Planning Reform Must Focus On Delivery And Role Of SMEs To Solve The Housing Crisis

Since the 1960s, housing supply has fallen steadily each decade, and attempts to fix this have mostly focused on increasing the number of planning permissions flowing through the system.

However, while the 2010 planning reforms led to permissions rising to over 350,000, the number of new homes actually built was just over 200,000. A new report by the Centre for Policy Studies, praised by Housing Minister Chris Pincher, therefore calls for changes to the planning system to open up the market and allow better access for small and medium sized companies and to diversify the housing supply.

Currently planning permissions are a one-way gift which boosts the value of the land with no obligation to build, creating a bottleneck that concentrates land supply in the hands of large house builders.

As highlighted in ‘The Housing Guarantee’ out today, the top 10 house builders currently build 40% of all new homes, with the top six controlling around 33% of the market. Facing challenges to obtain land, smaller builders face being squeezed out of the system – falling from building around 40% of homes in the 1980s to around 10% now.

The six biggest house builders alone currently have roughly 1 million plots in their strategic land banks, nearly the equivalent of the target supply across England over the next five years.
The report sets out three key reforms that the think tank argues must be made to address the systemic failures in the current system and support delivery of more homes:

The first, that permissions should be changed to delivery contracts based on an agreed timeline. Where house builders cannot deliver this, they would have to pass the land on at an agreed price to local SMEs. This would mean as land came forward for development, it was actually translated into new homes.

The second, a renewed emphasis on the Housing Delivery Test, ensuring councils are assessed on the basis of numbers of homes built, not on planning permissions granted – and are penalised if they are not delivering for their community. This would increase not just the number of homes built, but their speed, diversity and quality.

Lastly, that panels of local house builder SMEs should be introduced to which public sector land will be sold, with challenging delivery targets to ensure the quality and diversity of local housing supply, and support competition within the sector.

Over time, these reforms would modernise the new build housing market, making it more transparent, and ensure the flow of land actually turns into new homes via a clear and obvious build-out trajectory. It would mean a higher delivery of housing and a greater role for SMEs as well as higher overall supply.