Building More Homes (Economic Affairs Committee Report)

Lord Layard Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Layard (Lab)]

My Lords, as a member of the committee, I too thank our great leader, sitting in front of me. As has been said, the starting point for our inquiry was a very remarkable estimate that is widely accepted—that, simply to stop real house prices and rents from rising further, we need not 200,000 homes a year but 300,000, just to stop things getting worse. However, surely we want things to get better, so we need more than 300,000 homes a year to make the target of an affordable housing sector a reality. That means a massive housing boom over 15 years, as the noble Lord, Lord Kerslake, has said—that is what we have to generate. We have to ask ourselves what conditions could generate a continuing housing boom—not little tinkerings but the fundamentals for generating such a boom. However, I do not think that we will get the answer to that unless we understand the fundamentals of our present situation, which is really quite remarkable.

Real house prices and rents have trebled over the last 30 years—it has been said that that is completely out of line with the experience in the rest of the world—yet the number of houses built by the private sector is the same as it was 30 years ago, so there is no response. You would have expected those extraordinary prices to generate an extraordinary supply response but that has not happened. If you look for explanations, you can find little ones that might apply in one year or another, but surely the fundamental explanation must be the planning system. The planning system determines the supply of land on which the houses are built and, if the supply is restricted, the real price of land goes up. So what has happened to the price of land? It has more than quadrupled. In fact, in terms of the constituents of the price of housing, the whole increase is due to the increase in the price of land. Therefore, I would like to talk about land and planning.

There is only one way that we can describe the present situation, which is that it involves a major disregard of human need. For example, if a hectare of land is worth £2 million when it is used to provide homes for people and with its existing use it is worth only £20,000, that simply disregards the simple evidence of human need. What is the value of the land to society with one use as compared with another? The only exception to that being an outrage would be if one could show that the amenity value of the land with its existing use was as high as the price of the land if it provided homes. That might be the position sometimes but certainly not in an awful lot of cases at present.

How can we improve the situation and unleash the energy of the housebuilding industry? The key is to make it easier to get planning permission. It is that simple and, unless we face up to that, we will not start from the central analysis of how we have reached where we are. In particular, we have to make things easier for small and medium-sized builders, who have been pushed out of the market mainly by the complexity of the planning system. We have to get them back in to create this boom. Therefore, I want to make two suggestions for liberalising the planning system and generating the boom.

First, there has to be in the system more presumption in favour of development. I think that the Government have used that phrase sometimes but it has to be made real. One possibility is to focus on areas where the price of land is very high and therefore the evidence of human need for houses is very strong. You could say that in areas where the value of land was above £2 million, there would be a presumption in favour of development, and the local authority could refuse it only if it could persuade the inspector that the amenity value of the existing use exceeded the value of the land if it were used to provide houses. I would not suggest that as a universal arrangement, and certainly not in areas of the green belt that were open to public access, for example, but I shall make a few suggestions as to where you could start.

One obvious starting point that has been suggested in some reports is on land near railway stations. I think it has been suggested that if we could build up the areas within two miles of railways stations in commuter reach of big cities, we could have an awful lot more homes. Another suggestion would be parts of the green belt lying inside the M25 but without public access. There is an awful lot of land without public access inside the M25. I do not know whether your Lordships know this extraordinary fact but if only 10% of the green belt inside the M25 were developed, this would provide 1 million homes. It is important to get these things in perspective.

[Baroness Young of Old Scone]

I have recently chaired a conference on the green belt for Greater London. It was startling to see just how the proposition that my noble friend is putting forward works in practice. The reality is that, if we are to make London liveable in the face of climate change, we need to maximise the benefits of the existing green belt to deliver heat reduction, water protection, flood risk management and access to open spaces, otherwise we will see the heat impacts on London of increasing temperatures from climate change. As far as I am concerned, the secret is not to build lots of houses on the green belt but to get the green belt to work for its living in all these aspects. Two-thirds of the green belt being inaccessible to the public is something to change, but it does not need to be built over.

[Lord Layard]

I am grateful for that. I am a bit more hopeful about dealing with climate change by electrifying the economy with clean electricity rather than by failing to give people homes. I think that we can make progress without expecting people to go into ever more expensive properties. I was very encouraged by what the noble Lord, Lord Kerslake, said about the green belt. It is true that attitudes are changing, and that is very helpful.

Of course, we understand that local authorities have political reasons for not wanting to give planning permission. We always remember how Aneurin Bevan got the National Health Service set up by stuffing doctors’ mouths with gold. It still seems to me that we ought to allow local authorities to have a higher fraction of the financial uplift that occurs when they give planning permission, and we should then insist that they use that for housing purposes. My colleague Professor Cheshire at the London School of Economics has suggested a levy on the final value of a completed development, combining that with the change in presumption that I referred to earlier. There are many areas in which these ideas can be explored. The committee took no view on these issues but it made a clear recommendation that the Government should examine these proposals. I hope that the Minister can confirm that his admirable colleague Mr Barwell will be doing that.

We should recognise that we are suffering from a self-inflicted wound. We have inflicted it on ourselves mainly through the way in which we have operated the planning laws. Other countries have much less of a problem because they have not done what we have done. It is a case of the triumph of the few over the many. The distributional impact of the planning system is one of the most powerful sources of inequality in our society, and I think that we will satisfy the needs of the many only if we are honest about the origins of our present situation.