## sipea2024031

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---

### Abstract and Key Conclusions
- The UK construction planning system is described as overly stringent, localized, and discretionary, making it highly unpredictable.
- Effects identified:
  - Hinders new construction (both residential and commercial) and infrastructure projects.
  - Restricts labor mobility as "workers stay trapped in suboptimal jobs due to unaffordable housing in areas with better prospects."
  - Raises investment costs for businesses, which "often endure long and uncertain wait times or are forced to relocate to suboptimal locations."
- Recommended focus for reform:
  - Broader geographic and rules-based decision-making for business and large residential developments to reduce investor uncertainty.
  - Digitalized and standardized local plans that are binding for designated growth areas.
  - Careful review of scope to release Green Belt land of little environmental or amenity value near stations with easy access to major cities.
  - Targeted incentives to overcome resistance to new builds and additional resources to local authorities, including skilled staff to facilitate compliance with new environmental requirements.
- Administrative context:
  - The paper was completed on June 14, 2024 and is SIP/2024/031. It is also published as IMF Country Report No 24/204.

### A. Locating the UK’s Construction Planning Regime in an International Context — Structure and Problems
- Analytical dimensions for construction planning systems:
  - Rule-based versus discretionary.
  - Local versus national formulation and control.
- Characterization of UK and similar countries:
  - UK, Canada, US, and Ireland: markedly discretionary and predominantly administered at the local level with significant freedom and autonomy at the lowest tier of government.
  - National policies offer guidance, but development permissions are decided locally, producing a fragmented system vulnerable to vested local interests, lobbying, and "not in my backyard" (NIMBY) problems.
  - Local decision-making often emphasizes short-term local issues (e.g., overcrowding, local services) over wider regional and national growth benefits and externalities.
- Characterization of selected European peers:
  - Germany, France, and the Netherlands: more rule-based approach; regulations dictate land use down to parcel level or a structured framework where permissions are often granted automatically upon adherence to prescribed plans and regulations. Decision-making authority tends to be centralized at the national or regional level.
- Literature evidence on consequences of local discretionary planning:
  - Flexible, rule-based planning can mitigate housing price volatility and increase supply responsiveness (Hilber and Vermeulen, 2016).
  - Local land use regulations can exacerbate housing affordability challenges, inflating prices especially for low-income groups (Erdmann et al., 2019).
  - Countries with stringent land use regulations (UK, Australia, Canada, New Zealand) have constrained urban housing supplies, driving up costs and impeding geographical mobility relative to France, Germany, and Italy.
  - A rule-based approach with targeted local flexibility can increase housing supply elasticity and lower prices (Shepherd, 1988; Shepherd and Mayo, 2001); may reduce segregation and spatial inequality (Stutts, 2021; Rothwell and Massey, 2015).
- Empirical and quantitative findings (preserved):
  - Planning permissions can increase development costs by up to 10 percent.
  - Since 1945, almost 4.3 million fewer houses (close to a fifth of the housing stock) were built due to planning restrictions (Watling & Breach, 2023).
  - Hilber & Vermeulen (2016) estimate that in the absence of regulatory constraints, prices would have been 35 percent lower in the 2000s than they actually were.
  - Only about one percent of the population engages with the local planning process (estimate of actual public participation).
  - Around 60 percent of local authorities in England do not have an up to date plan.
  - In the 1950s, 70 percent of UK residents owned a house by age 34; that figure has fallen to less than 34 percent today.
  - The discretionary planning approach has contributed to persistent disparities between high-growth and low-growth regions, lower geographical mobility, and increased worker commute times.
  - The issue disproportionately affects younger people and raises intergenerational equity concerns.

### B. Effects on Business Investment, Land Use, and Specific Sectors
- Aggregate and sectoral impacts:
  - Depressed rate of UK business investment (as a share of GDP) relative to the 2000s; loss of investment to peers with less stringent planning regimes.
  - High-growth sectors particularly affected: data centers and life sciences.
  - The UK lags peers in data center development; some life sciences firms prefer locations such as Boston over UK hubs (Oxford, Cambridge).
  - Construction accounts for about half of business investment.
- Market and land-use outcomes:
  - Developments can be refused even if investors meet the specification of a local plan, or forced to relocate to suboptimal locations.
  - The UK has seen no increase in the amount of built-up land per capita since 1990, in contrast to other G7 economies.
  - Cheshire, Hilber and Kaplanis (2015) estimate the "Town Centre First" policy caused a 32 percent loss of output to new supermarkets.
  - National Infrastructure Commission (NIC) estimate: easing planning and delivery constraints in the "Milton Keynes-Cambridge arc" could double its contribution to UK growth by 2050 and triple the creation of new local jobs.
- Constraints on net zero infrastructure:
  - Planning restrictions create barriers for net zero infrastructure investment, including new onshore wind farms, solar farms and grid connections (Powering Up Britain: The Net Zero Growth Plan, March 2023; National Grid, Investing in the future, May 2023).

