Basics of the housing crisis

The economic model that underpins the development of places and homes in the UK is fundamentally broken. It serves to extract the value that is collectively created through the economic life of these countries for the benefit of relatively few private owners. In doing so, it reinforces stark inequalities of income and wealth in the wider economy.

However, this development pattern is not inevitable. It is the result of policy choices, particularly those defining planning, land and housing systems, that can be changed and improved. This position paper is the first product in a series by the New Economy Foundation (NEF), Fixing Our Missing Development Model, as part of the multi-year program Recovering our Regional Economies (RORE). Here, we argue that by adopting ambitious policies that have been proven here and abroad, the UK can begin to create fairer, healthier and more sustainable countries.

An ongoing housing crisis has left at least 8.5 million people in Britain with some form of unmet housing need. Sharp rises in house prices relative to incomes over the past two decades have trapped many people in an increasingly unaffordable and poorly regulated private rental sector, where housing costs eat up a large share of income and leaving people struggling to afford other essentials. A significant increase in social housing construction is needed to respond to unmet housing needs, but the current developer-led housebuilding model is poorly equipped to deliver these social homes.

The UK's dysfunctional land market contributes in large part to these housing issues and serves as a driver of wealth inequality, with land values ​​across the country rising by over 600% since 1995. The rise of the financial value created by the country's development is captured privately as landowners are able to rely on the existence of hope that value capitalizes on their asset. As a result, land cannot be used to provide public goods such as the creation of high quality public spaces, transport and local amenities. Private land banking has seen sites sit unused for long periods of time, while local authorities are under-resourced to play a role in their local land markets.

While the planning system has the potential to address these issues, it is not currently well positioned or equipped to do so. Planning departments have been left under-resourced due to deep budget cuts in the last decade and their approach to consultation leaves many local residents unable to exercise democratic control over what happens in their area. Mechanisms intended to recapture value for the public during the development process, such as Section 106 (S106) contributions and Community Infrastructure Tax (CIL), have failed to materialise.

In the face of these challenges, the current political debate over what to do about our development model is often narrow and growing. Solutions are framed in simplistic terms, such as increasing the supply of new housing regardless of affordability or tenure, and the planning system is portrayed as only an obstacle to this desired building boom. Instead, we argue for a planning system that redistributes power over land and housing development from private developers and landowners to local government. Doing so would see community need take priority over profit. We also call for this system to be more democratic, so that ordinary people ultimately determine how local government uses any new powers to meet their needs.

Experience in responding to housing shortages can point the way forward. An alternative development model would use best practice from past UK experience and adopt models applied in countries such as the Netherlands, Germany, France, South Korea and Japan. We describe the broad features of an alternative development model, including:

• Stronger land re-appropriation powers for local government, allowing the purchase of public land of an area with use value, redistribution of ownership within the area, installation of necessary infrastructure and subsequent development of social housing.
• Greater public ownership of land and housing in the long term, to recapture the increase in value created in these countries to finance public goods.
• Restore resources to local planning departments to pre-austerity funding levels.
• Increasing funding and capacity for public sector housebuilders to build higher volumes of social housing and devolving right to buy to allow local leaders to take control of social housing stock.
• Pre-financing capital through social housing grants to parts of the country experiencing under-investment, to account for regional disparities that hinder development in those countries.

Housing and land policies are key aspects of the current development model, which have the greatest potential to deliver transformative change. What happens in the land and housing markets has important implications for the wider economy, including the positive consequences that come from access to safe, low-cost housing. An alternative development model that offers these houses has the potential to provide improved financial security, economic resilience and well-being of residents in turn. Amid an escalating housing and land crisis, ambitious policies are needed more than ever to put the public's power back in providing the places we need.

However, there are opportunities for further improvement of the development model by following other relevant policies, as this paper also touches on. These include closing public transport provision and active travel in newly developed areas, creating places that are fully compatible with climate and biodiversity commitments and providing sufficient affordable community and commercial space to allow for a strong economy local basis.