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Lest we forget the role of demand in housing affordability

For a significant number of young and low-income people housing affordability is getting worse. Housing affordability, or the lack thereof, is a concept widely understood by those living in the United Kingdom. Or is it?

On 8th July 2020, a ground-breaking new book was published by Bristol University Press. ‘Understanding Affordability: The Economics of Housing Markets’, by Professor Geoffrey Meen (Reading University) and Professor Christine Whitehead (LSE). The book sets out to unpick the complex forces exacerbating the endemic unaffordability of UK Housing. Thankfully, it offers insight and recommendations to improve our country’s dire situation.

Using ‘price-to-earning’ ratios and ‘housing expenditure’ indicators are not the right approach

When discussing housing affordability we often use ‘price-to-earnings’ ratios. Although questions remain about whether this metric is even at all suitable. This is because affordable ‘for whom’ is a question consisting of several interrelated elements, which beyond price should include physical adequacy and overcrowding.  

Some argue that using such metrics will not produce any significant improvement in affordability. This is primarily because social norms and demand-side behaviours we find play a crucial role in price determination. We must recognise demand remains a key factor in determining housing affordability.

Meen and Whitehead argue that looking at expenditure indicators alone can be highly misleading. Affordability concepts have their roots in 19th century studies of household budgets. For example, at the turn of the century the USA used the 25 per cent rule of thumb for affordability. This was based on one week’s pay for one week’s rent. Rules like this have informed both mortgage lending and housing policy alike.

More sophisticated approaches using the ‘Lorenz Curve’ tell us more about affordability

The book claims that more complex approaches recommended in academic literature have often been overlooked. This is particularly prevalent in housing policy arena and contemporary political discourse.

“We all know that this country does not have enough homes… the median house price in England is eight times higher than median gross annual earnings; in London, it is 12.3 times higher”

Minister for Housing, Christopher Pincher MP – March 2020

Source: Hansard

Price-to-earnings ratios sadly provide no information on the distribution of outcomes across household types and income levels. The authors are critical of how such flawed basic measures make it into planning policies. For this reason they say it is “worrying that it is still widely used”. Housing expenditure indicators such as rents and mortgage payments relative to incomes are also heavily criticised.

Ratios for example cannot distinguish between households with different income levels adequately. Are these metrics providing us with useful information to make meaningful policy recommendations? They suggest not. It is the distribution of incomes and wealth relative to the distribution of house prices that determines who can afford what. Not metrics that make use of averages such as the price-to-earnings ratio.

Research on affordability undertaken in the first chapter estimated affordability for First Time Buyers (FTBs). In it the authors based their research on variations of a ‘Lorenz Curve’. This approach uses a graphical distribution of the equality of affordability, which  easily shows what proportion of FTBs can afford what proportion of housing stock. A quick look on Hansard results in not a single reference to such terminology in the past 10 years.

Measures of inequality still require closer attention despite painting a clearer picture

Research in the book suggests the use of a Gini coefficient to account for regional inequality. This is an index that measures inequality created by Italian statistician Corrado Gini. We can compare how distribution of income in a society compares with another if everyone earned the same amount. A Gini coefficient of zero means everybody is equal. If we measure a Gini coefficient of 1 it shows a single person earning all the income.

Despite being technically sound, using Gini coefficient’s is still criticised by some. Summer and Cobham argue that it does not adequately capture changes in the top 10% of the income distribution, nor the bottom 40%. In turn, due to the under sensitivity of the measure at the extremes, they consider the Palma ratio more suitable. For example, if the richest 10% have five times more income than that of the bottom 40% then the Palma ratio would be 5.

When undertaking a more rigorous analytical approach we find housing affordability issues persist across the country, even in the North East

The Gini coefficient in the South East is 0.70, thus displaying a high degree of inequality. In this region a household with a median income would be unable to afford to purchase a property without paying more than 30% of their income on housing costs. There are no surprises there, but it does highlight where housing affordability is most acute.

By comparison existing homeowners who wish to move, even those in the lower income ranges, could afford to move to higher value properties without paying more than 30%. Some people in this group are effectively able to make hay much easier than those without accumulated equity.

On this more complex indicator, the research shows that to afford a property in the first decile (lowest 10%) of property prices in the South East, you still would need to earn over the median income. The difference between the ‘haves’ and the ‘have nots’ is demonstrably clearer when using such methods.