### C. International and UK Experience with Reforms — Examples and Lessons
- Objectives emphasized: community involvement, local leadership, collaboration between residents, developers, and local authorities; transparent assessments; infrastructure support; stable investment frameworks; dedicated funding for affordable housing.
- International examples:
  - Israel:
    - Programs (Tama 38; Pinui-Binui) involve residents and developers collaborating on upgrades, seismic retrofitting, and redevelopment.
    - Developers gain permission to add floors or units in exchange for resident benefits; projects require majority consent from residents.
    - Community engagement is central to addressing resident concerns and fitting projects to neighborhood character.
  - United States (Houston, Texas):
    - Regulations empowered landowners to densify properties, producing a surge in housing construction.
    - Outcome: house prices significantly lower than in cities with restrictive planning systems.
    - The approach emphasizes "gentle density"—modest densification while preserving local character.
  - Auckland, New Zealand (2016 reform):
    - Upzoned approximately three quarters of residential land, creating three residential zones allowing higher densities (5–7 story dwellings in most intensive zones; three-story in next; two-story in least intensive with greater site coverage).
    - Resulted in a construction boom that helped prevent significant rises in housing prices and rents in the region.
    - Greenaway-McGrevy and Phillips (2023) found upzoning prompted additional construction in Auckland, resulting in more than a four-fold increase in the trend rate of construction compared to areas without upzoning.
- UK local example:
  - Croydon, London (2018 planning guidance):
    - Allowed homeowners to convert single-family homes into apartments.
    - Policy significantly boosted supply and affordability relative to the rest of London.
    - Swift repeal after a contentious election highlights political risk and the need for better ex-ante communication to explain reform benefits to local communities.
- Political economy observation:
  - Ambitious reforms face political opposition; better communication and community engagement are necessary to sustain reforms.

### Section 2 — Context, Diagnosis, and Core Problems
- Context and diagnosis:
  - The Croydon suburban design guide supplementary planning document (SPD2) was adopted in April 2019 and revoked in June 2022.
  - Recent UK national planning policy has seen intermittent reforms, but momentum has been disrupted by shifts in priorities, political hurdles, and community opposition, producing a stop-start dynamic that widens the gap between policy intent and practical outcomes.
  - Local authorities face added burdens from compliance with new environmental and safety requirements and often lack skilled staff—both due to limited funds and availability of professional experts (such as ecologists) in the UK labor market.
  - The report highlights anemic investment and declining labor productivity, particularly total factor productivity, reinforcing the need for bold planning reforms now while fiscal costs of doing so remain relatively lower.
- Core problems identified:
  - Complexity, delays, high costs, and unpredictability in the planning system undermine housing supply responsiveness and investment certainty.
  - Political resistance at local levels (NIMBYism) and bureaucratic inertia contribute to rejection of compliant proposals, delays, and reduced developer confidence.
  - Existing reforms have been scaled back or delayed after public and political backlash, reducing scope to address housing affordability and availability effectively.

### Proposed Systemic Reforms and Politically Feasible Measures
- Reform objectives:
  - Reduce discretion in granting permissions, ensure certainty, and better align housing supply with demand.
  - Streamline planning processes via regulatory simplification to expedite development, reduce costs, promote work mobility, and stimulate investment.
  - Focus reforms on attracting investment, expanding the stock of better-quality affordable housing, and facilitating the green transition.
- Politically feasible, tangible reforms highlighted:
  - Broaden geographical and rules-based decision-making:
    - Use broader geographic coverage and rules-based decision-making for business and large residential developments to reduce investor uncertainty.
    - Implement a stricter framework for proposal evaluation backed by up-to-date and binding local plans, making it more difficult for local councils to reject compliant proposals within designated growth areas.
  - Digitalization and standardization:
    - Apply digital tools to streamline and standardize planning processes, enable data-driven decisions, optimize resource allocation, and provide real-time monitoring and evaluation.
    - Use online public engagement platforms to foster transparency, inclusivity, and legitimacy of planning decisions.
  - Targeted release of Green Belt land:
    - Release Green Belt land with minimal environmental or amenity value for developments near transit stations with convenient access to major cities to address housing shortages in high-demand areas while avoiding negative social or environmental impacts.
    - Use charges on development of released land to generate funds for rail services, social housing, infrastructure, and local community services.
    - Establish Green Development Corporations (GDCs) for each city region to coordinate development, with planning authority and revenue allocation control from proposed development charges.
    - Introduce objection thresholds, incentives for compliant projects, and penalties for delays to minimize opposition and expedite decision-making.
  - Invest in local authorities and align incentives:
    - Provide financial grants, technical assistance, and capacity-building programs; link funding to planning performance and sustainable development goal achievement.
    - Allow local authorities to retain more revenues generated by new developments to increase local support for development.

