Centre for Cities is the leading think tank dedicated to helping UK cities achieve their economic potential and improve the life chances and opportunities they offer to people. Our research focuses on the UK’s 63 largest urban areas.
Reform of the planning system
The Government’s White Paper proposes the most radical reforms to the planning system in decades. Dividing all land in England into “Growth”, “Renewal”, and “Protected” areas has significant implications for the future of local economies and the national economy. This reform could lead to major improvements in housing outcomes by removing some of the most problematic elements of the current system.
- Planning policy made urban homeowners in the Greater South East (London, East of England, South East) over £80,000 richer than those elsewhere in England and Wales from 2013-18.
- The current planning system ensures large parts of the existing suburbs provide almost no new homes. Over a fifth of suburban neighbourhoods outside city centres have built no new houses since 2011, while half of all these suburban neighbourhoods have built less than one home every year.
- The housing shortage is directly caused by the planning system’s institutional design. It is ultimately the result of political choices, and planning reform therefore can end the housing crisis.
Ending the planning system’s rationing of homes through its discretionary granting of planning permissions is essential to end England’s systemic shortage of housing, and the housing crises in the most unaffordable cities and large towns.
- Is the current planning system working as it should do? What changes might need to be made? Are the Government’s proposals the right approach?
- In seeking to build 300,000 homes a year, is the greatest obstacle the planning system or the subsequent build-out of properties with permission?
- How can the planning system ensure that buildings are beautiful and fit for purpose?
- What approach should be used to determine the housing need and requirement of a local authority?
- What is the best approach to ensure public engagement in the planning system? What role should modern technology and data play in this?
- How can the planning system ensure adequate and reasonable protection for areas and buildings of environmental, historical, and architectural importance?
- What changes, if any, are needed to the green belt?
- What progress has been made since the Committee’s 2018 report on capturing land value and how might the proposals improve outcomes? What further steps might also be needed?
1. Is the current planning system working as it should do? What changes might need to be made? Are the Government’s proposals the right approach?
- England’s unusually dysfunctional planning system is the cause of England’s unusually bad housing outcomes. The country needs a new flexible zoning system, and the Government’s proposals are a big step in the right direction.
- The planning system’s institutional design – its discretionary element – rations the supply of land for development and new homes. Centre for Cities research, cited in the White Paper, shows the current approach inevitably creates a systemic shortage of housing, by disconnecting the local supply of homes from local demand.
- These local shortages are why housing markets are so varied between UK cities and large towns and their outcomes so persistent. For example, while the average house in Wigan costs five times the average income, in Brighton it costs 13 times the average local income. This creates inequalities between homeowners and renters in the most expensive cities and large towns, and creates inequalities between homeowners in different urban areas across the country.
- For example, while the average house in Middlesbrough saw its equity rise by £3,000 from 2013-18, it rose by £83,000 in Brighton. In effect, by blocking new homes in the most expensive cities and large towns, the planning system does redistribute wealth – from the poor to the rich, and from the unlucky to the fortunate.
- Reducing these housing costs and inequalities is crucial for places and the national economy, but they are systemic outcomes which can only be addressed through reform of the system.
- Most planning systems around the world do not have the same discretionary, or case-by-case, granting of planning permissions of England’s system. Those which do, such as Ireland and San Francisco, also have very deep housing crises. Most provide far more certainty, and frontload decisions about town and country planning into the creation of the plan. The key to ending England’s housing crisis is minimising or removing this discretionary element.
- Ending the housing crisis therefore requires a flexible zoning system. This would mean developers who propose something which complies with the local plan/zoning and national building regulations legally must be granted planning permission. It must be flexible to avoid zones from “freezing”, and also have a role for national government as a “referee” of the process to avoid some of the problems other countries have experienced.
- The Government is proposing a new system which is recognisably of this kind. Granting planning permission in Growth and Renewal areas, conditional on compliance with design codes, the local plan, and national policies would be a major improvement over the current system. It will reduce uncertainty and the rationing of development by local authorities, and thereby help reconnect the supply of new homes to local demand for housing.
2. In seeking to build 300,000 homes a year, is the greatest obstacle the planning system or the subsequent build-out of properties with permission?
