The new prime minister, Theresa May, has signalled her intention to deal with the “housing deficit” – the year-after-year shortfall in the number of homes that are built compared with the number of homes that are needed. The government’s target is to build 1 million new homes by 2020, the equivalent of 200,000 a year. Many housing economists think that England needs at least 250,000 new homes a year to keep up with demand. Neither of these targets are being met: last year (2014/15) only 155,000 new-builds were completed.
In order to tackle the shortfall it will first be necessary to correctly identify the obstacles. For many years it has been claimed that the planning system is a major barrier to progress on the grounds that it is slow and cumbersome in issuing planning permissions. This briefing note seeks to explain why this is not, in fact, the main problem today.
Our analysis shows that potential new homes are granted planning permission in much greater numbers than developers build them out. More units have been permissioned by planning officials than started by builders in every year for at least the past decade – and the gap has been growing ever wider in recent years. Over the past two years, planning permissions have been granted in sufficient quantities to meet a target of 250,000 a year.
This demonstrates that the key to building many more homes does not lie in increasing the number of permissions which are granted each year – although that should not be discouraged – but in ensuring that those permissions which are granted are built out much more quickly. This is likely to involve radically shifting the incentive structures which govern the behaviour of landowners and developers who are in possession of those planning permits.
The main points from the analysis are:
Planning permission has been awarded in England for 2,035,835 housing units between 2006 and 2015. That is an average of 204,000 new homes a year – an annual rate sufficient to meet the government’s housebuilding target for this parliament of 1 million homes by 2020.
Starts recorded by the government during the same 10-year period numbered only 1,261,350, however: an average of just 126,000 a year. This means that there have been 774,485 more permissions than starts, equivalent to 77,000 a year for the period.
This shortfall has been growing wider over the past five years. A significant increase in the number of planning permissions granted since 2011 has not been matched by a comparable increase in starts or completions.
In the past two years (2014 and 2015), 500,956 units have received permission, in line with the 250,000 homes a year that most housing economists think England needs as a minimum. In neither of those two years did recorded starts get above 140,000, however, little more than half of what has been approved.
Last year (2015) there were 261,644 homes permitted for development – but just 139,680 recorded starts. This is a deficit of 121,964, the biggest by far over the 10-year period analysed and almost twice the level it was in 2010