Yet in the North East, where inequality is much lower considering its Gini coefficient of 0.30, there are still significant proportions of households who cannot afford to buy properties in the lowest decile. This means that after considering the full distribution of incomes, rather than just averages, affordability for FTBs is not just a problem for the South of England.

Forward thinking Local Authorities should be reflecting on these new affordability indicators to assess the distributional consequences of policy changes. A key takeaway is to recognise that housing affordability is not just a South of England phenomenon.

When determining housing policy we need to better understand demand-side factors

The book reflects international comparisons of the average annual growth in real house prices between 1970 to 2015. Over this period Germany had -0.3% growth in house prices while the UK had more than +3.5%. Yet looking at the comparison relative to wages suggests there is more than meets the eye. In this context house price growth in Germany was -1.9%, while in the UK +1.3%.

Since 1970, German housing stock growth relative to incomes has proven relatively constant, suggesting supply is less of an issue. We think this because even after factoring in incomes relative house prices were even lower. This is despite the rate of growth in housing stock remaining constant.

In the UK levels of growth in housing stock relative to incomes have fallen by around 1.5% per annum. This means wages have been outpacing growth in housing stock. From a fundamental economic standpoint, it is no wonder house price growth has been going one way. Clearly we must acknowledge that worsening affordability and rises in real prices in the UK relative to Germany are as much a result of demand-side factors, as it is a lack of supply.

The British psyche of wanting to own one’s own home may play a pivotal role in explaining why we may have had different house price growth to that found in Germany. Our willingness to spend more on housing costs as our incomes increase, perhaps to achieve social norms such as home ownership, is alluded to as an explanatory factor.

The nature of UK housing demand means prices respond quickly to growth in incomes

Low-interest rates can exacerbate housing market price volatility. But it does not explain the long-run trend of increasing price-to-earnings ratios. Historically the UK’s housing stock has grown at a slower rate than income. Professor Meen and Professor Whitehead argue that price-to-earnings ratios can only be constant over the long-run if household incomes grow at the same rate as growth in housing stock.

We must acknowledge that we have a stronger responsiveness to demand pressures in the UK, than in say Germany. Understanding this can help us deconstruct some of the price drivers behind making affordability worse. It is difficult to tackle the issue of affordability with supply alone when the demand impact from incomes is so strong. As a result the UK is prone to faster deterioration of affordability.

Understanding this is a key factors of the counterargument to Ian Mulheirn’s claim there is no housing shortage. Mulheirn’s own paper had a peer review by this book’s author, namely Professor Geoff Meen. In the peer review he explained that it is neither population nor the number of households that affects demand; rather demand needs backing by income to impact house prices.

Surprisingly, Ian’s claims still seem to be gaining traction, most recently by Stephen Bush, who has become “increasingly persuaded” by Mulheirn’s claim that supply has not contributed to the growth in price-to-earnings ratio since the 1990s.

Conventional wisdom is that rises in real house prices reflect a shortage of homes and that the current planning system plays a significant role. The book also demonstrates that increases in housing supply can improve affordability, but that changes need to be large and sustained to produce a noticeable effect. They also acknowledge that a general expansion in private supply does not necessarily filter down to those on low incomes.

The UK demand drivers see income growth translate into higher prices more readily

Fundamentally Meen and Whitehead argue that income growth (and its distribution) reflects demand, whereas housing stock reflects supply and is affected by conditions and policy in land markets. Meen and Whitehead reaffirm that in making such statements, demand must be backed up by income to influence house prices.

In the UK, the demand drivers see income growth translate into higher demand for housing services, which is more likely to translate into owner occupation. This is a sector where the quality of housing stock is generally higher than in the private rented sector.

The book does not deny the unassailable fact we need more funding for social housing. But also acknowledges the total supply of land for housing has been severely restricted. This has led to increased land values off the back of strong demand-determined increases in house price, exacerbated, of course, by easy credit. It is after all the trend which investors and developers have followed all along.

We need to re-calibrate the balance of concerns when discussing supply, demand, and characteristics of investment behaviour

Some have pointed to investor behaviour, low cost of capital, and attitudes of housing being an investment asset as causes of our problems. However, while there is no doubt these have contributed to the trends in price in recent years, research in the book demonstrates that this alone cannot account for the strong growth rate of 3.5% per annum since 1969.

We must accept that rising real house prices are not only a question of supply and investment demand but that it is also very much related to consumption demand.

To stress the point, the authors do not say that supply and investment characteristics are unimportant, rather that there has been a distortion of the balance of concerns. We cannot say it is just supply, or solely interest rates, which has led to this crisis of affordability. Thus, whenever we are framing the narrative, we must not forget to consider demand.