### Tax and Fiscal Measures
- Strategic tax policies can drive efficiency and mobility:
  - Lowering Stamp Duty for both residential and non-residential properties is proposed; Stamp Duty is generally associated with lower residential transactions, so reducing or removing it could improve property allocation and limit moving costs.
  - Reforming council tax (with at least revenue neutrality) could affect owner-occupied residential properties, potentially altering homeowners' disposable income and spending behavior, thus affecting local businesses and labor mobility.
  - These reforms aim to spur investment, workforce mobility, and reduce barriers for high-growth firms.

### Political Economy and Limits of Past Reform Attempts
- Box summary: The 2020 "Planning for the Future" White Paper proposed a shift to a rules-based system classifying land into growth, renewal, and protected areas; digitization; replacing Section 106 with an infrastructure levy; and other measures aimed at shortening the planning process to 30 months and mandating new homes to be "zero carbon ready".
- Heavy criticism during consultations led to delays and substantial scaling back. Not all proposals were legislated; zoning reforms were revised, and the consolidated Infrastructure Levy was weakened and reevaluated.
- Concerns that reforms would worsen the housing crisis, reduce affordable housing availability, or be overly prescriptive led to compromises that limited the reforms’ ability to address affordability and availability.

### Summary — Recommended Pragmatic Sequencing
- Given political realities, prioritize a focused package of reforms:
  - (i) Broader geographic and rules-based decision-making.
  - (ii) Digitalization and standardization, with local plans binding for designated growth areas.
  - (iii) Careful release of Green Belt land near commuter stations that is not of significant environmental or amenity value.
  - (iv) Targeted incentives and resources to local authorities, including fiscal incentives and tax reforms.

*Prepared by Agnese Carella, Pragyan Deb, and Nihal Haider; SIP/2024/031 (completed June 14, 2024).*

### Section 1

### Construction Planning Reforms for Growth and Investment

### Abstract and Key Conclusions
- The UK construction planning system is described as overly stringent, localized, and discretionary, making it highly unpredictable.
- Effects identified:
  - Hinders new construction (both residential and commercial) and infrastructure projects.
  - Restricts labor mobility as "workers stay trapped in suboptimal jobs due to unaffordable housing in areas with better prospects."
  - Raises investment costs for businesses, which "often endure long and uncertain wait times or are forced to relocate to suboptimal locations."
- Recommended focus for reform:
  - Broader geographic and rules-based decision-making for business and large residential developments to reduce investor uncertainty.
  - Digitalized and standardized local plans that are binding for designated growth areas.
  - Careful review of scope to release Green Belt land of little environmental or amenity value near stations with easy access to major cities.
  - Targeted incentives to overcome resistance to new builds and additional resources to local authorities, including skilled staff to facilitate compliance with new environmental requirements.
- Administrative context:
  - The paper was completed on June 14, 2024 and is SIP/2024/031. It is also published as IMF Country Report No 24/204.

