Cooped Up: Quantifying the Cost of Housing Restrictions

In this new paper, we present the UK’s first calculation of the cost of restrictions on densifying our cities to the UK economy. Written by Adam Smith Institute Next Generation Fellow Duncan McClements and Jason Hausenloy, it is intended to demonstrate the destructive effects of Britain’s planning regulations.

This paper classes the removal of restrictions as allowing owners of existing dwellings to redevelop their properties so they are up to 8 stories tall.

Our model found that

• Liberalising these restrictions would boost the welfare of every person by 6.5% if limited to London, and 11.7% if extended to all cities;

• A liberalisation would correspond to annual nominal and real GDP gains respectively of 3.7% (£83bn) and 2.9% (£66bn) with conservative inputs, and 7.4% (£168bn) and 6.1% (£138.5bn) with liberal inputs. In other words, this is how much the UK economy has been losing out on every year as a result of our planning system;

• It is currently costing the government £15,000 to provide infrastructure  public services such as schools, GPs and utilities, to every new person who moves to a city.

Our findings outline the huge gains to be made from liberalising housing restrictions.

Rooms For Debate: Polling on the Housing Crisis, Green Belt and Planning System

The Adam Smith Institute commissioned JL Partners to undertake a poll of the general public and of mortgage holders in England, in order to gather views about the housing crisis, development, and the green belt.

The polling showed that there is an overwhelming belief that there is a housing crisis - both nationally and in local areas. Both groups are concerned about a lack of affordable housing, that young people will be unable to get onto the property ladder, the impact on homelessness, high house prices, and the impact of interest rate increases on mortgages

The findings demonstrated support for building more homes in local areas, if it would increase the availability of affordable housing and if it is designed to fit in with the surroundings. In principle, development on green belt land is met with opposition. However, support can be garnered if local residents directly feel the benefits. 

KEY FINDINGS:

People believe there is a housing crisis

• Over three quarters (77%) believe there is a national housing crisis

• More than half (53%) believe there is a housing crisis in their local area

• The housing crisis is not just confined to London - all regions in England bar one agree that there is a crisis in their local area.

People prefer to expand existing communities over building new communities

• 59% of the general public believe new housing developments should be focused on expanding existing communities 

• Young people in particular are supportive of expanding existing communities over building communities (69% of 18-24 year olds and 66% of 25-34 year olds). This suggests that they have a desire to remain and live in their local communities

The arguments that work best to persuade people of the need for more housing are:

• Young people are currently unable to get onto the housing ladder

• It would counter rising homelessness

• It would counter dramatic house price increases (and for mortgage holders, the threat of rising interest rates)

• It would make local housing more affordable

Navigating the green belt

• More than half (53%) support more housing being built locally. However, this support drops to 25% if the houses were to be built on green belt land

• Our word clouds show that there is a strong feeling that green belt land is a protected green space that needs to be preserved for the benefit of both residents and wildlife

• However, there is net support for development on green belt land if a proportion of profits is given back to local residents

Polling methodology:

The Adam Smith Institute commissioned JL Partners to poll two audiences: a nationally representative sample of the general public in England and a representative sample of mortgage holders in England:

• The fieldwork dates were 4th-11th August.

• Quotas were added to ensure representative data for each sample - to gender, age, region and 2019 general election vote.

• Each sample was weighted back to its own representative population using ONS data.

• The sample was collected using online polling.

• 10 minute duration.

• Margin of error: 3.1% for both mortgage holders and the general public.

Homes for All: A Debt Free Solution to the Housing Crisis

In this innovative new paper, authors Miles Saltiel and Maxwell Marlow outline a fair way to build housing where people want to live, benefitting both local and future residents, and land-owners.

Under the proposed ‘Homes for All’ scheme, the government would use Compulsory Purchasing Orders (CPOs), a legal tool which can be used to compulsorily buy land or property to support development that is in the public interest, to purchase metropolitan green belt land. Shares would be issued to land owners, local residents, central and local Government, which can be traded on the stock market.

We estimate that over the next 15 years, we could build 3.8 million houses and raise £938 billion for the Exchequer.