If we keep this in mind when looking to use more sophisticated ways of measuring affordability, while avoiding shallow rule-of-thumb metrics, we may be able to truly understand exactly who in our housing market is being failed by Government. Only then will we be able to devise policy to address it.

<strong><span class="has-inline-color has-accent-color">Chris Worrall</span></strong>
Chris Worrall

Editor of Red Brick. He currently works in land acquisition for Guild Living. Chris currently sits as a Non-Executive Director of Housing for Women and is a member of the Labour Housing Group Executive Committee.

Previously Investment and Finance Manager at both Quintain and Thor Equities. Chris has expertise in developing new residential investment strategies, real estate development finance, and the investment and development of affordable housing. He writes in a personal capacity.

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Busting the housing supply shortage ‘myth’

Supply is one of the key problems in the UK housing market. Sadly, the latest in-vogue argument is that the perceived housing supply shortage is a misconception. This track of thought has permeated right across the political spectrum. But do these claims hold weight?

Both centrists and the left have bought into the housing supply shortage myth. It is wrong to do so.

Last year the Labour Party produced its ‘Land For The Many’ report. In it all housings ills were laid at the feet of finance and speculation. Namely by the likes of Beth Stratford, Guy Shrubsole and Laurie Macfarlane. They argue there were “more powerful forces, besides supply shortages, putting upward pressure on house prices”. ‘Red tape’ in the planning system? Merely a “discredited theory”.

But this argument has not become just a line for the left. Even centrists from across the globe have bought into the mantra of the ‘housing supply myth’. Both Dr Cameron Murray and Ian Mulheirn of the Tony Blair Institute cited all sorts of claims recently on The Jolly Swagman Podcast. From “look at all these approvals”. To if supply were the issue “rents would be increasing at the same rate as prices”. Or it is the cost of capital doing “most of the heavy lifting” for changes in price. All these claims are false. Misguided at best.

Regulatory supply constraints inherent within the current system have made house prices substantially more volatile. Research by Hilber and Vermeulen found the planning system has been an important causal factor behind England’s high housing prices. It was published in the flagship title of the Royal Economic Society. The Economic Journal.

Of course, undoubtedly more than just supply shortages over the past 30 years has exacerbated house price rises. Particularly given the global trend toward lower interest rates. Yet even those at the Bank of England widely acknowledge lower interest rates are not the sole determining factor of house price inflation. In this blog I set out why as progressives we must give planning more attention, better understand its relationship with housing supply, and acknowledge that solving the housing crisis does indeed require some form of planning reform.

Low interest rates would not explain 90% of house price growth if supply was more responsive

“Soaring UK property prices are due to low interest rates, not lack of housing supply, Bank of England finds” states yet another tabloid headline. Housing supply “will not solve the housing crisis” clamours Ian Mulheirn. If there were two more opposite statements of the truth these are it.

The low-interest rates “fuel” house price rises line of argument has caught up far too many economic commentators. Mulheirn claims institutions, lending policies, narratives, all interfere with the transmission that is the tide of global interest rates. Supply though? Not the answer.

Ian’s claim simply bears no logical validity. First and foremost, the same Bank of England report that acknowledges low interest rates have been the key explanatory factor of house prices rises, does not validate his own understanding. The doubling in house prices over the past 30 years would have been different if supply were more responsive to changes in price.

It suggested that had we had doubled the responsiveness of our housing supply to changes in price, and assumed lower income elasticity (i.e. the same change in income triggered a smaller percentage increase in demand), house price growth would have been cut by almost half. House price growth would have amounted to 88%. In contrast to the 173% modeled by the Bank of England on the current assumptions.

Income growth would have explained 55% of the increase. Decreases in interest rates explained just 40%. Therefore if supply was more responsive then both centrist and left-wing economist claims of mortgage lending being the key driver of house prices would simply not hold true.

In Japan housing affordability has improved despite a low interest rate environment

We can look to other countries and see low interest rates do not always explain housing unaffordability. For example, Japan has had low interest rates since the 1990s. Yet Japan’s price-to-income ratio has decreased by 31.3% since the year 2000. Over the same period the UK the price-to-income ratio has increased by 35.7%.

Cheap credit simply puts rocket boosters on demand in an already supply constrained market. Nothing more. Progressive housing policymakers need to recognise there is more to increases in house prices, and subsequently land values, than mortgage lending alone.

