Abolition of Regional Spatial Strategies: a planning vacuum? - Communities and Local Government Committee Contents

Written evidence from Paul Cheshire, LSE (ARSS 07)


1.  The present system of housing supply, as articulated via our planning system, is close to collapse. The responsiveness of house construction to demand has been falling for at least 40 years and houses have been falling in quality (especially in terms of space) and rising in terms of price relative to incomes. Real house prices have risen by a factor of 4.5 since 1955; the price of housing land has risen by a factor of 12 in real terms over the same period.

2.  While the RSS system did not address the underlying problems and caused significant resentment, especially in those areas where demand for housing was greatest, its abolition before the introduction and testing of the New Homes Bonus was a serious error which will further reduce house construction.

3.  There is no reliable evidence base to judge the level at which a New Homes Bonus needs to be set to ensure a flexibly responsive supply of new housing.

4.  While the evidence does suggest incentives can be useful,l it is highly likely that they would need to be both substantially higher than the level so far discussed and would need to be shown to be in place in order to become credible. If they are maintained then their credibility, and so impact, should increase somewhat over time. But we would still have a short term crisis of housing availability and price.

5.  There remains a difficult issue as to what body they should be paid if they are to be most effective. Costs of new development are mainly felt at a spatial scale far smaller than the average District, so if paid to Districts incentives may do little to assuage NIMBYist pressures.

6.  There are other solutions available which would be more effective in relieving the unresponsiveness of housing supply to demand. Without radical reform there is likely to be a further uncontrolled, destabilising and very inequitable boom in house prices within a few years as soon as the economy starts to recover.


The evidence shows (for example Barker 2003, 2004; Cheshire, 2009, or Hilber and Vermeulen 2010) that the interaction between our planning system and planning policies (as they have developed over the past two generations) and our system of local government finance have created a near catastrophic situation for housing (and commercial) development; and that this situation would get not just progressively worse but probably violently worse without quite radical reform. Not only will housing become more unaffordable, but transmitted wealth inequality will worsen, macroeconomic and monetary management will become more difficult and ultimately significant damage will be done to economic efficiency and to our international competitiveness. This is aside from the social problems resulting from an increasingly sharp division into the "housing-haves" and the "housing have-nots" with the distributional consequences that carries.

There are four features of our planning and local government finance system which together make the supply of new development ever less responsive to demand:

1.  We directly constrain the supply of land (for each category of development) both via the insistence on 60% of new housing being on brownfield land and by containment policies—most obviously via Greenbelts.

2.  Our system of development control, with associated S106 and the implications arising from building on smaller sites, is highly complex and imposes large and rising compliance costs as well as restricting competition in the development industry.

3.  Our system of local government finance has given no incentive to local communities to permit development of any kind.

4.  The negative impact of these features is re-enforced by an insider-outsider problem—those who bear the costs of development (local residents/voters) control decision making whilst potential beneficiaries—would-be house buyers—are excluded from decision making.

Over the two generations we have been constraining the supply of land for urban development the real price of houses has increased by a factor of 4.5 and that of housing land by a factor of 12 (see Figure 1). More unresponsive supply means that not only do prices trend inexorably upwards relative to incomes but that short run changes in demand require ever larger changes in prices to accommodate them. The outcome is that Britain has some of the most unaffordable housing and unstable housing markets in the world. A recent study showed that measured from peak to trough, house prices in England were more volatile for the country as a whole than in any housing market in the USA (Cheshire, 2009). While the real price of housing has increased 4.5 times in Britain, in Switzerland it has not increased at all since 1970. New houses in The Netherlands are 38% larger but 45% cheaper per square metre than in the UK.

Figure 1
Real Land & House Price Indicies (1975=100)

Source: Cheshire, 2009

Despite radical diagnosis of the problems in the successive Barker Reports, the post- Barker reforms were focused on process and did not radically address the serious imbalances and inconsistencies in our planning and local tax systems. The top down RSS process did impose obligations on Local Planning Authorities (LPAs) to provide for additional housing but was slow and cumbersome and targets could be met while still not allowing the building of significant numbers of houses of the type people wanted to buy and in locations people wished to live in—primarily greener locations in southern England with adequate living and garden space.


Against this background it is understandable why there should be more radical measures introduced to try to redress the overwhelming bias in our system towards NIMBYism. The New Homes Bonus attempts to reduce or even eliminate the fiscal penalty presently imposed on LAs who allow development (because they assume responsibilities for local services for new residents but in effect the existing Council Tax system is a national tax and yields no commensurate and direct fiscal reward to support the additional services).

