House prices: Affordability crisis caused by 'extraordinarily rigid' planning laws in England

House prices in the south-east of England would be 30% lower today if local planning laws were as lax as in the north-east of the country, according to one finding in new research published by the Royal Economic Society. The study by professors Christian Hilber and Wouter Vermeulen, called The Impact of Supply Constraints on House Prices in England, is in the society's Economic Journal for March 2016.

The pair looked at why house price growth has been so rapid in some parts of England over the past few years, particularly in London and the south-east. In 2000, the average dwelling price in England was £107,000, according to the Office for National Statistics (ONS). By the end of 2015 it had reached £301,000, growth of 181%. Over the same period, average weekly earnings in England, excluding bonuses, rose just 57% to £467.

Central to house price growth is an ongoing lack of housing supply. Housebuilding is running at around half the level needed to meet demand. Three main causes were identified in the research. The first is a planning system the researchers called "extraordinarily rigid by world standards" because of its tough restrictions, such as building height and green belt protections. These are issues in London especially, which is surrounded by a vast area with ultra-strict green belt protections and where the height of developments within the city is often curbed by local planners.

The second is a lack of available land in areas where people want to live, such as urban centres where there are decent employment and lifestyle opportunities, which drives up prices and the cost of building. And a third more minor constriction is too many steep slopes, which make it hard to build lots of homes.

"In England, housing is being built where there are the fewest disincentives to permit development rather than where demand is greatest," said Hilber. "This, over time, created a serious affordability crisis in the most desirable places of the country... The obvious losers are young households.

"But although existing homeowners seemingly benefit from higher asset prices, most of them are also adversely affected. This is because they cannot realise the 'gains' unless they downsize their housing consumption, give up owner-occupation and rent or sell their house to move abroad. In the interim, they too have to live in increasingly cramped spaces."