“How can we increase housing supply and bear down on prices without damaging the economic interests of existing householders and landowners?
“Older owner-occupiers are more likely to vote than those in socially or privately rented housing, meaning they have often had a louder voice. When combined with public resistance to housing development resulting from concerns about impact on infrastructure, environment and communities, making the case for new homes has been problematic.”
This was the description in the recently published Lyons Review of what economists call the ‘insider problem’ which prevents governments from addressing the chronic undersupply of housing in England.
Adequate housing supply is hindered by the failure of the planning system to deal with two problems: the costs new developments impose on current communities and homeowners; and the failure to crystallise the uncertain benefits to the potential future occupants of new housing.
Evidence reviewed in my and my colleague Vignan Ratnoo’s discussion paper for the Institute for Government, Housing That Works For All, identified three problematic aspects of the “political economy” of English housing.
First, weak or absent city-wide/regional planning co-ordination means local interests dominate the planning system, and incentivise local planning authorities to engage in uncooperative strategies.
Second, limited local fiscal autonomy means local authorities do not have sufficient means to invest in the local infrastructure to avoid/mitigate problems of congestion and opposition to development.
Finally, the requirement for individual planning permissions for any changes of land use legally defined as ‘development’ is likely to make planning decisions more uncertain, amplifying the ability of those interested in blocking development to do so.
Our paper also presents evidence which suggests the risk of planning decisions being distorted in favour of current homeowners is real and economically significant. We found that between 2001 and 2011, the housing stock in England grew significantly less in areas where there were higher proportions of owner-occupiers.
There have been three obstacles to reform in the past. First, rising numbers of owner-occupiers and rising house prices from the late 1970s fostered opposition to development.
Second, as housing wealth became intertwined with the UK financial system, the scope for fast, radical reform narrowed.
Third, successive governments have struggled to find the right balance between regional/national top-down planning co-ordination and local bottom-up democratic legitimacy.
However, there are signs that problems of housing affordability are becoming so severe that public attitudes as well as the balance of political influence might be changing.
Miguel Coelho, fellow, Institute for Government