- Slow build-out rates are an artefact of the institutional design of the planning system. The discretionary element’s case-by-case rationing of land for development induces rationing of construction by developers. The slow build-out rates this causes cannot be resolved unless we move to a new flexible zoning system, and the proposed Growth area and the fast-track for beauty in Renewal Areas will help fix this.
- Developers in the current system cannot simply buy more land if they need or want to build extra homes. They must acquire a planning permission to undertake lawful development. But granting such a permit is at the discretion of the local planning authority. Whether development can take place on particular sites is therefore uncertain and for many sites unlikely.
- But in addition, this discretionary granting of planning permissions implicitly caps the amount of development which takes place. Most local authorities are reluctant to build more than their target, as their reaction to the proposed changes to the standard method which sets those targets demonstrates.
- The rational strategy for developers in this environment, where their supply of inputs is throttled and uncertain, is to build at a slow rate which maintains high prices for their product and avoids swamping the local market with new supply.
- Crucially, this behaviour is possible because every other competitor faces the same bottleneck on acquiring land for development. Other firms are unable to swoop in, buy another piece of land, and quickly build and sell homes for a cheaper price, because they also need planning permission. It is no coincidence that the only part of the UK economy which sees this behaviour from firms is also the only part of the economy where production is controlled by discretionary permits.
- In a system where developers can just acquire land knowing that they legally must be granted a planning permission if they comply with the rules, landbanking will disappear. The rational, profit-maximizing strategy for firms in a system with much greater and more certain access to land is to build as high a quantity of homes as possible, to as high a quality as possible, for as low a price as possible, in places where people want to live.
- Growth areas should resolve this problem, provided they cover enough land. There must be a significant increase in land included in Growth areas compared to current site allocation process, as making planning permission automatic across a large area will force developers to compete with one another on a maximising supply strategy rather than a rationing supply strategy. If Growth areas do not cover much more land, the reforms will in practice amount to a tweak rather than a systemic reform.
- The fast-track for beauty in Renewal areas is somewhat less certain – a lot will depend on the details of design codes and how the areas work in practice. But in principle, it could and should help resolve land-banking, partly as the sites will be smaller, and thereby complement Growth areas.
3. How can the planning system ensure that buildings are beautiful and fit for purpose?
- A move away from individual comment and feedback on buildings in favour of design codes will have a positive impact. One problem with the existing process is the discretionary and uncertain nature of the current planning process fuels bargaining by developers. As developers are keen to get as much value out of very specific sites, quality and design are often sacrificed in the negotiation between the developer and local authorities which is our current system.
- Introducing far more certainty into the process with design guides that are agreed in advance will abolish this behaviour. Developers will instead be forced to compete on building the best quality buildings instead of haggling over viability or the number of units.
- Design codes must though be written in good faith to ensure that they are not used by local authorities or local groups as a mechanism to block the principle of development. There is a role for a national body as a “referee” of design codes to share best practice, assist local authorities, and also to watch out for bad faith uses of design codes at the local level.
4. What approach should be used to determine the housing need and requirement of a local authority?
- In the short and medium term, there should continue to be a standard method which establishes housing requirements and targets for local planning authorities. It is how our system currently works, and given the scale of the reforms proposed, disruption to its institutional framework should aim to be minimised. Before the standard method was introduced, housing supply was lower in part as housing need was more contested and complex under the old Regional Development Agencies.
- It is crucial that the new standard method contains a much heavier weighting for affordability and prices than it does currently. The housing crisis is fuelled by the mismatch between demand and supply of housing across the country. As the supply of housing cannot respond in the most prosperous areas, creating local shortages, prices and housing costs increase instead.
- In the long term though, the Government and civil servants should aim to build a planning system which does not need housing targets to operate effectively. There is already a single number for each place which indicates local housing need – the price. But within our current system, planning permissions handed out by local authorities determine development rather than prices. This rationing of development causes a mismatch between local supply and local demand, and very deep housing crises in certain cities and large towns.
- Eventually, once this first reform is completed, the Government should evaluate its performance and consider whether the standard method remains necessary. But until then, it should continue.
5. What is the best approach to ensure public engagement in the planning system? What role should modern technology and data play in this?
- Public engagement and local democracy must be better organised than it is today, by frontloading the consultation process into the beginning of the local plan. This would allow local authorities and communities to truly discuss the trade-offs and choices which local planning requires, rather than playing whack-a-mole with residents’ objections.
