Originally published on Henry George Foundation on November 11, 2026. Republished on Progress.org with permission.
The value of residential property accounts for around 40% of household wealth and well over 50% of total UK net worth. Although house prices have now fallen in some areas of the country from their peak in 2022 (particularly in central London), they remain extremely high by historical standards. Residential rents, which exploded between 1980 and the global financial crisis, are a crushing burden on private renters, who have been spending over 30% of their incomes on housing costs since the GFC (and well over 40% in London). Astronomical housing costs, substandard accommodation, and rising levels of homelessness and acute housing instability are a blight on the lives of millions of people across the country.
Possible explanations for the housing affordability crisis include both ‘supply-side’ factors (which constrain new development) and ‘demand-side’ factors (which increase the amount people are prepared to pay for residential and commercial property). Are the policy experts and politicians right to conclude that the main reason for high prices is inadequate provision of new homes relative to rising demand? Or are their critics right to argue that the main drivers of the affordability problem have less to do with the total supply of housing and more to do with the unequal distribution of housing units across the population and the effects of low real interest rates?
These questions are far too complex for a single Empirical Insights article, so this post will address a simpler question: Assuming that supply-side factors are indeed important drivers of the housing affordability crisis, how much explanatory power can reasonably be attributed to problems created by the planning system? This question seems apposite given the breadth of the consensus among policy experts and politicians that the planning system is overly bureaucratic and restrictive, and given the proliferation of calls for reforms that would permit development on land that is currently protected by the green-belt.
The claim that the current planning system is the root cause of the UK’s housing affordability problem does seem, on the face of it, to be highly plausible: The UK’s discretionary system is more restrictive than the rules-based systems of comparable European countries; and the UK does have a significantly smaller stock of housing than comparable European countries. While the decline in housebuilding is often attributed to the introduction in 1980 of the ‘Right-to-Buy’ policy that enabled the occupiers of council houses to purchase their houses at discounted rates, a longer-term perspective pinpoints 1947, when the Town and Country Planning Act was passed, as the true origin of the current crisis. The post-war planning system has clearly constrained the supply of housing, moving Britain from a system where almost any development was permitted anywhere, to one where development is more likely to be prohibited than permitted.
Source: Watling and Breach (2023), The Housebuilding Crisis, Centre For Cities
Plausible though this story may sound, it does not explain the UK’s poor housebuilding performance relative to comparable European countries. Even if the problem of excessively high house prices is at least partly attributable to insufficient construction, it is difficult to see how this problem of supply can plausibly be explained solely by the ‘red tape’ of the planning system, which was reformed in 2012 with the introduction of the National Planning Policy Framework and the presumption in favour of ‘sustainable development’. Analysis from the Local Government Association in 2020 revealed that in the decade from 2010 to 2020, more than 1 million building plots with planning permission (around 40% of total permissions granted) remained undeveloped. Despite the number of permissions granted for new homes almost doubling between 2013 and 2020, with councils approving 9 out of 10 applications, the housing shortage was worse in 2020 than it had been a decade earlier.
A report published in 2024 by TerraQuest, the operator of Planning Portal, which processes 90 per cent of all planning applications submitted in England and Wales, found that roughly one in three planning permissions remained undeveloped between 2015 and 2024. If all homes granted planning permission during this time had been built, the government would have hit its 300,000 new homes a year target for eight out of the 10 years prior to 2024. TerraQuest’s most recent report confirms that the situation has not improved since 2024, with completion figures at their lowest level since 2014 and housing starts remaining broadly flat year on year.
If chronically low construction rates are not attributable to the ‘red tape’ of the planning system, then what could be the explanation? A clue to the mystery can be found in the accounts and recent financial performance of the companies that dominate the UK property development sector. Between 2014 and 2021 the three largest housebuilders by volume (Taylor Wimpey, Barratt and Persimmon) consistently reported supernormal levels of profitability, with gross profit margins reaching 32% and never falling below 17%.
One might wonder whether companies with such healthy operating margins were reinvesting heavily in their businesses during this time, in an effort to improve innovation and productivity in the construction sector. They were not. What they were doing was rewarding their shareholders – extremely handsomely! While the number of homes built by the UK’s largest housebuilders increased from 66,902 in 2005 to 82,288 in 2022 (an increase of 23%), dividend payments to shareholders of these companies were 260% higher in 2022 than before the financial crisis, even after adjusting for inflation, constituting a whopping 47% of profit before tax, compared to just 16% in 2005. Aggregate profit before tax for these companies of £49.1bn between 2005-2022 helped provide aggregate returns of £16.4bn in dividends to shareholders over this period.
Source: Foye and Shepherd (2023), Why have the volume housebuilders been so profitable?, UK Collaborative Centre For Housing Evidence
The disparity between the profitability and the productivity of the volume housebuilders suggests that the problem of insufficient construction has less to do with the discretionary nature of the UK planning system and more to do with other aspects of the planning system – specifically, those that allow large property developers to behave as land investment businesses that develop banks of ‘strategic land’, dominating the market for residential land and ‘drip-feeding’ the market with just enough new housing to maximise their own profitability. These companies maximise profit margins by acquiring significant amounts of land without planning permission (or with only outline permission), and then gaining full planning permission before the houses are built by contractor construction firms. The huge uplift in value that occurs when full planning permission is granted is then built into the selling price of the new housing, and it is from this planning gain that the housebuilders derive their super-profits.
The nature of this speculative land investment business model, with the laser-like focus on margin over volume that it entails, is entirely consistent with statements made by some of the people with the best knowledge of the companies in question – their CEOs at the time when profitability was high and rising:
“I want to re-emphasize this, our focus is on growing those margins, so we’re not out for volume for volume’s sake. And I think if you follow Persimmon, it’s not our sales that we focus on, it is those margins that we are focusing on. So that is a clear direction of the business and we will continue that trend.” (Mike Farley, Chief Executive, Persimmon, 5 July 2011)
“We said that we weren’t just a house builder, we were a land portfolio company, that our main driving goal, our main way of adding value, was adding value to the landbank, taking it through the planning process. We still believe that today.” (Pete Redfern, Chief Executive, Taylor-Wimpey, 17 May 2016)
None of this is to say that the discretionary nature of the UK planning system is not part of the explanation for slow build-out rates and insufficient construction. The market and structural power enjoyed by the large developers perhaps derives, at least to a certain extent, from the lack of certainty and predictability of the planning application process, which is inherently risky and costly to navigate. But the experience of comparable European countries suggests that construction rates are more likely to depend on the following two key variables:
1. The proportion of the planning gain that flows to the developer as opposed to being captured by local authorities; and
2. The prominence of the role of the state in land assembly and acquisition.
As the continued slow build-out rates following the introduction of the National Planning Policy Framework demonstrate, planning policy reform that that does not address either of these factors will fail to solve the UK’s housing problem.