None of this should be interpreted as an argument against planning, regulation or government involvement in housing. Housing is too important to be left entirely to the market, just as it is too complex for the state to deliver on its own. The difficulty, as I increasingly see it, is that we have become uncomfortable with the trade-offs that housing delivery inevitably requires.
Governments understandably want more affordable housing, better design, higher environmental standards, safer buildings and stronger communities. Local authorities want to protect existing places while also meeting housing need. Residents want development to improve their neighbourhoods rather than diminish them. Developers need schemes that can attract capital and generate a return that justifies the risks involved. None of those objectives are unreasonable, but they do not always pull in the same direction.
One of the problems with the current debate is that we often respond to housing shortages by asking development to deliver more obligations while simultaneously making it harder to build. The result is that we end up distributing a smaller and smaller pie. Additional taxes, additional requirements and additional obligations may each be understandable in isolation, but collectively they can create what I have previously described as a poverty ratchet. The system becomes increasingly focused on redistributing scarcity rather than increasing supply.
Affordable housing perhaps illustrates this more clearly than anything else. The aspiration to deliver more affordable homes is entirely understandable, but the economics that once supported substantial cross-subsidy have become much more difficult. Construction costs have increased, borrowing costs are higher and many schemes simply no longer generate the levels of surplus that existed previously. In some circumstances, insisting upon levels of affordable housing that cannot be supported simply results in no homes being delivered at all.
This is one reason I increasingly think that government should focus more heavily on creating the conditions that allow housing to happen. The public sector can establish clear rules, invest in infrastructure, support place-making and provide certainty. It can shape development and ensure that growth delivers wider public benefits. What it struggles to do is absorb all of the complexity, risk and capital that development requires.
Development is inherently uncertain. Projects fail, costs move, markets change and assumptions prove wrong. Private capital exists precisely because it is willing to absorb some of those risks in exchange for the possibility of reward. That does not mean that the market should operate without rules, but it does mean that regulation needs to recognise economic reality.
I think we need clearer rules, greater certainty and a more proportionate planning system. Smaller schemes probably require a different approach to social obligations than major urban extensions. More rules-based approaches could provide greater certainty than endless negotiation. Planning should shape outcomes, but it should also recognise that viability is not an inconvenience to be overcome. It is the mechanism that determines whether homes are delivered at all.
One of the difficulties with the current system is that we sometimes appear to regulate in pursuit of eliminating all possibility of failure. Yet housing markets, like all markets, involve uncertainty. Some schemes will fail. Some assumptions will prove wrong. Some developers will make mistakes. If we attempt to regulate every risk out of existence, we eventually create a system that becomes so burdensome that fewer people are willing to participate.
Despite all of this, I remain optimistic. Part of that optimism comes from the fact that it has become increasingly difficult to deny that the current approach is struggling. Housing output has slowed, viability has deteriorated and many of the assumptions that shaped policy over the past decade are now being tested by economic reality.
That does not mean the right answers will appear immediately. There may be further wrong turns, additional regulation and more attempts to solve housing shortages without addressing the underlying problem. But I increasingly think the direction of travel will eventually change because the evidence has become too difficult to ignore.
That, ultimately, is why I continue to write about viability. It may not always be the most politically attractive subject and it is rarely the simplest to explain, but it increasingly feels like the place where many of our housing debates eventually arrive. If we want to understand why fewer homes are being built, why smaller developers are disappearing and why affordability remains so difficult to improve, we have to start with the conditions that make development possible. Viability is not the whole housing story, but it is very often the point at which the rest of the story either succeeds or falls apart.
Read the series
Part 1: We Talk About Housing, But Rarely About Viability
Part 2: We Have Rationed The System To Death
Part 3: The Conflation Of Terrible Things
Part 4: Why Smaller Builders Matter
Part 5: Building A Better System
