Written By Danass Maddison
Current system
Currently, the government uses the system based on the Town and Country Planning Act 1947. The act calls for local authorities to prepare local plans setting out proposals for the use and development of land within their area, showing an ability to meet the housing demand.
What is housing demand?
Housing demand comprises a baseline of household projections, adjusted to take account of affordability and capped to limit the increase for local authority areas.
- A baseline is set using a 10-year average of the 2014-based national household growth projections.
- This is modified based on the affordability of the area, using the most recent median workplace-based affordability ratios.
- For each 1% the ratio is above 4, the average household growth is increased by a quarter of a per cent (with a ratio of 8 representing a 100% increase)
- A 40% cap to limit the increases an individual local authority can face is applied taking into account the current status of an areas strategic policies for housing.
The problem
Such a lengthy and laborious process causes delays in providing housing, a real social issue, especially for families.
This system has also shown itself to be unfavourable to small businesses, with the proportion of new home building they lead on dropping drastically from 40% 30 years ago to just 12% today. (Reforms to speed up the planning system and get the country building – Property118 (2020))
The new proposal
The following are solutions which the government is proposing that will help in tackling the housing shortage problem – (Planning for the future explained, 2020) :
- The government to cut red tape, but not standards, placing higher regard on quality, design and the environment than ever before. Planning decisions will be simple and transparent, with local democracy at the heart of the process.
- The planning process to be overhauled and replaced with a clearer, rules-based system.
- The creation of a fast-track system for beautiful buildings and establishing local design guidance for developers to build and preserve beautiful communities.
- Homes to be built quicker by ensuring local housing plans are developed and agreed in 30 months – down from the current 7 years.
- Every area to have a local plan in place – currently, only 50% of local areas has a plan to build more homes.
- A new and simpler system of developer contributions will also ensure private firms play their part in funding the new infrastructure and affordable homes that should accompany new building.
- Land suitable for growth will be approved for development while plans are prepared, meaning new homes, schools, shops and business space can be built quickly and efficiently, as long as local design standards are met.
- Ensure the supply of land, enabling more high-quality homes to be built in the right places and to provide businesses and communities with the space to develop.
- Make the housing industry more diverse and competitive to drive delivery and higher standards by supporting innovative developers and house builders including SMEs and self-builders.
New proposal effects on real estate
House prices reflect both demand and supply and as in all markets, equilibrium price will occur at the price that matches current demand to available supply.
In the short run, supply is relatively inelastic given that it takes a long time to build new houses. Hence, increases in demand have an especially big effect on house prices.
The new proposal will see an influx of new homes meeting the pent up demand. When the supply catches up and reaches equilibrium demand will begin to fall leading to a corresponding fall in house prices, property rentals, business rents and ultimately inflation.
With most real estate bought by means of a mortgage, a fall in house prices could result in negative equity and potentially the inability to repay the debts.
This could make real estate a less favourable way to hedge an investment portfolio against inflation.
Will the new proposals fast track the planning system and ultimately reduce inflation?
References
- https://www.gov.uk/government/consultations/changes-to-the-current-planning-system (Accessed: 13 August 2020).
- https://www.property118.com/reforms-to-speed-up-the-planning-system-and-get-the-country-building/ (Accessed: 15 August 2020).
- https://www.gov.uk/guidance/planning-for-the-future-explained (Accessed: 19 August 2020).
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