### A. Locating the UK’s Construction Planning Regime in an International Context — Structure and Problems
- Analytical dimensions for construction planning systems:
  - Rule-based versus discretionary.
  - Local versus national formulation and control.
- Characterization of UK and similar countries:
  - UK, Canada, US, and Ireland: markedly discretionary and predominantly administered at the local level with significant freedom and autonomy at the lowest tier of government.
  - National policies offer guidance, but development permissions are decided locally, producing a fragmented system vulnerable to vested local interests, lobbying, and "not in my backyard" (NIMBY) problems.
  - Local decision-making often emphasizes short-term local issues (e.g., overcrowding, local services) over wider regional and national growth benefits and externalities.
- Characterization of selected European peers:
  - Germany, France, and the Netherlands: more rule-based approach; regulations dictate land use down to parcel level or a structured framework where permissions are often granted automatically upon adherence to prescribed plans and regulations. Decision-making authority tends to be centralized at the national or regional level.
- Literature evidence on consequences of local discretionary planning:
  - Flexible, rule-based planning can mitigate housing price volatility and increase supply responsiveness (Hilber and Vermeulen, 2016).
  - Local land use regulations can exacerbate housing affordability challenges, inflating prices especially for low-income groups (Erdmann et al., 2019).
  - Countries with stringent land use regulations (UK, Australia, Canada, New Zealand) have constrained urban housing supplies, driving up costs and impeding geographical mobility relative to France, Germany, and Italy.
  - A rule-based approach with targeted local flexibility can increase housing supply elasticity and lower prices (Shepherd, 1988; Shepherd and Mayo, 2001); may reduce segregation and spatial inequality (Stutts, 2021; Rothwell and Massey, 2015).
- Empirical and quantitative findings preserved from the source:
  - Planning permissions can increase development costs by up to 10 percent.
  - Since 1945, almost 4.3 million fewer houses (close to a fifth of the housing stock) were built due to planning restrictions (Watling & Breach, 2023).
  - Hilber & Vermeulen (2016) estimate that in the absence of regulatory constraints, prices would have been 35 percent lower in the 2000s than they actually were.
  - Only about one percent of the population engages with the local planning process (estimate of actual public participation).
  - Around 60 percent of local authorities in England do not have an up to date plan.
  - In the 1950s, 70 percent of UK residents owned a house by age 34; that figure has fallen to less than 34 percent today.
  - The discretionary planning approach has contributed to persistent disparities between high-growth and low-growth regions, lower geographical mobility, and increased worker commute times.
  - The issue disproportionately affects younger people and raises intergenerational equity concerns.

### B. Effects on Business Investment, Land Use, and Specific Sectors
- Aggregate and sectoral impacts:
  - Depressed rate of UK business investment (as a share of GDP) relative to the 2000s; loss of investment to peers with less stringent planning regimes.
  - High-growth sectors particularly affected: data centers and life sciences.
  - The UK lags peers in data center development; some life sciences firms prefer locations such as Boston over UK hubs (Oxford, Cambridge).
  - Construction accounts for about half of business investment.
- Market and land-use outcomes:
  - Developments can be refused even if investors meet the specification of a local plan, or forced to relocate to suboptimal locations.
  - The UK has seen no increase in the amount of built-up land per capita since 1990, in contrast to other G7 economies.
  - Cheshire, Hilber and Kaplanis (2015) estimate the "Town Centre First" policy caused a 32 percent loss of output to new supermarkets.
  - National Infrastructure Commission (NIC) estimate: easing planning and delivery constraints in the "Milton Keynes-Cambridge arc" could double its contribution to UK growth by 2050 and triple the creation of new local jobs.
- Constraints on net zero infrastructure:
  - Planning restrictions create barriers for net zero infrastructure investment, including new onshore wind farms, solar farms and grid connections (Powering Up Britain: The Net Zero Growth Plan, March 2023; National Grid, Investing in the future, May 2023).

### C. International and UK Experience with Reforms — Examples and Lessons
- Objectives emphasized: community involvement, local leadership, collaboration between residents, developers, and local authorities; transparent assessments; infrastructure support; stable investment frameworks; dedicated funding for affordable housing.
- International examples:
  - Israel:
    - Programs (Tama 38; Pinui-Binui) involve residents and developers collaborating on upgrades, seismic retrofitting, and redevelopment.
    - Developers gain permission to add floors or units in exchange for resident benefits; projects require majority consent from residents.
    - Community engagement is central to addressing resident concerns and fitting projects to neighborhood character.
  - United States (Houston, Texas):
    - Regulations empowered landowners to densify properties, producing a surge in housing construction.
    - Outcome: house prices significantly lower than in cities with restrictive planning systems.
    - The approach emphasizes "gentle density"—modest densification while preserving local character.
  - Auckland, New Zealand (2016 reform):
    - Upzoned approximately three quarters of residential land, creating three residential zones allowing higher densities (5–7 story dwellings in most intensive zones; three-story in next; two-story in least intensive with greater site coverage).
    - Resulted in a construction boom that helped prevent significant rises in housing prices and rents in the region.
    - Greenaway-McGrevy and Phillips (2023) found upzoning prompted additional construction in Auckland, resulting in more than a four-fold increase in the trend rate of construction compared to areas without upzoning.
- UK local example:
  - Croydon, London (2018 planning guidance):
    - Allowed homeowners to convert single-family homes into apartments.
    - Policy significantly boosted supply and affordability relative to the rest of London.
    - Swift repeal after a contentious election highlights political risk and the need for better ex-ante communication to explain reform benefits to local communities.
- Political economy observation:
  - Ambitious reforms face political opposition; better communication and community engagement are necessary to sustain reforms.

