There is literally no political issue more important for the UK than housing. With Covid on the way out, unless a portal to hell opens up under Clapham High Street there is no problem more urgently in need of fixing than the shortage of homes in the most prosperous parts of the country. Nothing else makes us poorer or more unhappy — that we could solve so straightforwardly.

With last week’s Queen’s Speech including a planning bill, it’s encouraging that the government is trying to do something about housing, after years of neglect, or worse. One official report even committed the government at the time to a policy of house prices rising constantly, though below earnings, which is difficult to reconcile with increased affordability and supply. But it’s all the more distressing that the government’s plans seem doomed to fail.

The government’s heart seems to be in the right place. It recognises that a lack of supply, in the places people want to live, is the root of the problem. It’s not interest rates, which affect house prices as dramatically as they do precisely because supply is so fixed. And nor is it a lack of lending to first time buyers, which is only an issue because prices are so high in the first place. The government recognises that the solution has to come from the private sector, as it did during the housing boom of the 1930s, which created many of the homes people still happily live in today, and did it with virtually no state support.

The problem is that the government’s ideas have been politically naive, and have already been whittled down to something that would make only a marginal improvement if enacted. Yet they probably won’t even make it that far without being kneecapped further by Tory backbenchers. They started with three ideas: one, free up some green belt land for development; two, increase housing targets for local authorities based on an algorithm that allocated more housing to the places where it was most expensive; and three, introduce a system of zoning that would give more assurance to developers and streamline the system.

All of these were pretty good ideas. Freeing up more green belt land to build on should mean more building. And the green belt isn’t the bucolic countryside that it sounds like: much of it is used for industrial farmland, which can actually be quite bad for the environment, and much is inaccessible to the public. Sadly the public doesn’t see it this way: most people still imagine the green belt as “green lungs” for cities, and object to the idea of concreting over the countryside. The government quickly backed away from this approach.

Then came the algorithm. Housing targets are a crude way of getting more housing built – often leading to housing being built in inappropriate areas and enraging existing residents who only stand to lose from the increased congestion and disruption. And as Neil O’Brien – about as far from a NIMBY as Tory MPs can get – pointed out, these new targets would have forced more homes on Tory-run shires and suburbs, and less on Labour-run towns and cities: 

The number for Birmingham comes down 15 per cent, while the rest of the West Midlands goes up 52 per cent. Numbers for Leicester go down 35 per cent. The rest of Leicestershire goes up 105 per cent. Nottingham goes down 22 per cent, the rest of Nottinghamshire goes up 48 per cent. Southampton goes down 17 per cent, Portsmouth down 15 per cent and Basingstoke down 23 per cent, but the rest of Hampshire would go up 39 per cent. Wealthy Bristol would see some growth (5 per cent) but much lower than the rest of Gloucester, Somerset and Wiltshire (47 per cent).

Still, housing targets are the only way, under our system to guarantee any new housing gets built at all. This idea, too, was dropped, after Tory backbenchers made it clear that they would not vote for something that made their constituents hate them. 

So the government shifted to increasing housing targets for London. Great: Labour has 49 of the 73 Greater London seats in Parliament, and London really is where the greatest need for new housing is. But then it approved Sadiq Khan’s London Plan, which made allowances for far fewer homes than the new algorithm would have required. So if those new targets ever do arrive, it will be in at least five years’ time with the next London Plan. By then, a new government may have dropped the targets. 

So now we’re left with zoning. The idea is that the current system includes loads of hurdles between making a planning application somewhere and actually being able to go through with it. Locals can object, and often do so ferociously, running up legal bills, delaying projects, and creating huge uncertainty that means that many projects just don’t happen because of those costs. 

The planning bill is expected to require local councils to designate places in their local areas as being “Growth” or “Protected” zones. In Growth areas, you know you can build; in Protected areas, it’s much harder. (There might be a third kind of designation – “Renewal”, where places with existing buildings can have more added – but we’re not sure yet.) The aim is to give developers certainty about what they can build and where, and remove the local right to object to new developments once they are part of a plan.

