Conclusion and policy implications

Housing shortages in expensive cities exacerbate wealth inequality, both between homeowners in prosperous and underperforming places, and between homeowners and renters in expensive cities.

Planning often aims to redistribute wealth through measures like affordable housing. The redistribution it actually achieves, through rationing of supply in high-demand cities in the Greater South East, redistributes wealth from people in work and renters to homeowners. Addressing wealth inequality requires reconnecting the supply of new homes to housing demand in city economies, reducing the subsidies homeowners receive from the Government, and exploring how other asset classes could allow households to build wealth.

The planning system must be reformed to allow housing supply to respond to local demand and reduce inequality

National government should reform the planning system to shift towards a rules-based by-right system, where builders who want to develop land can do so automatically without needing planning permission, provided their proposal complies with building regulations and local plans.

As a principle, once a local plan is agreed, the planning system should allow new homes to be built unless the local authority explicitly says ‘no’, rather than forbidding any development until the local authority grants permission. The success of flexible zoning systems in delivering inexpensive housing in high-demand cities in Japan and parts of the US like Houston should be studied by Government to inform future planning reform.

This would also entail national reform to the green belt to release land near train stations for development. On green belt around the 10 least affordable cities in England and Wales, within 25 minutes’ walk of train stations in it that there is room for 1.4 million houses.27 National government should also require the rest of the green belt to be graded by quality to better protect high-quality countryside while ensuring land more suitable for development is gradually released for
new homes.

Locally-set policies such as protected views, local heritage listing, and policies to maintain the local aesthetics of neighbourhoods such as conservation areas should not be able to reduce housing supply in cities. National government should develop a methodology to allow estimates of the impact of these local policies on housing supply, and require local authorities to strategically review them given their local housing shortages.

Homeowner tax breaks and subsidies should be reduced

Tax policy should aim to treat home ownership and private renting neutrally. Although the government is moving to improve the quality of private renting, homeowners still benefit from numerous subsidies that worsen inequality and fail to increase home ownership.

In practice, this would mean abolishing Help to Buy ISAs and loans; the capital gains tax exemption for domiciled residences; the stamp duty exemption for first time buyers; rebanding and annually revaluing council tax; and reforming Right to Buy.

This could either be done in a way that would raise more revenue from wealthy homeowners, or in a more fiscally neutral way with the abolition of stamp duty as recommended by the Mirrlees Review, and reductions in other taxes.28

Other policies along these lines, such as allowing young people to use their pensions as deposits for new homes, should be avoided because they do not link the supply of new homes to demand and thereby would not slow growth in housing wealth.29

Government should explore alternative wealth-building vehicles to housing

Finance and speculation do not cause price rises and inequality – a failure to build more housing in cities of high demand does. Cheap credit should function as a means of financing more supply, and if supply does not change in response to looser monetary policy this points to structural issues within the planning system.

However, if planning reform is successful and growth in housing wealth slows in expensive cities as local supply increases, it is possible that households will need alternative safe assets in which to save, such as equities, bonds, or pension vehicles. Government should investigate how policy would need to change to enable this, and what the benefits and costs of such a shift would entail.

Accumulating wealth in these instruments would be beneficial for three reasons. First, they would allow households to accumulate wealth without damaging urban economies through painful housing shortages. Second, they would reduce geographic inequality as the returns on investment in these assets would be unrelated to local resident wages, unlike housing wealth. And third, as this wealth would be more liquid, these instruments could then be used to finance new investments rather than being trapped in housing equity.

Nimby campaigns’ influence in the planning process must be reduced because they deepen wealth inequality

The housing shortage has severe consequences for the unequal distribution of wealth in the UK and yet it remains politically sustainable. This is in large part due to anti-housing campaigns which pressure local government, MPs, and journalists to ensure as little housing is built as possible, at multiple stages during the planning process.

If there is a place for the input of local campaigners and activists into planning, it should be restricted to the creation of the local authority’s plan. This would allow for the priorities of local residents to be heard and balanced against the interests of future residents. Allowing input into every stage of the planning process ratchets down the supply of housing, and empowers a vocal and unrepresentative minority who benefit from rising inequality.

National government has a special role in the planning system to represent the interests of people who do not currently reside in a community and are unheard by petitions and at meetings. Rather than expecting local authorities to take locally-unpopular decisions, national government must take the decision to reduce the influence of Nimby campaigns due to the national benefits to wealth inequality, housing affordability, and the national economy.

Footnotes

  • 27 On green belts see Clarke E., Nohrová N. and Thomas E., 2014 Delivering Change: building homes where we need them, London, Centre for Cities
  • 28 Mirrlees J. et al, 2011, Tax by design, London, IFS
  • 29 Barrat L.,2019, Brokenshire: let young people use their pensions to buy homes, London, Inside Housing