An important tactical solution to the shortage of reasonably priced housing in some locations is the use of the planning system to procure affordable homes through development control. An obvious answer to the basic question of how affordable housing (affordable to median local wage-earners) should be provided, where it is needed, is surely through some sort of subsidy on construction cost, whether the land to be built on is in private or public hands. Essentially, part of government's ‘welfare’ spending should go towards the provision of affordable homes.

This obvious model of direct provision was the norm for much of the 20th century, with the state (through local authorities) using taxpayers’ money to build public housing. Political support for this approach drained away during the last decades of the 20th century: right-wing governments, in particular, felt that fullcost subsidy for house-building by the public sector was an inherently inefficient means of providing cheaper housing. Also, because land costs can account for a significant proportion of total build costs (typically one third since 1945, but this will vary depending on the size of a plot and the number of homes to be built), it was felt that switching to land subsidy (paid for by landowners through some sort of tax on land value uplift and development profit) could be a means of reducing the burden on taxpayers (but not of course on landowners), whilst achieving the same level of overall affordability. Before looking at how this is achieved, and with what success, it is important to understand the evolution of this approach. Its origins are rooted with those of the planning system itself.

Why a land subsidy?

The ‘planning and affordable housing’ approach – based on land subsidy extracted from development permissions and often, but not always, coupled with a construction subsidy – is the product of two policy developments during the 20th century: the first is the move from comprehensive and direct to indirect provision of affordable housing; the second concerns the opportunities arising from the planning process to contribute to this indirect provision.

Direct to indirect provision

For much of the 20th century, housing policy emphasised a supply-based response to housing demand.