Polling undertaken by JL Partners for the Adam Smith Institute to measure the popularity of the ‘Homes For All Policy’ found that:

• 43% of those polled supported the scheme if a proportion of the profits were given to the local community- regardless of whether development was on green belt land. Less than ⅓ opposed the scheme.

• Increasing the availability of affordable housing, investment in local government budgets and investment in infrastructure are the three most convincing arguments for the scheme according to those polled.

• The scheme is strongly supported (68%) or slightly supported (55%) by those who had originally answered that they would oppose building in the local area- as long as a proportion of the profits from development are given to the local community and residents. 

• Young people and renters are the most supportive of the scheme. 

Build, Baby, Build!

In a new paper Senior Fellow Nigel Hawkins explains how we can get Britain building and end the housing crisis:

• During the 1950s, the UK’s annual new house-build exceeded 300,000 units. Prior to the introduction of wide-ranging planning legislation in 1947, the annual figure had been even higher in the 1930s.

• In recent years, despite a steadily rising population, around 200,000 new units per year have been built, so that the English housing stock figure is now c23.8 million dwellings. The shortfall in new housing stock has contributed to soaring property prices, and the consequential erection of major financial barriers to first-time buyers.

• For under-35s, unless they are high earners or the beneficiaries of family financial support, the hopes of becoming a homeowner before their mid-30s are receding. Many of this age-group are accepting—perhaps reluctantly—the attractions of home rental rather than home ownership.

• Following the financial crisis in 2008/09 and despite ultra-low interest rates subsequently, securing the necessary mortgage has often been challenging; indeed, house-building levels fell.

• While constructing more homes is a widely-held priority, volume housebuilders (VHBs) face real challenges in navigating the time-consuming planning process, before even a brick is laid.

• This Paper examines a number of potential ways that Britain could increase the level of housebuilding at a national and local level: Local authorities must reverse their opposition to smaller units in order to provide Londoners with more housing choice at affordable levels.

1. Major planning reform

2. Modest Green Belt encroachment

3. Easing constraints for medium-sized/small house-builders

4. Dismantling some rental restrictions covering Housing Associations

5. Promoting innovation within the house-building sector

6. Establishing some Infrastructure Developments Zones (IDZs) which could offer tax incentives and relaxed planning laws

7. Developing surplus public land

8. Kickstarting the New Garden Towns proposals

Size Doesn’t Matter: Giving a green light to micro-homes

A new report by Vera Kichanova, an urban policy researcher with Zaha Hadid Architects and PhD student at King's College London, argues that Britain should legalise micro homes:

• Housing is the most crucial problem faced by Londoners as supply has not kept pace with demand, leading to a quintupling of average prices over the past 50 years.

• Many are now forced to endure long commutes, live in overcrowded shared flats, or leave the city. In the past 20 years, London’s population has grown by 25%, but the number of homes by only 15%. By 2025, 3.5m Londoners will be living in rented housing, with 79% of the adults who moved to London in the last year renting.

• In addition to reforming the planning system to allow more houses to be built, micro-housing would enable land to be used more efficiently.

• Micro-housing is not for everyone, however, for many younger individuals smaller homes would provide the opportunity to live centrally: close to work, entertainment and other amenities at an affordable price.

• Micro-housing is about expanding the choices available to the many Londoners who are open to living in smaller apartments.

• Micro-housing is not the same as cramped sub-division of existing units, they are smart, modern, custom designed units that make good use of space which have won prestigious architectural awards. Micro-housing is often accompanied by communal amenities such as games rooms and open living spaces that help address loneliness.

• Local authorities must reverse their opposition to smaller units in order to provide Londoners with more housing choice at affordable levels.

Flexible Right to Buy

Many in council subsidised accommodation are trapped paying rent to the state due to current prices in the UK’s cities. High prices mean, even with the current Right to Buy discount, that many mortgages are out of reach for those in these homes. Today we call for a reboot of Help to Buy: by making it flexible.

• UK has the second-largest social housing sector in the EU, and over half of tenants in the sector want to own their own home.

• The Right to Buy works for some, but some social tenants live in expensive properties which they cannot afford to buy.

• Almost 700,000 local authority owned homes are in areas where median house prices exceed £250,000. Over 200,000 of these are in areas where median house prices exceed £500,000.