*Prepared by Agnese Carella, Pragyan Deb, and Nihal Haider; SIP/2024/031 (completed June 14, 2024).*

### Section 2

### sipea2024031 - Section 2

### Context and diagnosis
- The Croydon suburban design guide supplementary planning document (SPD2) was adopted in April 2019 and revoked in June 2022.
- Recent UK national planning policy has seen intermittent reforms, but momentum has been disrupted by shifts in priorities, political hurdles, and community opposition, producing a stop-start dynamic that widens the gap between policy intent and practical outcomes.
- Local authorities face added burdens from compliance with new environmental and safety requirements and often lack skilled staff—both due to limited funds and availability of professional experts (such as ecologists) in the UK labor market.
- The report highlights anemic investment and declining labor productivity, particularly total factor productivity, reinforcing the need for bold planning reforms now while fiscal costs of doing so remain relatively lower.

### Core problems identified
- Complexity, delays, high costs, and unpredictability in the planning system undermine housing supply responsiveness and investment certainty.
- Political resistance at local levels (NIMBYism) and bureaucratic inertia contribute to rejection of compliant proposals, delays, and reduced developer confidence.
- Existing reforms have been scaled back or delayed after public and political backlash, reducing scope to address housing affordability and availability effectively.

### Proposed systemic reforms (objectives)
- Reduce discretion in granting permissions, ensure certainty, and better align housing supply with demand.
- Streamline planning processes via regulatory simplification to expedite development, reduce costs, promote work mobility, and stimulate investment.
- Focus reforms on attracting investment, expanding the stock of better-quality affordable housing, and facilitating the green transition.

### Politically feasible, tangible reforms highlighted
- Broaden geographical and rules-based decision-making:
  - Use broader geographic coverage and rules-based decision-making for business and large residential developments to reduce investor uncertainty.
  - Implement a stricter framework for proposal evaluation backed by up-to-date and binding local plans, making it more difficult for local councils to reject compliant proposals within designated growth areas.
- Digitalization and standardization:
  - Apply digital tools to streamline and standardize planning processes, enable data-driven decisions, optimize resource allocation, and provide real-time monitoring and evaluation.
  - Use online public engagement platforms to foster transparency, inclusivity, and legitimacy of planning decisions.
- Targeted release of Green Belt land:
  - Release Green Belt land with minimal environmental or amenity value for developments near transit stations with convenient access to major cities to address housing shortages in high-demand areas while avoiding negative social or environmental impacts.
  - Use charges on development of released land to generate funds for rail services, social housing, infrastructure, and local community services.
  - Establish Green Development Corporations (GDCs) for each city region to coordinate development, with planning authority and revenue allocation control from proposed development charges.
  - Introduce objection thresholds, incentives for compliant projects, and penalties for delays to minimize opposition and expedite decision-making.
- Invest in local authorities and align incentives:
  - Provide financial grants, technical assistance, and capacity-building programs; link funding to planning performance and sustainable development goal achievement.
  - Allow local authorities to retain more revenues generated by new developments to increase local support for development.

### Tax and fiscal measures
- Strategic tax policies can drive efficiency and mobility:
  - Lowering Stamp Duty for both residential and non-residential properties is proposed; Stamp Duty is generally associated with lower residential transactions, so reducing or removing it could improve property allocation and limit moving costs.
  - Reforming council tax (with at least revenue neutrality) could affect owner-occupied residential properties, potentially altering homeowners' disposable income and spending behavior, thus affecting local businesses and labor mobility.
  - These reforms aim to spur investment, workforce mobility, and reduce barriers for high-growth firms.

### Political economy and limits of past reform attempts
- Box summary: The 2020 "Planning for the Future" White Paper proposed a shift to a rules-based system classifying land into growth, renewal, and protected areas; digitization; replacing Section 106 with an infrastructure levy; and other measures aimed at shortening the planning process to 30 months and mandating new homes to be "zero carbon ready".
- Heavy criticism during consultations led to delays and substantial scaling back. Not all proposals were legislated; zoning reforms were revised, and the consolidated Infrastructure Levy was weakened and reevaluated.
- Concerns that reforms would worsen the housing crisis, reduce affordable housing availability, or be overly prescriptive led to compromises that limited the reforms’ ability to address affordability and availability.

### Summary (recommended pragmatic sequencing)
- Given political realities, prioritize a focused package of reforms:
  - (i) Broader geographic and rules-based decision-making.
  - (ii) Digitalization and standardization, with local plans binding for designated growth areas.
  - (iii) Careful release of Green Belt land near commuter stations that is not of significant environmental or amenity value.
  - (iv) Targeted incentives and resources to local authorities, including fiscal incentives and tax reforms.

*Source: sipea2024031 - Section 2 (IMF Selected Issues Paper)*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024031.pdf_