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We need a flexible zoning system to end the housing crisis

There are three things which are connected yet almost unique about the British economy. It has exceptionally stark geographic inequality; it has an extremely sharp housing crisis in its most expensive cities; and it has an unusually dysfunctional planning system.

Addressing those regional divides and the housing shortage requires replacing our discretionary planning system with a new flexible zoning system. The new reforms underway are one approach, but there are other examples from abroad which would also be major improvements over what we have now. But there must be fundamental change in how the planning system works if we want fundamental changes in inequality and housing outcomes.

Our discretionary planning system rations new homes

The current planning system is highly discretionary. This means that the planning system is empowered with a great deal of discretion to decide whether a development should take place on a specific site or not. In effect, new homes are rationed by the planning system, case-by-case.

Although there is often a local plan which “leads” development, this is not always true – York has not agreed one since the 1950s. Even when there is a local plan, the real power as to whether new homes can be built or not is in the case-by-case decisions by planners and planning committees. Applying for planning permission to build private homes, affordable homes, or social housing is never certain. One in ten planning applications fail, despite the fact that developers are presenting proposals they believe will succeed.

The discretionary planning system makes inequality worse

This discretionary planning system creates poor outcomes which have previously been set out in Red Brick, and which underpinned Centre for Cities’ contributions to the Labour Planning Commission. It forces new development into the sites with the lowest political costs rather than the sites most suitable for new homes. This is why half of all suburban neighbourhoods build less than one house a year and a fifth build zero, even though these neighbourhoods already have the infrastructure to absorb some population growth over a long timeframe.

The discretionary element also makes inequality worse, as it decouples the local supply of new homes from local demand. Some of the most expensive and prosperous cities in the country, such as Bournemouth and Oxford, build far less housing than cities with weaker economies such as Wakefield and Telford. These local housing shortages mean that the average house in Oxford costs 17 times the average income, and 6 times average incomes in Wakefield.

This mismatch between supply and demand creates terrible housing crises in the cities with the most successful labour markets and fuels inequality. In expensive cities, it widens divides between renters and homeowners. As housing costs for renters in Bristol increase, so does the wealth of their homeowning neighbours as house prices rise.

But it also creates divides across the country. As we do not build enough homes in cities like Brighton to stabilise prices, average housing equity per house in Brighton rose by £89,000 from 2013-2018. But an identical twin of such a homeowner in Sunderland would only have gained £3,000, as local land values have not risen due to the struggling local economy. This is the opposite of levelling up – the planning system redistributes wealth from the poor to the rich.

The discretionary design of the planning system creates a permanent shortage of homes

For reform to solve these problems, we need to understand why the planning system systemically creates them. The explanation lies in the discretionary, case-by-case decision making of the current planning system. Few places abroad have such a system where this feature is so important. Ireland and San Francisco are two locations which do, and accordingly have dire housing shortages.

In fact, England’s discretionary planning system can be understood most clearly by comparing it to the planning systems of the former Eastern Bloc. In these planned economies, production was also rationed by the discretionary and uncertain granting of permits by planners, but for things such as mayonnaise or cars rather than new homes. Many of the behaviours which are sometimes described in England as unique to housing popped up across sectors in these Soviet-style economies – shortages, equivalents to land-banking, absorption rates, endless negotiations between planners and firms, poor quality new products, inequality in access to supply and speculation, among others.

These are more than just parallels. Both the former Eastern Bloc and the UK housing market are “shortage economies”. Their permanent state of undersupply is maintained by how the discretionary design of their planning institutions rations production, and is the defining characteristic of their systems. A few policy tweaks here or there or a little bit more funding won’t solve this core problem.

Instead England’s planning system needs fundamental reform which learns from other planning systems abroad that result in better housing outcomes, and for the discretionary element in our system to be minimised or removed.

England’s new zoning system is a move in the right direction

Moving away from a discretionary system implies a new flexible zoning system, where provided a proposal agrees with the local plan and building regulations so that the new structures are safe, it legally must be granted permission. This is a common form of planning around the world.

The new zoning reforms introduced earlier this month – establishing growth, renewal, and protected zones in England – are a big step in this direction. Within growth zones, there is no discretionary element, as the principle of development is already accepted by the zoning. Developments which comply with a design code and legally must be granted planning permission, after planning has resolved technical elements such as road layouts. This certainty will, within growth zones, end the unpredictable rationing of new homes that the current planning system creates, and by extension, address the housing shortage.

We can argue about the details, but we need a new zoning system to end the housing crisis

There are political choices to be made as to the inner workings of such a new zoning system, and Centre for Cities has previously set out how these could work. Japan is the clearest example of such an alternative framework abroad, where there are twelve different zones which shape the density and use of land while still providing much more flexibility than our current system.

As a result, Japan has much more affordable housing than England, as it builds 900,000 homes a year while England struggles to build 240,000. An English flexible zoning system could achieve this too. We could also make the political choice to provide far more social housing than Japan, or have a greater focus on energy efficiency and climate change, or public realm and design, and the Labour Planning Commission set out some of these areas as priorities.

But while the details of such a new flexible zoning system are contestable, the principle that we need one to solve the housing crisis is not. The discretionary granting of planning permissions is the single biggest systemic problem with our framework. If we want to improve the conditions and affordability of homes across England, we need to do things differently. We need to replace our planning system with a new flexible zoning system.

Anthony Breach

Anthony is an Analyst who has worked as part of the research team at Centre for Cities since 2017, where he focuses on housing and planning. He won the Thinkhouse Early Career Researcher Prize 2019 for Capital cities: How the planning system creates housing shortages and drives wealth inequality.

