Housing Supply and House Prices

Evidence of the scale of price impact associated with planning-induced supply constraints is complex, with studies from both the USA and the UK suggesting that a relatively large relaxation of planning controls (designed to increase rates of housing development substantially) would be needed to appreciably impact on housing output, prices and affordability (Aura and Davidoff 2008; Ball 2010). This is due to two factors: firstly, to ensure development at the required quantity it is necessary to significantly over-allocate land, since not all available land will be taken up by developers (Bramley and Watkins 2014); and secondly, new supply makes only a small difference to the stock of housing in the short term because it is the balance between stock and household demand which is crucial in determining prices (Meen 2011). Bramley (2013) reviews UK attempts to model the housing market effects of planning and finds a range of values. For example, using the DCLG/Reading ‘Affordability Model’ (Meen 2011) shows that the proportional reduction in price is around 10-20 % of the magnitude of the increase in housing supply. Some other models give somewhat higher estimates, including the author’s subregional housing market model for England whereby a sustained increase in supply of around 20 % leads to a proportional improvement in ‘affordability’ (for aspiring first home buyers) of about 4-5 % (Bramley 2013, 2016, Table 2; Bramley and Watkins 2016).

A moderate reduction in house price may make for a sizeable improvement in affordability, in a region where a lot of households are clustered around the relevant level of income. However, the ‘political economy’ of this policy still looks relatively unattractive in terms of the large, widely spread extra housing to be planned to achieve modest longer- term gains.

 
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