Assessing the impact of local planning on housing delivery and affordability

The investment decisions made by the construction sector have an obvious impact on the supply of housing. Furthermore, Local Planning Authorities play a fundamental role in shaping this supply via town planning and, in particular, by approving or rejecting planning applications submitted by developers. However, the role of these two factors, as well as their interaction, has so far been largely neglected in models of the housing market. Oxford Mathematicians Adrián Carro and Doyne Farmer, from the Institute for New Economic Thinking at the Oxford Martin School, have been working on a model that tries to capture this interaction. To this end, they have adapted a non-spatial agent-based model of the UK housing market previously developed in collaboration with the Bank of England in order to include all the necessary spatial aspects.

In particular, the new model includes different household types, a banking sector as a mortgage lender, a central government collecting taxes, a central bank setting mortgage regulation, a building sector providing new houses and a set of local governments approving or rejecting planning applications. Furthermore, it models both the sales and the rental market in detail, capturing the interactions between renters and buy-to-let investors. This is the first agent-based model of the housing market to explicitly include a dynamic, endogenous building sector endowed with its own behavioural rules, as well as a set of local governments influencing its activities.

Preliminary results suggest that the relationship between planning application approval rates and housing delivery is highly non-linear. In particular, the effect of a decrease in the approval rate in a certain Local Authority District is, to a certain extent, compensated by an increase in its local prices which encourages the building sector to file more planning applications there. Thus, the loss of housing stock due to a decrease in approval rates, while very significant, is found to be less important than the decrease itself. Finally, our results suggest that the increase in housing and rental prices due to a decrease in approval rates has strong social consequences, pushing a significant fraction of households towards social housing and strongly decreasing home ownership.