The next government must change the rules of the game

The next government will have to be bold about reforming the housing supply system.

For years now we’ve been demanding that political parties come up with big, bold plans for building more homes. So it’s gratifying that all three parties placed housing at the heat of their pitches to the electorate – and that all of them made building more the central objective. Beyond that broad agreement there are plenty of differences between the parties, which we summarised last week.

Since the manifesto launches things have not quietened down. Labour (re)announced a series of housing policies this week, prompting a furious response from the Daily Mail.

Taking a step back from the policy detail, one way to understand all these proposals is to divide them according to whether they operate on the supply-side or the demand-side, and whether they represent government spending commitments, or using government’s regulatory power.

Naturally, we’re much keener on those ideas on the supply side than those that boost demand: house prices and rents are already far too high, and anything that just pumps more cash into the market without boosting supply will only make that problem worse. And polling suggests that demand-side give-aways which offer the promise of an instant win for a few lucky groups in society aren’t even that popular with the public any more. As our own research shows, there’s still a gap in the political market for a credible ‘retail offer’ for increasing housing supply, which no party has yet filled.

It’s equally easy to understand why spending measures are a political challenge at the moment – which inevitably means that there’s been more focus on the regulatory aspects of government policy than normal.

Policies in this category are inherently more technical and less visible than those in the other three boxes. Spending cash on building programmes, first time buyer schemes and tax cuts are always going to be easier for voters to relate to than changes to the law on Compulsory Purchase, or requiring developers to publically register ‘options agreements’ that they have signed with landowners.

But for wonks like me, it’s this area that actually holds most promise. We absolutely do need to spend more public money on housing – and to spend more of it on the supply side, rather than on pumping up demand. But spending will always have limits. The housing system is such a huge part of our economy that direct government investment will always account for a minority of the activity in the market. The rules of the game that the rest of the system operates under are therefore critical – and it’s government regulation that defines those rules.

Most importantly, government can change the way in which land enters the development system. Reform in this area, more than anything else, has the potential to transform incentives and behaviours in the development industry, and help create a new paradigm in which we build far more homes, at lower cost and of higher quality. That may sound fanciful, but it’s basically what many other countries do – because they are prepared to intervene more intelligently in their land markets. If more of the right land in the right places can come forward for development at reasonable prices, building more homes, making them more affordable and providing the infrastructure and services communities need all becomes doable. Reform in this area is not only potentially extremely powerful, it can also be extremely efficient.

Of course, despites its relative obscurity regulatory reform can still be controversial or politically challenging. Labour’s proposal to allow local council to levy taxes on sites with planning permission that haven’t been built out, or to compulsorily purchase them, triggered comparisons with Stalin’s Russia and Mugabe’s Zimbabwe. The coalition government’s reforms to the planning system inspired similarly hysterical headlines from those seeing it as a step towards concreting over the countryside. Making land – and homes – cheaper might benefit the millions of people struggling to afford a place of their own, and the national economy, but it doesn’t tend to make landowners happy.

It should be possible to make the political case for making a tiny number of wealthy landowners take more of hit to help meet the housing needs of the nation. Unfortunately the priced out, homeless and overcrowded people who stand to benefit most from land reform don’t often realise it – and in any case are a diffuse group, whose voices in political debates can be outweighed by powerful interest groups.

So seeing through effective reform to the way development is organised in this country will certainly not be easy. Land market intervention will always be a hard sell to a sceptical public and an industry with its own vested interests. But regulatory reform remains an essential tool in the government’s armoury. Whoever wins the election next week will need to combine real investment with bold reform in a comprehensive plan to transform house building – and to stick to their guns when the going gets tough.