Nice one. But the only reasons local councils have to designate anywhere as a “Growth” area are their housing targets. Since these are not going up, it will function just like the current allocations system. Removing the local right to object is as unpopular with existing residents as you’d expect. Many of the same Tory backbenchers – now led by Theresa May – who opposed the algorithm’s targets are preparing to oppose these too, in alliance with the Campaign to Protect Rural England. If May and co manage to get the local right to object retained for Growth areas, there won’t even be any extra certainty for developers there. We’ll have brought in the appearance of zoning, but without any actual improvement in how the system works.

The government seems to be completely ignoring the incentives of the people involved

Even if the backbenchers don’t succeed, it’s a mistake to imagine that the procedural barriers to development are the main problem. Many parts of America have simple zoning rules but nevertheless have housing shortages that are as bad as ours, or even worse. Silicon Valley is ultra low density sprawl as far as the eye can see; New York City’s clear and certain rules are so strict that 40 per cent of Manhattan’s buildings would be illegal to build today. Clarity about the rules doesn’t help much if the rules themselves are bad. And if the “Growth” zones are the building free-for-alls that we might want, councils will just designate everything they can as “Protected”, maybe leading to land that would have been developable – like brownfield sites  – to be “protected” from development. In fact, Simon Jenkins proposed exactly this just a few weeks ago, for exactly these reasons.

More likely, though, “Growth” zones won’t be free for alls at all – it’s impossible to see how they could make it past Tory backbenchers if they were. Instead, they’ll probably specify things like height limits, density, and so on, perhaps with such strictness and detail that “Growth” zones are barely different to the way councils allocate sites for new housing right now.

The problem with all of this is that the government seems to be completely ignoring the incentives of the people involved. 

First, it ignored the incentives of Tory MPs to vote against bills that would infuriate their constituents. Second, it ignored the incentives of local councils to use whatever system is imposed on them to do the minimal amount of housebuilding possible, and exploit the rules to allow them to do that. And third, and most importantly, it ignored the incentives of existing residents in areas where we want more houses to be built to fight them every step of the way. 

This is key. It’s extremely tempting to vilify NIMBYs: older homeowners who, in many cases, have become millionaires through the dumb luck of having purchased property some time in the 1980s or 1990s, and have pulled up the ladder on new developments so that their own children cannot do the same thing. Sometimes that vilification is accurate. One of my least favourite examples is when some residents of the Isle of Dogs – right beside the skyscrapers of Canary Wharf – objected to a new development of flats because it would be built on a petrol station and mean that they would have to drive an extra ten minutes to fill their cars up.

But NIMBYs often have a point. They usually stand to gain nothing from new developments near them, and these really can be disruptive and unpleasant. There is so much money on the table – so much wealth we could create by building more homes, that we’re not – that it should be possible to use some of this to compensate locals for developments near them, and allow them to decide whether the compensation is worth it or not. The goal should be to align incentives so that residents want housing to be built near them.

One such proposal is the idea of “street votes”, where the residents of individual streets are given the power to vote for permission for increased density on that street. Though many will vote against more density, there will be a powerful incentive for some to vote in favour: the streets that do will, overnight, become vastly more valuable, since a plot of land you can build a five-storey house on is much more valuable to developers than one you can only build a two-bed semi-detached house on. This approach recognises that homeowners have a de facto property right over their streets, in the form of a veto over new developments, but one that they cannot sell or give up. Solving that logjam means allowing them to give up their veto rights in exchange for something worth more to them – in this case, letting them vote to become millionaires overnight.

There is still time for the government to include measures like this in its plans. This is why, incidentally, those saying that we should wait for the bill before we criticise it are so misguided – by then, it will be too late for it to change. And many who have worked hard in this area are more optimistic than I am — Policy Exchange’s Ben Southwood sees an emphasis on local consent in the government’s plans that may avoid some of the problems I point out here. 

I hope he’s right. An approach that ignores the incentives faced by MPs, local councils, and homeowners is doomed, and might end up wasting a precious opportunity to fix Britain’s biggest policy problem.