Antigrowth land regulations hand massive windfalls to landowners

Beth Stratford, one of the authors of Labour’s ‘Land for the Many’, claims the planning system is “counter intuitively” not the major driver of recent land price inflation. Despite claiming “housing is unaffordable because the land underneath our homes has ballooned in value 544% since 1995”.  Guy Shrubsole, argues that “ripping up the Green Belt and planning regulations will simply hand massive windfalls to landowners”.

Both are sadly defending the very man-made regulations that capture value into land. Enrico Moretti from UC Berkeley argues fixed or equitably anaemic housing supply results in productivity increases capitalised into land values. On the contrary if housing supply were infinitely on tap to meet demand then these productivity gains would go into workers’ wages. This is a given where there are fundamental economic drivers at play.

Not to mention what we have witnessed. In Central London for example, residual land values increased by over 600% in 20 years. Sounds to me like under the status quo landowners have been capturing massive windfalls for quite some time.

Research by Albert Saiz tells us the biggest determinant of poor housing supply responsiveness is geography. This is predominantly due to the physical constraints on land availability. Poor responsiveness of housing supply occurs indirectly due to increased land values resultant from this scarcity of land. Geography also indirectly creates higher incentives for antigrowth regulations such as the Green Belt. Of which ‘neighbourhood defenders’ like Guy Shrubsole and the CPRE vociferously protect.

Prices and past growth is empirically linked to planning regulations

Saiz tells us prices and past growth is derived from both physical and man-made (planning) regulations. Ian Mulheirn was presented this widely acclaimed study during his feature on The Jolly Swagman podcast.

But what did Ian Mulheirn make of the Saiz study dating back to 2010? He embarrassingly admitted he has never heard of it. Although still acknowledges there is relationship between prices and supply. Despite not recalling the paper Mulheirn claimed studies like this get the “order of magnitude wrong”. But we know this to be false. The assertion low-interest rates hold a higher magnitude does not hold true if supply responsiveness were more in line with international norms.

The link between responsiveness of supply and planning is not widely understood by housing supply shortage critics

We know poorly designed planning policies restrict supply responsiveness. Cross-country research by the OECD found that housing supply responsiveness is related to regulations on land-use and planning.

Professor Ed Glaeser found in Greater Boston the decline in new construction, and associated increase in price, reflected increasing man-made regulatory barriers to building. Based on his empirical analysis he calls to ease housing regulation to increase supply.

Shrubsole, Stratford and Mulheirn all ignore or deny the empirical link between restrictive antigrowth land use regulations, lower levels of housing stock expansion, and exacerbated house price growth. While in places with relatively fewer barriers to construction the results are moderate increases in house price growth and a larger expansion of housing stock. Development professionals understand these international comparisons. And funnily enough, so do landowners.

The Federal Housing Finance Agency analysed a US data set of 14 million land values. It found supply restrictions and levels of land price positively correlated. Regulatory burdens and topographic difficulty in building result in an increase in the price of land. It is the largest dataset to suggest planning regulations impede the responsiveness of supply.

Unlike other countries Britain keeps making land more scarce in areas of high demand rather than expanding its supply

We must recognise the UK’s discretionary planning system is deepening wealth inequality by design. Political reluctance to review the Green Belt in terms of suitability for new homes has meant these restrictions have persisted for a prolonged period of time. All the while British urban conurbations have grown.

Other countries regularly review Urban Growth Boundaries (UGB) for expansion. For example, in the USA the state of Oregon expanded its UGB no less than three dozen times since it was first drawn. In the UK, the Green Belt has doubled since 1979. Instead of releasing land as our cities grow, we have done the complete opposite.

Thinly traded markets demonstrate the scarcity of land

The Investment Property Forum (IPF) notes the paucity of information on residential land values in the UK reflects the thinly traded nature of its land market. Being thinly traded means it cannot be sold easily without a significant change in price. This is due to there being a limited number of buyers or sellers.

Laurie Macfarlane believes this paucity of information makes it “difficult for policymakers and market participants to make informed decisions”. I argue to the contrary. Actors are making rational informed decisions. And those who are in the know are in the know. Landowners know in the long-run the economic incentives derived from the planning system will rule in their favour and that prices are sticky.

Developers on the other hand do face difficulties. Mostly with the planning system. In Britain developers can propose something not forbidden by the local plan, yet still lawfully be denied the right to build.

