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Surrey living: house prices in the South East have been affected by planning curbs

Millennials complaining they are priced out of the London and south-east housing markets should turn their ire on local planning officials, according to research that has quantified the effect of curbs on development for the first time.

The research, published in the Royal Economic Society’s Economic Journal, found that house prices in the south-east would have been roughly 25 per cent lower in 2008 if officials had been as willing to grant planning permission as those in the north east.

By 2015, the research suggests house prices would be about 30 per cent lower, reducing the average price of property in the south-east from £266,600 to £186,600 because of an increase in the supply of properties built.

The researchers, Christian Hilber from the London School of Economics and Wouter Vermeulen from the Netherlands Bureau for Economic Policy Analysis, said the new aspect of their work was to examine carefully the cause of differential house price growth across England and Wales.

Using data for each local planning authority stretching back to 1974 — including earnings growth, the proportion of developments refused planning permission, population density and differences in how hilly parts of Britain are — they found that authorities in the south-east refused many more developments than in other parts of the country.

Using sophisticated statistical techniques to ensure that the effects demonstrated the cause of different house price movements rather than just a correlation, the paper argued that planning rules were particularly important in driving up house prices in the south-east outside London.

In the capital, a lack of physical space alongside high demand for housing was more important in raising prices.

Prof Hilber said “the obvious losers are young households” from planning restrictions such as the designated “green belt” around London, which was introduced in the 1947 Town and Country Planning Act.

The differences across Britain in local areas’ ability to meet demand for housing with new supply was stark. “In England, housing is being built where there are the fewest disincentives to permit development rather than where demand is greatest. This, over time, created a serious affordability crisis in the most desirable places of the country,” he added.

David Cameron pledged to protect the green belt in the 2015 Conservative manifesto but is seeking to introduce more minor reforms to planning to enable a sharp increase in residential building from the lows after the financial crisis.

In 2014-15, builders started to construct 166,900 homes, up on the previous two years but well down on the 200,000 plus figure before the crisis and norms of more than 300,000 before the mid 1970s.

Prof Hilber said that even with looser planning requirements, prices would still go up and down across the country in mini booms and busts, often related to interest rates, but the divergence of prices would be lower.

He added that older people who have enjoyed high house prices often stemming from the nimby (“not in my back yard”) attitudes of local authorities still were not ultimately beneficiaries of restrictive planning guidelines.

“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,” he said.