Getting housing supply through the zone?

September 23, 2022

From a housing perspective, there was not much to savour in Kwasi Kwarteng’s inaugural mini-budget this morning. But there were two key announcements that give a flavour of housing policy direction for the remainder of the life of this Parliament. The first was the cut to stamp duty: its threshold will be raised from £125,000 to £250,000 and it will no longer be levied on first time buyers purchasing properties up to the value of £425,000, up from £300,000.

Stamp duty is one of the most unpopular of all taxes and few homebuyers will lament its curtailment. Its efficacy at constricting demand is well established and its sixteen-month suspension during the Covid pandemic was specifically designed to stimulate the housing market at a time of potential standstill. While this new, permanent cut will inevitably hit the tax receipts of the Exchequer, (it has raised £14.1bn for the Treasury this year alone) it should help go some way towards filling the affordability gap for first-time buyers left with no further access to the soon-to-be withdrawn Help To Buy scheme.

The more interesting housing announcement concerned the government’s new Investment Zones initiative. Investment Zones are areas where planning restrictions and tax and business levies are loosened significantly in order to spark regeneration and development. Local or combined authorities will bid for Investment Zone status and the government is already in talks with 38 locations across England.

While the proposals are clearly in their infancy and the sizes of the zones have not yet been set, it is believed that “outcome rather than scale” is the government’s chief ambition and that their primary benefits will be to render developments more “enticing” to the private sector and ensure that those developments can be expedited in a speedier and more “streamlined” manner.

The principle of Investment Zones is not in itself new and they clearly tread the same path of Thatcherite deregulation forged by the Enterprise Zones of the 1980s. These were responsible for totemic regeneration projects such as those that transformed derelict London Docklands into today’s Canary Wharf and this is clearly the trailblazing economic and urban heritage the government is seeking to reclaim. In fact, 24 Enterprise Zones already exist across England and cynics might be hard-pressed to spot substantial differences between them and the Investment Zones the government is now proposing. (Although it must be stressed that current plans have not yet been fully fleshed out).

However, the legacy of Docklands proves that whatever we call them, the principle of localised public deregulation to incentivise massive private investment is not only an eminently viable one but can be responsible for massive economic regeneration and urban improvement. While, uncomfortably, it also forms a tacit admission that the existing planning system as currently set up is not universally conducive to growth, it does embody the kind of nimble, localised, case-by-case development approach that must form a significant part of the solution to the housing crisis.

However, Investment Zones do not come without their political risks. They represent something of an ideological lurch towards the zonal planning systems traditionally adopted in North America and which were dropped from the last Government’s Planning Bill after the reversal suffered in the Chesham & Amersham by-election. If Investment Zones suggest that government housing policy is indeed going to discreetly gravitate towards a more regulatory zoning approach than a happy combination of US-style Zoning and UK empirical planning, housing policy will still need to be devised to deliver the planning predictability that US Zones are said to confer whilst avoiding the less disruptive elements of the planning flexibility UK stakeholders have come to expect.

Additionally, it’s one thing suspending statutory norms on abandoned docks, quite another to do so in already populated residential districts. While the Investment Zone approach will clearly not be appropriate everywhere and will be only be sought voluntarily by interested local councils, care must be taken to ensure that a strategy historically optimised for a commercial context can also be sensitively applied to a residential one.

In order to secure this sensitivity and ensure that Investment Zones can be effective in addressing the housing crisis, three measures must be taken. First, the dilution of planning regulations must not under any circumstances be taken as a license to dilute design quality. There is no point building quickly if we do not build beautifully and compensatory quality assurance measures, perhaps the use of design codes, must be in place to ensure that Investment Zones enhance local environments as well as expand them.

The second point may help realise and reinforce the first. There must also be a mechanism that ensures that Investment Zone status is also conferred with public consent. This may require local authorities being more explicit about what they propose at bid stage. But it is essential that this is not seen as another centralised housing mandate imposed on the public rather than developed in tandem with their interests.

And finally, sufficient infrastructure must be in place to attract the private investment sought. The lesson of Canary Wharf, where the government financed construction of the Docklands Light Railway well before the first commercial skyscraper was built, remains as pertinent today as it did in the 1980s. While the private sector will clearly take the lead in realising Investment Zone development, the public sector must do what it needs to provide the framework to allow that development to proceed with more certainty than risk.

While stamp duty is a demand-side intervention, Investment Zones are an attempt to increase supply. But they are not in themselves sufficient and if the housing crisis is to be solved, then a ruthless focus on further initiatives to increase supply will be required.

Ike Ijeh, Head of Housing, Architecture & Urban Space at Policy Exchange.



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