Eight ways to fix the housing crisis

It is difficult to overstate how important housing and planning reform is to the prospects of this Labour government. It constitutes the centrepiece of its strategy for growth, and without growth the chancellor will be forced either into deeply unpopular tax rises at a time when the tax burden is already at unprecedented levels, or unthinkable public spending cuts.
Why is planning so critical? If you want to develop land for any purpose in the UK, you require explicit permission from local or national government. This heavily constrains the supply of development land, and that scarcity translates into higher prices for delivering infrastructure, or office space, hospitals and prisons.
The entirely discretionary nature of our planning system adds delay, expense and vexation to the process of acquiring permission for development, which saps productivity, reduces competition and distorts the economy.
Nowhere is this more the case than in the UK housing market. Demand has long outstripped supply, housing affordability has deteriorated accordingly and homeownership — particularly among 25 to 34-year-olds — has fallen precipitously. The wider effects of this crisis have been profound: labour mobility diminished, inequality exacerbated and capital diverted away from parts of the economy that need it the most.
This new government needs workable proposals for reform. Earlier this month we at the think tank Policy Exchange published our latest report on the housing market, setting out policy interventions that could be made to improve efficiency and increase the number of new homes delivered. These include:
1. Suspending the provisions of the 1947 Town and Country Planning Act on a limited basis in cities via special development order. This will enable the government to pilot a more permissive, rules-based planning system in areas of highest housing demand. Community input on aesthetics should be enhanced and front-loaded through design codes.
2. A reformed right to build policy, so that anyone who wants to commission a home of their own to live in will be provided with a serviced plot of land.
3. A trebling of the New Homes Bonus, so that local authorities have a meaningful incentive to draw up local plans, allocate land and permit development.
4. A new flat rate, locally set infrastructure levy, to replace discretionary section 106 contributions, with estimated receipts for planning and infrastructure spending so that local residents can see the community benefit of development.
5. A new public land for housing programme. This will increase the supply of development land — plots should be marketed towards small and medium-sized housebuilders to promote competition in the market.
6. The overhaul of the UK’s green belt designation. Land of genuine environmental value should be reclassified as national landscapes. Low-quality land near transport infrastructure should be zoned for development.
7. Additional council tax bands (lower and two additional higher), and increased rates in the top bands.This will encourage the efficient use of housing stock, but importantly receipts should be used to finance tax cuts elsewhere, particularly on earned income.
8. A stamp duty exemption for downsizers and a new tax wrapper for assets acquired with cash released through downsizing. We should stop disincentivising people from downsizing if and when they want to.
We designed all these recommendations to be politically deliverable and to maximise impact — even the tax changes. But our proposals for increasing the abundance of development land are far and away the most crucial. Land scarcity is the absolute root cause of dysfunction in the housing market. Tinkering around the edges without dealing with the fundamental assumptions that underpin our planning system will see such distortions continue.
James Vitali is the head of political economy at the think tank Policy Exchange