Labour must deliver on its promised planning reforms to drive economic growth

For 15 years, the UK’s economy has stagnated. If you’re chronically online, you’ll be familiar with the graph showing GDP per capita flatlining from 2008 when the UK was almost as wealthy as the USA. Today, we’re about 40% poorer.

At a time when the demands on government spending are increasing - driven in large part by the requirements of an ageing population - this is a key challenge for the government. Economic growth is how we make sure we have the money to spend on hospitals, schools, welfare payments and all the other nice things that are supposed to come with living in a developed society.

The new Labour government recognises the challenge. Delivering economic growth was at the centre of its election campaign. Its manifesto was centered on “five missions to rebuild Britain”, the first of which was to “kickstart economic growth” across the country.

“The OBR made no allowance for the economic impact of the government’s planning changes”

October’s budget was the beginning of that process, with tax rises to balance the books and increased spending, including on infrastructure, aimed at supporting growth.

However, the Office for Budget Responsibility (OBR) was unconvinced. While they expect growth over the next 12 months to be higher than it would have been under the Conservative Party’s plans, it is expected to be lower across each of the remaining four years of the parliament.

Labour will hope that forecast is wrong. One reason to believe that this will indeed be the case is the OBR’s assumption about planning reform.

In the forecasts it published alongside the budget, the OBR made no allowance for the economic impact of the government’s planning changes because of uncertainty around whether they would actually be delivered “given past reform attempts.”

Building homes generates a huge amount of economic activity by itself. Around 270,000 people are directly employed building homes, with as many jobs again supported in the supply chain. In spending their wages, those people support another 100,000 jobs in the wider economy. In total, the industry contributes around £40bn of Gross Value Added. Allowing more homes to be built will see all of those figures increase.

The economic benefit of an increased supply of homes is far wider than just its impacts on the housebuilding industry. As far back as 2004, Kate Barker noted in the Foreword to her Review of Housing Supply that “a weak supply of housing contributes to macroeconomic instability and hinders labour market flexibility, constraining economic growth.”

Our shortage of homes means people are less able to move to areas with the highest number of jobs and are more likely to stay in roles less well suited to their skills. Productivity is lower than it would otherwise be as a result. Constraints on the supply of homes in the USA lowered economic growth by around 50% between 1964 and 2009. There is no reason to suspect that England’s even more restrictive planning system has less of an effect.  

Private capital is desperate to deliver building projects of all types, if only the planning system would allow it.

Labour needs to deliver on planning reform. It is their main tool to drive economic growth - and one that costs government almost nothing financially. Private capital is desperate to deliver building projects of all types, if only the planning system would allow it.

The government got off to a good start with the planning reforms outlined in July, but those proposals could be improved without harming wider place-making objectives.

The requirement for 50% affordable housing on land released from the green belt is a huge cost on landowners. It will reduce the number of sites coming forward, and the number of homes built.

As Lord Moylan, Chair of the House of Lords Built Environment Committee put it, “apart from the publicity effects of it, what is the planning logic of having a higher affordable housing requirement?”

The proposed new “standard method” for housing targets is intended to ensure 1.5m homes are delivered across the life of the parliament - 200,000 more than the OBR’s current estimate based on an “unreformed” planning system. Yet the intended transitional arrangements, giving local authorities as much as five years to shift to the new targets, mean that figure is unlikely to be met.

Research by planning consultancy Lichfields identified a cumulative shortfall of 370,000 homes against the government’s targets for the next five years unless the transitional arrangements are changed.

Even with those changes, work remains to be done to maximise the delivery of homes from all sources. Ensuring housing targets are met even when genuine constraints mean authorities can’t do so alone requires a new approach to planning at the “larger than local” level - but one that doesn’t slow down plan-making. We desperately need a way of increasing the density of our existing residential areas too. The long-promised new local plan system needs to be finalised an introduced, alongside National Development Management Policies. Proposals are in the pipeline in all those areas.

The OBR might be skeptical about the government’s ability to deliver planning reform, but it is there to be done. If we’re to break the “doom loop” and finally deliver economic growth, the government can’t afford to fail. Their whole agenda rests on it.