The planning system in Britain forces developers and planning authorities to haggle over height and affordable housing. Once a scheme is consented the permission can be sold on to crystallize the planning gain. The current system drives behaviour that plays on this uncertainty.

Some landowners (but not all) try to capture uplift from planning rather than build out. Particularly in times where it has become apparent more and more people cannot afford to buy in places they grew up in. The lack of market confidence has led to record levels of unsold stock.

Land traders and middlemen punt around a thinly traded market consented schemes. Where often it can be slim pickings. This is in the hope another developer will take a view on height, massing, affordable housing once again. If house prices have moved on, they can capitalize these gains into land value. Simply stating 9 out of 10 applications are approved does not absolve the planning system for not seeing homes built out. It is at the heart of driving landowner economic incentives.

The current system has failed – how should Labour respond?

Anthony Breach draws parallels of the current system to the failed former Eastern Bloc. Our “Soviet-style planning system” has created crippling shortages of housing through institutional design. All ratified by political will. It is the case-by-case discretionary planning permission system that has created shortage economy in our housing market. This needs to change.

To grapple with the planning system Breach recommends a move to reconnect local demand through a rules-based zoning system. He claims should a developer propose a compliant scheme within zoning, design code, and building regulations then it must result in a building permit. Development proposed in line with neighbourhood plans that have been consulted on with the community will be determined by the need for new homes. Rather than by how much land has been rationed by the local authority and remains unsanctioned by local opposition. This gives the market certainty and takes the haggling out of land values.

In today’s context Breach’s recommendations should be revisited with a renewed focus on how such a planning system interacts with housing and the wider community. It is a myth to claim there is no housing shortage. And a myth to suggest planning plays no role in the responsiveness of supply to changes in price. We must turn to the academic literature and an empirical evidence base to inform our decision-making. Breach’s proposals may just have the answer.

Duncan Bowie argues the Labour Party has in the past failed to grapple with the planning system. He also said the Labour Housing Group should focus acutely on the relationship between housing supply and planning. I agree this needs to change. Labour needs to recognise and debate the positive and negative consequences of discretionary planning. Perhaps Breach’s proposals to the Labour Planning Commission can garner some further attention from the left. After all, they may be more relevant now than ever before.

<strong><span class="has-inline-color has-accent-color">Chris Worrall</span></strong>
Chris Worrall

Editor of Red Brick. Land Acquisition, Guild Living. Non-Executive Director of Housing for Women. Labour Housing Group, Executive Committee.

Previously Investment and Finance Manager at both Quintain and Thor Equities. Chris has expertise in developing new residential investment strategies and real estate development finance. He writes in a personal capacity.

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Yimbyism is a broad church and it should be

Let’s face it: we, as a country, have royally screwed up on housing. Decades of bad policy, bad ideas, and sometimes even bad faith, have led us to one of the worst housing crises in Europe.

We’ve finally reached a stage where almost everyone accepts that there is a problem and that the cost of housing is simply too high. Unlike almost every other type of product or service money can buy, the price of housing to buy or rent has gone up in real terms. Young people are spending tens of thousands of pounds more in rent throughout their twenties than earlier generations did, and their likelihood of becoming homeowners has plummeted.

It has also become more widely accepted that one of the key causes of this is that we have, for decades, failed to build enough homes. Study after study after study after study has demonstrated that supply is a key determinant of housing affordability. Social housing has particularly strong and well-targeted affordability benefits, but it extends to all types.

Enter PricedOut, which is England’s national campaign for more affordable housing. We push for more housing, more affordable housing, a better private rented sector, and a more effective and equitable system of property taxation. Our focus on building more homes places us squarely within the pro-development YIMBY (“yes in my back yard”) movement.

One of the things that has amazed me since getting involved in the YIMBY movement is the broad political spectrum of the people it attracts. PricedOut enjoys the support of committed socialists, steadfast centrists, and outspoken neoliberals. More or less anybody who looks in detail at the housing crisis will eventually conclude that there simply isn’t enough housing. I’m not sure many other ideas have such widespread backing.[1]

We must be very careful to keep it that way. Although they might make different arguments, anti-development NIMBYs (“not in my back yard”) can be left- or right-wing. NIMBY talking points run the gamut: the simple self-interest of preserving high property values, heritage preservation, a somewhat misguided understanding of environmentalism, or even the old classic “we don’t want people like that moving here.”

