This article starts like many that I, and others, have written before. I’m first going to tell you that dysfunction in the housing market is perhaps the most important public policy challenge facing the UK today. That it is skewing saving and investment patterns, reducing labour mobility, and thus hampering economic growth by not matching our most productive workers with the most productive jobs. That it is deepening inequality, worsening health outcomes, and precipitating the crisis of confidence in our whole economic model.

I’m also going to remind you of the case that certain academics and policy thinkers has been making for many years: that the principal driver of these problems is a scarcity of developable land, which bids up prices, reduces competition, and prevents smaller developers from entering the housing market. The underlying cause of this scarcity? Our discretionary and highly uncertain planning system, which demands that all planning applications need explicit permission from the state at a local or national level – even if you want to build a roof over your own head, on your own land.

It’s not simply the housing market that our planning system is having adverse effects on either. It is the entirety of the supply side of our economy. Our planning system adds delay, expense and vexation to the delivery of homes, but office space, lab space, energy plant and critical infrastructure too. High energy costs, high commercial rents, even prison overcrowding is related to some extent to how difficult it is to build things in the UK. And the framework which governs how expeditiously new infrastructure can be delivered is the planning system.

So, what’s new about this particular article? The first thing is the political context in which it is written. We now have a Labour Government elected on the express commitment to support planning reform in order to stimulate growth. It committed to reforms to planning and the housing market in the King’s Speech last week. And what’s more Rishi Sunak, now sitting on the other side of the house, has said his party will support efforts to clear away illegitimate obstacles to badly needed development.

Of course, even with its sizeable majority in Parliament, Labour only has a finite amount of political capital to spend on its priorities. And much as we believe it should spend a good deal of that capital on the housing market and planning reform, the Government still needs to think tactically about how to get the maximum amount of reform for the least political cost.

Which brings me on to the second thing that is new about this article – which is that it comes off the back of Policy Exchange’s latest paper on the economics of housing. In The UK’s Broken Housing Market: Causes, Consequences, and Cures, Roger Bootle and I set out why housing affordability – both rents and purchase price of homes – has deteriorated so catastrophically and why ownership has fallen of a cliff edge, particularly amongst those age demographics that should be settling down and having children. 

But as importantly, we make recommendations for how to remedy this situation – recommendations that are sensitive to politics of delivering reform, but which are designed specifically to yield the most bang for buck. 

One cannot, as Nigel Lawson used to say of inflation, tackle complicated policy problems with a single golf club. You have to play with a full set. And so we have proposed a whole range of putters, irons and wedges that might be employed to deliver a more efficient housing market. 

The Labour Government has spoken in recent weeks about the sticks that might be utilised to get local councils to approve new development. In our paper, we focus on carrots: how can we incentivise authorities to deliver the homes needed nationally? We recommend a tripling of the New Homes Bonus, which per annum costs the Government around a tenth of what we spend on the demand subsidy Help to Buy. Dorset Council, for example, would have received somewhere around £5 million under such a scheme based on the 2023-24 returns – enough to cover its planning budget twice over.

We recommend a flat rate developer charge, set locally, to replace Section 106 Agreements – a discretionary system that is failing to see local communities gain significantly from new development. Receipts from such a developer charge should be hypothecated for planning and infrastructure so locals can see the connection between development and community benefit.

And to make the allocation of housing stock more efficient, we recommend two tax interventions: firstly, two new council tax bands and an increase in the upper rate; and secondly, a stamp duty exemption for those downsizing, with a tax wrapper for assets acquired with money released by downsizing. Many people who have seen their children move out, or who are retiring, rightly wish to remain in larger homes. People have strong emotional attachments to property, and may want to continue residing in a given house for non-pecuniary reasons. But we should not disincentivise people from downsizing if and when they wish to.

All these interventions are judicious and deliverable. But the most important measure we recommend – the ‘driver’ in our set of policy golf clubs – is increasing the abundance of developable land through planning reform. We endorse wholeheartedly a move towards a rules-based, zoned regime, whereby planning applications which conform to certain regulations and design requirements, and which take place in areas allocated for development, do not require further permissions from the state to be built. 

But we propose to pilot such a regime first in cities – the places of highest demand, and where the economic benefit of increased housing supply will be most magnified. We believe that this will help minimise political opposition by concentrating homes where they’re most needed, and it would not require new legislation: a Special Development Order (SDO) could be issued by the Secretary of State for Communities and Local Government, and it could in practice suspend the provisions of the Town and Country Planning Act in limited instances.

We must grapple with the basic truth that if we do not deal with the basic cause of dysfunction in the housing market – land scarcity – then its distortions will perpetuate. A pilot would demonstrate not only how increasing the abundance of land can support expeditious development, but also how it might improve the quality of new housing supply by allowing smaller developers to compete more effectively.

Political appetite, clear-sighted policies, staying-power – all three of these things are required to deliver planning reform. But for decades, governments of all stripes have lacked one or more of these things at any one time. In this new report, we’ve offered some clear-sighted policies for reform. We must wait and see if this new Labour Government has the political appetite and staying-power to deliver them.