There are however serious and perhaps near catastrophic failings in what has been done and how the reforms have been implemented:

I.  The changes have been introduced in the wrong order. Before sweeping away the RSS system—almost the only pressure to get houses built in areas of strong demand—the new incentives should have been implemented first and demonstrated to be available, appropriately directed and adequate before eliminating the RSS system.

II.  Given the other pressures opposing new housing development—including the current crisis in public spending—there is a serious danger the new incentives will not be perceived as credible for quite a long time; and equally there is a probability they will be inadequate.

III.  There is an underlying problem of how and to whom New Home Bonus incentives should be paid if the "insider-outsider" problem is to be adequately addressed as the discussion of the controversy in Chalfont St Peter (below) illustrates.

These points are expanded on below.

I.  Sequence of Changes

Prior to the change in government there had been a target of 240,000 net additions to housing stock per year. This had been identified as the number needed to even maintain housing affordability. Whatever one may think of the RSS top down system this target was based on detailed research but even so was perhaps optimistic since it is not just housing numbers but types and locations of houses that determine the extent to which new constructions satisfies demand (and thus influences prices and affordability). The target was set against a background in which house building had been lower in each successive housing market boom since 1973 (when completions of new houses were some 350,000). As Table 1 below shows, actual construction has fallen far below the 240,000 target and with the downturn of 2009, starts in 2008-09 were at a lower level than at any time since the 1920s.

Given the pressures for NIMBYism the existing crisis in house construction and supply has now been seriously added to as LPAs reduce their aspirations and targets. According to research from planning consultants Tetlow King some 85,000 houses have been eliminated from plans just since May 2010, mainly in the high demand regions of the South West and East. The House Builders' Federation expect house building this year to fall below even last year's total (Inside Housing, 19 July 2010).

Table 1

2009 Q32009 Q4 Total in 2007-08Total in 2008-09
Starts25,82019,720 155,88090,430
Completions29,05031,010 166,990133,710
Net AdditionsN/AN/A 207,000166,570

II.  Are the incentives credible and sufficient?

The answer to these questions is that no one knows for certain. There simply is no evidence base against which to judge how large incentives would have to be to neutralise the pressures for NIMBYism outlined above. There is evidence from other contexts showing that incentives can have some impact on planning decisions. For example Cheshire and Hilber (2008) were able to estimate the reduction of office building/increase in office costs consequent on the introduction of the Uniform Business Rate (which eliminated all tax incentives to LPAs for allowing office development). In the US it has been shown that Impact Fees, payable to local communities, increase the willingness to allow development. No research has quantified the impact of payments to LPAs in Britain in the context of housing development so there is no evidence base on which to judge how large incentives would need to be set to ensure house building responded to market demand and household needs. My informed judgement, however, is that the level at which the New Homes Bonus has been set will be inadequate to offset the biases against housing development, especially in higher demand areas where additional housing is most needed and most opposed.

The expectation that the level of New Homes Bonus is too low to have a real impact on housing supply is re-inforced by the circumstances of its introduction. While the crisis in public finances and cuts in government spending might make LAs keener to find resources wherever they can, new housing development brings costs (to service additional citizens in ones area) and there is likely to be scepticism as to how rapidly and at what level New Homes Bonus will be paid.

III.  To Whom and at what Spatial Scale should Incentives be Set?

As was noted above one of the forces generating opposition to new development from existing inhabitants is the 'insider-outsider' problem. Costs of new development are significant for a relatively small number of households but are very local and so directly affect local voters; benefits in the form of more jobs during construction and slightly lower house prices/greater housing availability are small per person but affect large numbers of households (or would-be households) spread over a wide area. The beneficiaries are therefore largely disenfranchised or very weakly represented in the planning decision-making process. This bias has probably been made worse by the 60% brownfield target for reasons indicated below.

The problem is well illustrated in the recent case in Chalfont St Peter. This is a small suburban community of about 4,000 people in the Chiltern District of Buckinghamshire. The Chiltern District has about 90,000 inhabitants. The proposal that was agreed by the Chiltern Planning committee was in accordance with previous plans under the RSS process and involves the construction of some 200 houses on what is officially brownfield land—the grounds of a former convent. This has caused uproar in the local community. The problems of the planning system are concentrated in this case. The "brownfield" land in question was in fact of significant amenity value to the local residents who surround it. 200 new houses will significantly increase the size of the local community, disadvantaging residents in terms of congestion of local facilities and public services. Even if a New Homes Bonus were paid, the revenues—approximately £350,000 per year for six years if Council Tax on the new homes were the average for all houses in Chiltern District—would be paid not to those who bear the costs—the 4,000 local residents—but to Chiltern District. Thus it would not effectively compensate those who experience most of the costs of new development who would no doubt continue vigorously to oppose the plans.

