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Planning system drives up house prices in expensive areas, says report

Words: Laura Edgar
House price growth / Shutterstock

High house prices in expensive cities have been caused by the planning system’s rationing of new homes in areas of high demand, according to a report out today (11 June).

It suggests the planning system should be reformed to introduce the flexible zoning system used in Japan and some parts of America.

In its report, Think Tank Centre for Cities explores the relationship between urban economies and housing wealth in England and Wales. The organisation finds that the “restrictive planning system” has made urban homeowners in the greater South East more than £80,000 richer over the past six years than those in other parts of England and Wales.

In this region, residents tend to earn higher incomes and the planning system “fails” to match demand for new homes. Capital Cities: How the Planning System Creates Housing Shortages and Drives Wealth Inequality says saw homeowners’ wealth grow by over £80,000 – after accounting for inflation – between 2013 and 2018. This is £46,000 more than the national urban average.

In London, housing wealth increased by £122,000 during this period, while Cambridge saw an increase of £121,000. In Oxford the figure was £89,000, in Brighton it was £83,000, and in Southend it was £79,000.

In contrast, Sunderland saw housing equity increase by an average of just £3,000 since 2013. Burnley saw average increases of £5,000.

In total, London saw in real terms, an increase in housing equity of £550 billion since 2013 – more than every other city in England and Wales combined, says the report.

However, home ownership rates in these cities are lower, with 66 per cent of people living in the private housing market in the capital owning their own home compared with 85 per cent in Warrington. Centre for Cities explains that this means the planning system has redirected wealth to a relatively small band of mainly older homeowners and landlords in these cities. Renters, who tend to be younger, have been “penalised” in South East cities by higher rents.

Andrew Carter, chief executive at Centre for Cities, said: “Our planning system is fuelling a North-South wealth divide among homeowners. Restrictive planning policies in many prosperous southern cities are gifting wealth to homeowners in the greater South East.

“This creates two wealth divides: one between homeowners in the greater South East and elsewhere in the country, and another between homeowners, who tend to be older, and renters, who tend to be younger, within the greater South East.

“The best way to address this inequality is to build more homes in the areas that have seen the biggest increases in housing wealth. This means radical reform of our broken planning system and challenging the Nimbys whose voices dominate local politics.”

Centre for Cities makes a number of policy recommendations, including:

  • Reform the planning system: The government should ensure that housing supply meets demand in popular areas. It should reform the planning system and introduce the flexible zoning system used in Japan and some parts of the USA.
  • Increase housing supply where new homes are needed: To reduce housing wealth inequality, we must ensure more homes are built in high-demand areas. Despite there being less demand for homes in Telford and Wakefield, these places have seen more homes built than expensive and sought-after places such as Oxford and Brighton. Building in places with fewer jobs fails to address more prosperous cities’ housing crises.
  • Stop subsidising home ownership and tax increases in housing wealth: Despite Right to Buy, home ownership as a share of private housing has fallen in every city since 1981. The government should stop subsidising ownership, tax housing wealth increases and treat owning and renting equally. 

Capital Cities: How the Planning System Creates Housing Shortages and Drives Wealth Inequality can be found on the Centre for Cities website.

Image credit | Shutterstock