• Social tenants eligible for the Right to Buy should be given a Flexible Right to Buy, entitling them to buy a new home, using the value of their Right to Buy discount.

• The tenant’s previous home would then be sold, funding the discount and raising additional revenue.

• A conservative estimate of the impact would see 21,000 tenants take advantage of the scheme with £2 billion of discounts on £9 billion of stock and net receipts of £7 billion.

• An ambitious estimate of the impact would see 197,000 tenants benefit, with £83 billion of stock and £21 billion of discounts and net receipts of £62 billion.

• Housing stock would be better matched to people’s circumstances, with a cooling effect on overheated local markets.

• Some friction would be removed from labour markets, resulting in improved productivity and wages.

Read the whole paper here.

Only Capitalism Can Solve The Housing Crisis

The housing crisis of ever rising prices and unaffordability can only be ended by a capitalist revolution in housing, argues leading architect Patrik Schumacher in a thinkpiece for the Adam Smith Institute.

Executive Summary:

• Restrictive planning laws have led to enormous growth in London’s rental and house price to earnings ratios

• Housing crisis is a failure of politics not markets and is the result of restrictive planning laws.

• Government should resist calls to impose rent controls or mandatory long-term tenancies as they reduce supply and hamper labour mobility

• Sadiq Khan’s plan to mandate that up to 50% of developments be “affordable” will discourage development and push up prices elsewhere

• Micromanaging land uses creates high price distortions in our cities and should be abolished

To read the full essay, click here.

YIMBY: How To End The Housing Crisis, Boost The Economy And Win More Votes

• It has become widely accepted, including by the government, that the UK is in the midst of a “housing crisis”, where prices and rents have rocketed in key locations.
• There are a range of policies that would solve this, and many of them are well known. But none have been implemented because they have not been able to generate support from existing homeowners and the residents of areas that would see increased building.
• We propose three policies that would hand power back to residents; ways of solving the housing crisis that will also win political parties votes. Each would make a huge difference alone; together they could have a transformative effect on the housing situation in Britain:

1. Allowing individual streets to vote on giving themselves permitted development rights, to build upwards to a maximum of six storeys and take up more of their plots.
2. Allowing local parishes to ‘green’ their green belts, by developing ugly or low amenity sections of green belt, and  getting other benefits for the community in turn.
3. Devolving some planning laws to the new city-region mayors including the Mayor of London. Cities could then decide for themselves if they want to expand and grow and permit extra housing, or maintain their current size and character.

• Not only do young tenants and aspirant homeowners stand to benefit from a building boom that delivers more housing, but the economy could get a major jolt at a time of slow growth and difficult productivity.
• Evidence suggests that GDP per capita would be 30% higher—we would produce and earn nearly a third more every year—in just 15 years if we built enough homes in the right places. That’s £10,000 extra on the average household income.
• Politicians can solve the problem if they are willing to think big and propose policies that make reform work for everyone. Reforms that make most voters worse off have little chance of happening.

Read the full paper.

Children of When: Why housing is the solution to Britain's fertility crisis

Andrew Sabisky discusses the increasing difficulty that young couples are having in having children when they want to and having as many of them as they want. The biggest driver of this effect is the rise in housing costs and fall in house sizes, which constrains family sizes and is driving the country towards a demographic crisis.

1. In the UK and across the developed world populations are rapidly ageing and total fertility rates are substantially below replacement level—meaning a falling ratio of workers to dependents.
2. In recent decades, immigration has propped up the supply of workers and kept the population pyramid in shape, but in the wake of Brexit, and an expected decrease in immigration, there is a clear need to raise birth rates.
3. The nation’s low birth rate is not just an economic problem. International survey data indicate that many women across the developed world are not able to have as many children as they would like.
4. International evidence shows that housing markets have substantial effects on fertility: rising house prices may boost fertility for homeowners, but slash fertility amongst renters — between 1996 and 2014 157,000 children were not born due to the cost of living space.
5. In little more than a decade, home ownership rates have collapsed among young people, as house prices and rents continue to rise. If current trends are maintained we may expect fertility to fall even further.
6. Free-market reforms to housing regulations could help raise fertility and improve the country’s long-term economic and social prospects. 

Read this paper.