I’ve sometimes been surprised to meet people who see themselves as progressives lobbying against new development. This is often couched in anti-gentrification terminology and focuses on the fact that the new homes are too expensive. It is absolutely true that new homes are too expensive. That is because all homes are too expensive, because they are in short supply, and land values are accordingly high. New homes are built to more modern standards than our shockingly aged housing stock. They are also inflated by government policies like Help to Buy and therefore attract a premium.

Imagine you had a village of 100 homes, and 100 households. People move around between these homes periodically. The child of one of those households, a high-earner, grows up and is ready to move to her own place. If there isn’t a 101st home, she will simply outbid a poorer household on a home that becomes available. That poorer household will be forced to leave the area, or share with another. Pretty soon the area becomes “gentrified”: having higher rents, relatively more high-earning households, and any low-earning households will live cramped together. If that sounds familiar, you may live in London. The conclusion is of course that you don’t stop gentrification by not building the homes, you stop it by building them.

This is especially the case given that the supply of social housing is largely dependent on supply of private housing. About half of new affordable housing in England is delivered as part of a planning obligation. These are agreements, as part of a planning permission, between councils and developers that a certain proportion of new homes will be affordable. Additionally, affordable housing developers will generally cross-subsidise new social homes through profits generated from private sale homes. It’s unfortunate that this process is sometimes accompanied by hand-wringing and portrayed as a necessary evil, or outright attacked as a “loss of social purpose”.

For the reasons discussed above, developing private homes is agood thing. That is not to say that we don’t need drastically more government funding for social housing, because we absolutely do. But you can get more bang for your buck by cross-subsidy, and we need more of all types and tenures of housing. Having varied types of housing on one scheme also gives developers a real incentive to build the homes faster, because they don’t have to worry about loads of one type of home flooding the market at once.

It is fortunate, then, that market and social housing are not at odds in the UK. I suspect this is part of the reason we can attract such a broad spectrum of support for PricedOut. It also helps to explain one of the things our planning system is really good at: avoiding massive mono-tenure estates. I met a housing campaigner from San Francisco last year who was amazed to find beautiful social housing estates right in the middle of central London, opposite swanky executive pads.

To him it was unthinkable that poor and rich neighbourhoods weren’t totally separated. It’s widely observed that poor people get poor services: worse access to healthcare, fewer free services, and sometimes few amenities at all. But it’s much harder for this to be the case when poor people live in the same neighbourhoods as richer people, which I think tends to be ignored in the gentrification debate (poor people like nice things too!).

My surprised San Franciscan friend was even more surprised to learn that UK Yimbys tend to support the development of social and market housing, and that they were not opposing goals under our planning system. In California, it seems that the more market-orientated Yimbys find themselves opposed to “Phimbys”: proponents of “public housing in my back yard”, who lobby against private developments in favour of affordable housing. The resultant gridlock probably helps in part to explain why San Francisco is one of the few places with a worse housing crisis than we have.

It is to our benefit that we don’t have this problem, at least to that extent. But as I’ve mentioned, it’s not unusual to see apparently progressive people baulk at the notion of increasing housing supply. Sometimes this counterproductively leads them to oppose developments. Sometimes, to my shock, it even leads them to oppose majority social housing developments such as the Old Tidemill Garden in Deptford, which has fortunately gone ahead despite some aggressive opposition.

Yimbyism’s strength lies in its strong evidence base , which allows it to attract support from across the political spectrum. At PricedOut, we want to preserve this. It’s essential that we don’t allow Yimbyism to become too heavily associated with either end of the spectrum, lest it become captured by that movement and anathema to the rest. This means we need to be very clear that opposing the development of new homes, private or otherwise, is not progressive.

PricedOut is England’s national campaign for affordable house prices. We call for action from government to build more homes and reduce the cost of decent housing. We fight for everyone who wants to be a homeowner but can’t afford to, and everyone who wants to move closer to work or amenities but can’t afford to.

<strong><span class="has-inline-color has-accent-color">Anya Martin</span></strong>
Anya Martin

Anya Martin is Head of Policy at PricedOut, England’s national campaign for affordable house prices. She also works as a researcher within the social housing sector where she has published on a range of topics including housing supply, welfare, and low pay employment. 

In 2018 Anya won the Thinkhouse Early Career Researchers Prize for her paper on ‘The impact of social housing on child development outcomes’, which compared cognitive, health, emotional and behavioural development outcomes between those living in social housing and private rented accommodation.


[1] Perhaps aside from drug liberalisation!


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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.

<strong><span class="has-inline-color has-accent-color">Anthony Breach</span></strong>
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.