Published: 21 Jul 2015 by Pete Jefferys

The Chancellor is determined to get us building more homes. I’m genuinely convinced of that. What I’m much less convinced of it’s that his current set of reforms will let this happen at scale or that the homes that get built will be affordable to buy or rent for most people on normal wages.

He’s certainly got the right language. When Shelter and KPMG put out our recommendations for how to get us building 250,000 new homes per year we talked about the need for a ‘Zoning’ approach to house building. In his set of Planning Reforms announced recently, Osborne said he wanted a ‘Zonal’ approach to building on brownfield sites. Sounds good. But are George’s Zones really the answer?

What is Osborne’s approach?

Osborne’s Zones are all about speed and freedom from “red tape”. He wants to take away those pesky obligations to build affordable homes or decent infrastructure that are usually imposed by councils through the planning system. His Zones will give automatic permission so long as ‘minimum technical requirements’ are met. The rationale is that bypassing the planning system will speed things up, by avoiding disputes over how many affordable homes a developer can afford to subsidise.

This is a dangerous false choice.

Commercial developers only ever build at a speed which doesn’t threaten their local sales prices. The rule of thumb is to sell around 50 per year from any one sales office: any more than that and it will undercut prices – and it’s unreasonable to expect private companies to do anything that will reduce their returns.

So speeding up the planning process may make developers’ job easier but it  won’t substantially increase the rate of building. Councils are already giving more than 250,000 planning permissions for new homes per year, which is roughly the number of homes we need, but there’s no way the rate of building will hit that level in the foreseeable future, because doing so would threaten sale prices.

In fact, Osborne’s Zones could actually make the speed of building problem worse by cutting out affordable rented homes. Unlike market homes, affordable rented homes can be let out immediately – as there are huge waiting lists for them, and undercutting prices isn’t an issue. If we want to get building quickly we need to build more homes that are not dependent on sustaining high market prices, otherwise we’ll simply never build enough.

American dreams

As well as speed, the zoning the government is proposing is framed as a way of cutting red tape. George Osborne’s Zones take their cue from the American planning system, and particularly from the permissive zoning systems of cities like Houston which has allowed rapid building in recent years.

But this form of zoning only works (in the sense of getting homes built), in places with huge open spaces to sprawl into. The abundance of developable land on the borders of Houston (see below), combined with mass car-use, gives the sense of a free market in development. As there is more than enough land for the time being, developers can compete on the things consumers want: such as extra bedrooms or car-parking spaces.

Houston boundary (5m people) imposed on London (9m people)*

Applying permissive zoning in the English context makes no sense though.

Osborne is not suddenly freeing up the boundaries of our major cities and allowing a quasi-free market for developers to build, as they did for example around London in the 1930s. On the contrary, he is explicitly ruling out any development on big city boundaries by making green belts sacrosanct.

So being permissive about building on particular plots of brownfield within an otherwise highly restrictive context won’t create a free market to build lots of homes as in Houston. It will just deliver huge windfall profits to a few lucky landowners as land values in those zones rocket. And thanks to the lack of requirements to build affordable housing or infrastructure little or none of that value will be captured to fund things for the local community. It’s the worst of both worlds.

So what should a Zone do?

In our view Zoning shouldn’t be about less planning, but about better planning. That’s how it used across Northern Europe. In countries like Germany and the Netherlands they use Zones to improve the quality and affordability of homes built. The Zone sets out in advance what a piece of land can be used for – in great detail in some cases. By requiring in advance that the development includes affordable homes, better quality homes, more green space and infrastructure they push the market value of the land down, rather than inflate it.

The contrast with how we do things here is stark. In England, developers pay landowners** for a site and then seek planning permission, at which point the planning authority tries to impose some requirements to provide infrastructure and affordable homes. In other words, we try to capture the value uplift after it’s already been pocketed by the landowner. This is madness. Developers are in a competitive market to buy land and so whoever offers most will always win. The developer who pays the most will then argue during the planning process that they can’t afford to do 20% affordable housing, or subsidise the new community centre, because the land was so expensive.

Under a Dutch-style system it works the other way around. The authority sets out clearly and unambiguously in advance what the land can be used for. This means that if you pay too much for the land, knowing what the requirements will be, and can’t then deliver those plans, then the mistake is yours. In that case – where the plan is legally in place but the current landowner can’t deliver it – a Dutch authority can buy the land at a price which does allow the plan to be delivered.

Isn’t that anti-market?

In a sense. But it’s important to remember which market the Northern European zoning systems are constricting: the land market. In those same countries there are thriving, diverse and competitive house building markets – just look at some of the beautiful places they build.

Self-Build in the Netherlands (credit: Jones the Planner)

By holding down prices in the land market, Northern European countries free up much more competition and diversity for actually building homes to the tastes and styles that people want. They have a much more ‘free’ market in house building, because they have a better organised market in land.

They do this in a context of high population density and contested land-use, which is far more relevant to England than the huge deserts and plains of Texas. Instead of competing to pay the most for a piece of land, builders compete to build the best homes. The winners are people on normal wages looking for a good home – rather than landowners, speculators or developers.

If we are going to make zones the heart of our planning system, then George Osborne should be looking to Freiberg and Amsterdam: not Houston or Austin.

*Image Credit: Joe Kilroy and City Metric

**Or effectively control it with an “option agreement” between the developer and landowner.