This highlights not only the question of to whom/what body should the New Homes Bonus be paid if it is to be most effective but also the understandable motivation of NIMBYism. The residents experience a cost and also suffer a significant loss of amenity in the form of very pleasant open space which is in effect a park for Chalfont St Peter. This is not just a loss of amenity but also creates a significant financial loss. As has been rigorously demonstrated the value of local green space is capitalised into the price of houses. The price of existing houses in Chalfont St Peter will fall not so much because of the local increase in housing stock (there is huge pent up demand for houses in any suburban or ex-urban location in the London area) but because the value of local amenities will be damaged.

Furthermore research now demonstrates that the value to residents of open space falls rapidly with distance from their houses. Open space more than one kilometre from ones house has no impact on its value (reflecting the fact that there is no amenity value to people from open space they cannot easily access). This was the finding of Cheshire and Sheppard (1995) but has been further demonstrated since then in independent studies undertaken in Minneapolis-St Paul, Maryland and Baltimore. This means that most costs of development really are very localised. It also means that unless it is of particular environmental, habitat or scenic quality, Greenbelt land has low amenity value since it is mainly not easily accessible to many people. Ebenezer Howard, in his vision of a green city, was on to something when he showed a narrow green parkland belt, with public access, immediately surrounding his model city: the origins of our now very extensive Greenbelts which in total occupy one and a half times as much space as all urban areas combined.


The New Homes Bonus may help at the margin with housing supply but is unlikely to even offset for the abolition of regional and local targets set in the RSS process and will not begin to tackle the fundamental under supply of housing (and other categories of urban development).

There are three more radical and market/incentive oriented proposed solutions that have emerged:

I.  Use the price differentials that the restrictions on the supply of land for different uses in different locations have created as market signals which would be "material considerations" to trigger development permission where the environmental, social or amenity value of the land in its present use could not justify the observed premiums. This suggestion (see Cheshire and Sheppard, 2005) ultimately relies on the belief that there is an ample supply of land available for which no reasonable case could be made that its social, environmental or amenity values—even combined—exceeded the observed premium over its market price in its current use. This assumption as well as the suggested approach is in line with the logic and conclusions of the recent Land Use Futures report.

II.  The second suggestion is that LPAs should be allowed to auction off development rights to land they have identified for development;

III.  The third solution, associated with Tim Leunig, is that LPAs should make an open offer to buy land not presently identified in development plans at some price significantly above its market value in agriculture. They should then buy sufficient parcels of the land offered to them where they thought there were good planning arguments to allow development. LAs would then auction on the land to developers—presumably with outline planning permission—and retain the revenues realised.

Any of these suggestions would in my judgement be more likely to succeed than either the RSS targets or the New Homes Bonus. What is certain is that unless something as radical as these is adopted, then when the economy recovers in a few years time the housing market will take off in another even more explosive and destabilising boom which will render housing even more unaffordable than it has been for the past decade. Without radical action here is a real danger that the supply of new housing will all but dry up.


Anderson, S T and West S E (2006) Open space, residential property values, and spatial context, Regional Science and Urban Economics, 36, 773-89.

Barker, K (2003) Review of Housing Supply: Securing our Future Housing Needs: Interim Report—Analysis, London: HMSO.

Barker, K (2004) Review of Housing Supply: Final Report—Recommendations, London: HMSO.

Cheshire, P C (2009) Urban Containment, Housing Affordability and Price Stability—Irreconcilable Goals, SERC Policy Paper No 4, September.

Cheshire, P C and Sheppard, S (1995) On the Price of Land and the Value of Amenities, Economica, 62, 247-267.

Cheshire, P C and S Sheppard (2005) The Introduction of Price Signals into Land Use Planning Decision-making: a proposal, Urban Studies, 42, 647-63.

Cheshire, P C and C A L Hilber (2008) Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge, Economic Journal, 118, (June) F185-F221.

Hilber, C A L and W Vermeulen (2010) The effects of supply constraints on housing costs: Empirical evidence for England and assessment of policy implications, Final Report to National Housing and planning Advice Unit, August.

August 2010

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Prepared 31 March 2011