development values were to be captured by the state.
In 1954 the Conservative government’s Town and Country Planning Act let landowners keep the development value. This is more-or-less the situation now: planning is more restrictive than in 1946 and landowners still keep the development value when planning permission is given.
Today, planning permission is extremely valuable: planning permission for just one house can increase the value of a plot of land from less than £1000 at agricultural prices to over 100 times as much – sometimes much more. This enormous increase in value is caused by the shortage of supply – not of land – but of planning permission.
This shortage is driven by NIMBYs opposing development and developers, who keep land with planning permission in land banks, so they can trickle new houses onto the market when the price is right.
In 2015 the Conservative-Liberal Democrat coalition government passed the Self-build and Custom Housebuilding Act, which requires planning authorities to keep a register of people seeking to acquire plots of land in order to build their own homes. This return to plotland development could radically change the housing market.
Just imagine, as we do in the York Plotlands Association, that individuals could buy a plot of land for, say, three or four times its a agricultural value (e.g. £2,000), be given planning permission for that plot and put a home of their choice on it. For the individual that would cut out the £50,000 to £100,000 planning gain that ends up on the price of their new home. Also imagine that a large number of permissions were granted: planning gain would be reduced to a fraction of current values.
Another interesting development is the government’s interest in houses that are constructed off site: prefabs as we once called them.
There is an increasing number of suppliers. Legal and General is one with a highly automated factory in Leeds. The video of their manufacturing methods is impressive. IKEA sell BoKlok homes who say they ‘build all our houses indoors in efficient and modern factories.’ There are also smaller companies that use intelligent computer based methods to make custom houses in factory conditions. (See Alastair Parvin’s TED Talk on the Wikihouse Project)
These methods will see the cost of the construction of a new house fall considerably and some elements of the government champion it. In ‘Tax breaks for prefab homes’, the Times reports:
Sajid Javid, the communities secretary, is pressing Theresa May to allow him to take on the vested interests, including house-building companies and some Conservative councils, that he says threaten to scupper the government’s pledge to provide a million new homes by the end of the decade.
He believes that Britain has fallen behind as advances in so-called off-site construction technology offer the potential to provide high-quality homes at a fraction of the cost of traditional methods and significantly faster.
But while there are a few in the Conservative party, like Sajid Javid, who try to take on some of the vested interests, there are many others not so keen. In ‘Let’s build a million homes a year – but none of them on the green belt’ on the ConservativeHome website, Tim Patmore writes
We should move beyond the trade-off between more housing and less green belt. It is possible to avoid this trade off by three methods: 1) building on brownfield, 2) building up, and 3) building down.
All Patmore’s suggestions make significant increases the cost of building and he perpetuates the myth that we are short of land and the whole country is overcrowded. The London region may have a density of over 50 people per hectare but none of the other regions reach one tenth of London’s density, including the adjoining south-east (4.5 p/h) and Eastern Regions (3.1p/h).
Reducing planning gain and cutting the cost of building could radically alter the housing market – but that brings dangers: for example, one of the Bank of England’s stress tests is to see if banks can survive a 31 per cent fall in house prices. If families were allowed to live in a £10,000 log cabin on a plot of land costing £2,000, would this depress the value of all other property and crash any banks? But is this a good reason for keeping house prices high (and rising) protecting the wealth of affluent house owners and punishing the poorer renters?
Geoff Beacon is a Labour party member. He tweets at @GeoffBeacon
Appendix: The rich got richer.
In order to get some idea of the different effects of the housing market on affluent and poor, I downloaded house price data from the land registry for the years 2000 and 2010. I then looked at the changes in house prices for the most affluent areas compared to the least affluent areas. (I used the P² People and Places demographic classification for this exercise).
Adjusting for inflation between 2000 and 2010, I found that property of the P²’s most affluent areas increased by just over eight times the average income in 2010. Property prices in the least affluent are rose by a factor of two. However, according to the 2011 census, only 20 per cent of households in the least affluent areas own their homes. In P²’s most affluent areas this rises to 90 per cent.
During the 2000s most households in P²’s most affluent areas had large increases in their net wealth, at the same time most households in the least affluent areas paid increased rents.
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