How to defuse a time bomb

From 2000 to 2008, household growth in England averaged 203,000 a year. During the same period the housing stock expanded by 166,000 dwellings a year, a shortfall of nearly 40,000 homes every 12 months.

What’s more, housebuilding has fallen sharply over the past two years and is likely to take some years to recover to pre-recession levels. By contrast, household growth is predicted to accelerate to 247,000 a year in 2006-11 and 272,000 a year from 2011-16.

Housebuilding growth averaged 5% per year in the eighties boom and between 2001 and 2007. Future growth on this scale would leave a vast gap between supply and demand. So we need to do everything possible to build more houses. But what?

The constraints on public spending and borrowing will rule out large-scale, subsidised social housebuilding. So the private sector will have to supply almost all the new homes needed, but only if the state lets it.

The supply of land with planning permission is controlled by local councils, yet their record is dreadful. The area of land used for housing in England has been in almost continuous decline since 1994. In addition, the new development plan system is far behind schedule. All councils were supposed to have put a Local Development Framework (LDF) in place within three years of the 2004 act. Five years on, only 41 (11%) have done so.

Therefore the first key to increased housebuilding is a rapid acceleration in local authority plan preparation and a big increase in the supply of land.

If housebuilders are to increase production, they must increase sales. And increased sales mean building what buyers want and can afford

The state also exercises influence over housebuilders’ products; for example, through Building Regulations, planning policies, local policies for densities, mix, design and materials, and the zero-carbon target.

If housebuilders are to increase production, they must increase sales. And increased sales mean building what buyers want and can afford. The more policy and regulation take homes away from what consumers want, the less housing will be built. So the second requirement is that central government and local authorities allow housebuilders to produce what people want to buy.

In the decade to 2007, land values increased on the back of rising house prices and higher densities. The average density in England rose 76% between 2001 and 2007. Over this period, central government, local authorities and public agencies imposed an array of taxes, polices and regulations that extracted most of this uplift in land values, so that by 2007 many housing sites were at the margins of viability. Yet whereas the future regulatory and policy burden is on a steeply rising trajectory, most notably to meet the 2016 zero-carbon target, land values have fallen sharply and lower average densities will further reduce values.

So the third key is a radical reduction in the cumulative burden of policy and regulation on residential land values.

Without more land, the right densities, designs and products to meet consumer demand, and a radical reduction in the cumulative policy burden, future housing provision will remain far short of what our growing population requires.