Anthony has also worked on research on commercial property in cities, services exports, productivity, and manufacturing. He also has a particular interest in lessons for planning, housing, and UK cities from Japan and the countries of the former Soviet Union. Previously he worked at the Fawcett Society as a Research Officer.

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Why solving the housing crisis requires planning reform

The UK has entered and will leave this pandemic while experiencing a decades-long housing shortage. The country will soon begin to repair the harm done to the economy and society by this disease, but it cannot continue to afford this housing crisis. The inequality it fuels and the damage it causes to national and local economies are too great to bear. We cannot go back to how things were before.

At its core, ending the housing shortage requires more homes. But where new homes are built matters. Yet at present, not enough houses are built in some cities, and arguably too many are built in others. This mismatch emerges as the design of the planning system means it rations the supply of land available for new homes. Ending the housing crisis will therefore require reform of the green belt and a new, flexible zoning planning system to build enough new homes.

The housing crisis is local, not national

The reason why the planning system is so important can be found in the geography of the housing shortage. Some cities have far greater affordability problems than others. For example, while in 2019 the average house in Barnsley cost 5.3 times the local average income, in Brighton that ratio rose to 13.5 times local average incomes. Despite their higher average wages, prosperous cities such as York and Bristol are generally less affordable than places with struggling economies and lower wages such as Dundee or Blackpool.

So solving the housing crisis therefore requires a focus on the most expensive cities with the worst affordability problems. But currently, as Fig. 1 below shows, there is no link between cities’ demand for housing and their supply of new homes. Many expensive cities including Oxford and Bournemouth are building far fewer homes than those which are more affordable such as Wakefield or Telford. The supply and demand of new homes have been disconnected.

Source: EPC Domestic Register 2019; Census 2011; ONS, Annual Survey of Hours and Earnings (ASHE) 2011; Land Registry, Price Paid Data 2011

The planning system disconnects local housing supply from local demand

This decoupling of supply from demand originates in the planning system, as the amount of land it makes available for housing is rationed. Development of new homes normally cannot proceed unless the council decides at their discretion to grant a planning permission to a site. Measures such as the green belt block new homes across large areas of land adjacent to many cities and railway stations, including Bristol, Newcastle, Manchester, Birmingham, and London.

The rationing of land, not prices or affordability or need, ultimately decides how many houses cities build. It explains why some cities which have low demand build more than the average city, and far more than some very unaffordable cities.

The planning system prevents redevelopment in large parts of the existing suburbs

The planning system’s rationing of land can be seen in how it warps the supply of new homes within cities. Consider Exeter, an expensive city which is building lots of new homes above the average rate for cities, in Fig.2 below. A substantial number of homes have been built in the city centre (8 per cent growth since 2011), and there is a cluster of new homes being built on the eastern outskirts of the city, including near the brand new railway station of Newcourt.

Fig. 2 Housing supply in Exeter from 2011-2019

Source: EPC Domestic Register 2019; Census 2011

Nevertheless, 48 per cent of suburban neighbourhoods in Exeter are building less than one house a year. 14 per cent of suburban neighbourhoods in Exeter have actually built no new houses over this period, including a built-up area close to Digby & Sowton station. Even though Exeter has built lots of new houses, the amount of land which has been made available for development has still been subject to rationing.

These dormant suburbs which make little or no contribution to new housing supply are not unique to Exeter. 51 per cent of all suburban neighbourhoods in England and Wales built less than one house a year, or zero, from 2011-2019, providing only 2 per cent of all new suburban homes over that period.

This national pattern across cities emerges from the design of the planning system. As the supply of new homes is controlled by the discretionary granting of planning permissions by elected councillors, it is both uncertain for developers to navigate and sensitive to political pressure from anti-housing activists. The result is that as so much of the suburbs and unremarkable green belt land are off-limits to new homes, new housing supply is forced into easy-to-develop pockets on the outskirts of cities, and pressure for redevelopment is put on city centres and locations such as social housing estates and offices into flats.

Local shortages which emerge from the planning system make inequality worse within and between cities

By stunting the supply of housing in expensive cities, the planning system creates two different inequalities.

First, it drives inequality in housing costs within prosperous cities between renters and homeowners. As rents rise due to the shortage of homes, so does the wealth of homeowning neighbours as through their housing equity.

Second, it drives inequality in housing wealth between homeowners in more prosperous and weaker economies. From 2013-18, average housing equity per house in Brighton rose by £83,000 – but in Doncaster it rose by just £5,000. By preventing new homes from being built in the most expensive cities to stabilise local prices, the planning system reinforces economic inequality in them and across the country.

Ending the housing crisis requires a new flexible zoning system for planning

Solving the housing crisis and tackling these issues requires reconnecting local supply to local demand, and that entails reform of the planning system. Green belt reform is one area where this is needed, and Centre for Cities have calculated that 1.7 to 2.1 million new homes could be built on less than 2 per cent of the green belt within walking distance of railway stations outside Bristol, Newcastle, Birmingham, Manchester and London.

More building by councils and housing associations can play a large role here. However, the root cause of the housing crisis lies not in a specific lack of social housing but in the institutional design of the planning system. For instance, England still has one of the largest social housing sectors in Europe, at 17 per cent of all housing stock, yet it also has one of the continent’s most dire housing crises.

Ultimately, the design of the planning system must change. Building more homes in the most expensive cities will require a shift from its discretionary model towards a flexible zoning system, as in Japan and certain US cities.

This approach, where planning permission legally must be granted if a proposal complies with a national zoning code and national building regulations to ensure the structures are safe, is compatible with more social and council housing. But it would fix the institutional problems the private sector faces by reconnecting local supply to local demand, and end the housing crisis by building more homes in the least affordable places with the greatest need.

Anthony Breach

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