- The flip side of the discretionary planning system is not just that successful applications are uncertain, but so are rejections. It is not uncommon for residents who initially rejoice that development has been prevented by their feedback are dismayed to learn that another planning application has subsequently been made. A frontloaded process would establish certainty for developers and communities.
- Furthermore, the best evidence on community meetings for housing development indicates they systemically reinforce inequalities. The Neighbourhood Defenders literature has taken data from thousands of such meetings in Boston in the US and shown that the institution of case-by-case meetings consults people who are disproportionately white, male, older, homeowners who oppose new housing far more than voters as a whole.
- Frontloading local consultation would improve local democracy by ensuring that the residents consulted are more representative, and increase trust in the planning process.
6. How can the planning system ensure adequate and reasonable protection for areas and buildings of environmental, historical, and architectural importance?
- Discretionary processes which give special oversight to significant sites, buildings, and areas of land are compatible with a move towards a flexible zoning system. Listed buildings and designations such as Conservation Zones or Areas of Outstanding Natural Beauty can be retained, and the proposed Protected area will be a good fit for many of these land-use designations. The current process, where planning officers and committees deliberate over these special cases case-by-case is appropriate.
- Implicit within the recognition that some areas and buildings have environmental, historical, and architectural importance though is that most areas and buildings do not. There is no tension between good housing outcomes and protections for special cases, but the protections must be special. Growth and Renewal areas which each allow substantial development will reduce the development pressure put on fragile and significant locations.
- There must be a role for national government in overseeing local government’s application and use of these special protections, including Protected areas, to ensure that they are not applied in bad faith. But by setting rules in advance for these protections and where development can take place, the system will become more certain, housing outcomes will improve, and areas of special importance will continue to enjoy enhanced protections.
7. What changes, if any, are needed to the green belt?
- The green belt must be reformed. It is essentially untouched from its designation in the 1990s, despite major changes in the national and local economies since then and the emergence of a crippling housing shortage. Ending the housing crisis requires more homes in and around the most expensive cities and large towns. Like any other belt, it must be loosened when growth occurs, or it becomes painful and restrictive.
- Centre for Cities has previously proposed that “button development” in the green belt around train stations be legalised. These sites already have the infrastructure to provide for more homes in a low-carbon way, but the green belt makes new homes essentially unlawful.
- Centre for Cities has calculated that, if all green belt land within 800 metres of stations that are 45 minutes from the city centres of London, Greater Manchester, Bristol, Birmingham, and Newcastle, was released for development, with other designations protected and some land set aside for parkland, between 1.6 million to 2.1 million homes could be built. England’s total housing stock would increase by between 6-7 per cent, on less than 2 per cent of the existing green belt.
8. What progress has been made since the Committee’s 2018 report on capturing land value and how might the proposals improve outcomes? What further steps might also be needed?
- The proposals to reform developer contributions from the current Section 106 and CIL regime to an Infrastructure Levy would be a major improvement. Section 106 in particular is a deeply inefficient form of taxation, which delays development by inducing trench-warfare negotiations between developers and local authorities over planning obligations.
- A flat, fair rate across the country would give developers the confidence that the infrastructure needed to make their developments viable would be provided, and local authorities the confidence that revenues would actually be raised.
- Centre for Cities research has shown that a 20 per cent Infrastructure Levy on button development around train station sin the green belt could expect to raise between £93 billion and £116 billion for infrastructure from 1.7 to 2.1 million homes. This compares to £7bn raised across all of England in 2018/19 from developer contributions, when 241,000 homes were built (see MHCLG 2020, The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2018-19).
- Compulsory Purchase Orders (CPOs) would be less necessary under the new planning reforms because CPOs are most useful in a discretionary system. In a regime where granting a planning permission gifts a windfall to the landowner, CPOs can help ensure some of that windfall flows to the public. However, in a system where far more development takes place by-right, the value of development will already be capitalised into the value of the land.
- Levying a charge on the end-value of the development is more efficient than CPOs because it will apply to every development rather than just those where the local authority makes the political choice to pursue CPOs. It will align the incentives for every local authority to pursue growth, rather than funding only those which make use of CPOs.