Executive Summary

There is now broad consensus that the UK needs to build more homes. But the need for new homes is far more acute in some places than in others.
Housing in Britain’s most economically successful cities tends to be the least affordable (Figure 1). Failing to build the homes needed constrains these cities from further growth. This matters to the national economy as well because these cities are the most productive and have the most jobs. When people cannot afford to live in them, they cannot access these jobs and businesses cannot sell to them, so the economy suffers.

Policymakers and commentators broadly agree that a minimum of 200,000 homes will be needed each year to keep up with demand. Despite the consensus around the need for more housing, we are still building too few homes, and those that are built are not always in the places with the highest levels of demand. For example, between 2008 and 2013 there were relatively more homes built in Barnsley (second most affordable city in Great Britain in which to buy a house given local incomes) than in London or Oxford (the least affordable cities). More of these homes should be built where affordability is lowest and demand is highest – our most successful cities.

While there is no single solution to building more houses, at the heart of any response needs to be the issue of land supply: in effect, where to build these 200,000 homes each year. Increasing the amount of land allocated for housing is the only way of meeting the housing needs of our high demand cities and the country. Using case studies from the UK and abroad, this paper sets out the three components of a city’s effective response, none of which can be overlooked: increasing the density within the city, working with neighbouring authorities and re-designating green belt land.
All components require cities to consider where opportunities match with existing infrastructure, and how best to link new homes to the jobs and services that offer people the most opportunities and make these cities successful. And none should be off the table – cities must be bold in identifying accessible land for more homes, and national politicians must support them in doing so. Otherwise, regardless of policy announcements and ambitious targets, the homes these cities need will continue to go unbuilt.

Cities can deliver homes within their boundaries by increasing the density of existing communities. In the 10 least affordable cities, if every site was fully built out, there would be the capacity for around 425,000 extra houses on brownfield land. But much of this land is complex to develop, and requires cities to take active approaches to enable them to be built on: providing investment for new infrastructure, undertaking land assembly and financing or developing housing directly. This is expensive, especially in the current political climate, and will require dedicated investment.
In many cities, brownfield sites are not in the best locations for new homes, are better used for other local priorities, or are owned by those unwilling to sell. The UK’s most successful cities must therefore evaluate land on its merits rather than its existing designation. For example, within a 25 minute walk of a train station there is land available for a potential 1.4 million homes inside the ten least affordable cities’ existing built-up areas (PUAs) – on land designated as green belt. This would require developing around 5 per cent of these cities total green belt to deliver the homes that are needed, with access to existing jobs and infrastructure.

Because housing markets for successful cities extend well beyond their own, often under-bounded, administrative areas, cities must work with their neighbouring authorities to identify and deliver the houses needed. Around half of all urban workers live and work in different local authorities – often travelling from homes in surrounding areas to jobs in the city centre. Therefore it is crucial that cities’ neighbouring authorities also deliver the housing and infrastructure needed. If neighbouring authorities as well as cities developed close by to train stations, it would include enough land for 3.4 million homes by developing just 12.5 per cent of the green belt areas around the 10 least affordable cities.

The under-supply of homes has been a long-term and systemic problem for the UK that is hindering growth in the country’s most productive places. Overcoming this and building the homes that people and the economy need will require bold national as well as local political leadership.

To deliver the homes needed, city decision-makers should…

Be bold in designating land for housing on its merits, to meet the area’s strategic needs and potential rather than whether it is designated brownfield or green belt.

Many of Britain’s least affordable cities do not have enough brownfield land, that is suitable for housing, to meet their needs. Cities need to be bold in using their powers to identify green belt land that is well connected but of poor quality – not all green belt is green – or has little value to the local community and re-designate it for housing. Furthermore, in some successful cities housing development is leapfrogging the greenbelt rather than being contained, causing sprawl.

Work with neighbours to strategically plan for the greater city area.

Around half of all urban workers commute across local authority boundaries, often travelling from surrounding areas to jobs in city centres. It is therefore vital that cities work with other authorities to meet strategic needs and priorities. Uniting public support can support this, but leadership is critical.
Form partnerships that can co-fund infrastructure investment on a model like the Milton Keynes Tariff.
Bringing landowners into a partnership with house builders, housing associations and the city means funding agreements can be put in place at the outset. The certainty of finance allows for the city to borrow more, while the certainty of infrastructure encourages developers to commit.
To enable cities to deliver the homes they need, national politicians should…

Reform and streamline Compulsory Purchase Orders (CPO).

The current CPO system takes longer than in most OECD countries, and is often complicated by challenges for ‘hope value’ from those expecting value increases from a future change in permissions. Local authorities, housing associations or local trusts, rather than passive landowners, should capture and benefit from the uplift in land value from planning changes so that they are incentivised to plan for more homes and can invest in the infrastructure and services to support new communities. This would ensure that those living in the area benefit from development, rather than landowners alone.

Support cities to re-designate land for housing by enabling them to benefit from the uplift in value.

Re-designating the green belt is politically challenging the local level. Therefore cities need the support of national politicians to take these difficult decisions in the best interest of successful cities and the country. In allowing cities to buy land at existing use value, communities can benefit from the uplift in land value gained from a change in planning permission. Cities can then use this to invest in local priorities such as transport infrastructure or protecting public green spaces.

Introduce more robust models for co-operation between local authorities where the duty to co-operate has not delivered enough homes.

The duty to co-operate is currently only working where effective relationships between authorities already exist. A sliding scale, from the duty to co-operate, to negotiated incentives through to a nationally allocated strategy could help cities and surrounding areas match the geography of decision-making with their housing market.

Provide long-term accounting certainty from HM Treasury for investments in infrastructure.

Certainty from the Treasury in relation to borrowing regulations would enable cities to make investment decisions by borrowing against their future receipts, revenue accounts or general funds. Where appropriate, relaxing specific borrowing measures with prudential limits could enable investment (some local authorities can borrow against HRA, others can form their own companies). Borrowing for house-building should also be re-categorised on the public balance sheet as an investment, following the example of most other European countries. This would reflect the economic and financial value of the houses built, rather than being simply accounted for as expenditure.

Support cities to invest and deliver infrastructure with effective tools and expertise.

Devolving and expanding Local Development Order funds (from £5 million, currently at the bidding stage) to the city level and enabling cities to establish a revolving infrastructure fund would encourage long-term decisions. To ensure there is capacity within cities for this work, specialist support for local authorities could come through the Homes and Communities Agency ATLAS team.