House building: a supply-side or a demand-side problem?

In an attempt to kick start the UK housing industry, the government has proposed a series of measures to reduce regulations.

These include relaxing planning restrictions on building extensions to existing homes, shops and offices; relaxing current rules that all new housing developments should include affordable housing (which often makes little or no profit for the builders); an extra £280m for the FirstBuy scheme that provides loans to first-time buyers to raise money for a deposit; and a new “major infrastructure fast track” scheme, whereby developers of large commercial and residential projects currently stalled at local authority planning level can have their applications ‘fast tracked’ by the national Planning Inspectorate.

The government maintains that the measures will increase the flow of new houses coming onto the market by reducing ‘red tape’.

Critics maintain that the problem of the slump in house building has little to do with a lack of availability of new houses or new plots for building. Rather, it is a reflection of the recession in the economy as a whole. The solution, claim critics, is to stimulate the economy and then the new-build property market will recover along with other sectors.

The articles look at the likely success of these latest policy proposals for the property market.

David Cameron and Nick Clegg unveil plans to kick-start Britain’s ailing house building industry Independent, Oliver Wright (6/9/12)
Planning rules on extensions to be relaxed ‘to boost economy’ BBC News (6/9/12)
Q&A: Housing and planning shake-up BBC News (6/9/12)
Government plans are recipe for planning blight, says LGA BBC News (6/9/12)
Scepticism greets home improvements plan Financial Times, George Parker and Gill Plimmer (6/9/12)
Extensions and loft conversions could add nearly a quarter to the value of homes Independent, Alex Johnson (10/9/12)
Green groups condemn relaxation of house-building planning rules GreenWise (6/9/12)
Construction figures deal blow to government housebuilding plans Guardian, Philip Inman (4/9/12)
House builders sitting on 400,000 undeveloped plots of land with planning permission The Telegraph (5/9/12)
Weak demand hits building sector Independent, Jamie Grierson (4/9/12)
Free up green-belt land for new housing, says Policy Exchange Guardian, Nicholas Watt (13/9/12)
Relaxing Planning Laws Will Damage British Housing Huffington Post, Martin Roberts (7/9/12)
Will David Cameron’s planning reforms create jobs and growth? Guardian, Juliette Jowit (6/9/12)

Economic Data freely available online (see site 30 for links to housing market data) Economics Network
Lending to individuals Bank of England


  1. Distinguish between supply-side and demand-side policy and the different types of each.
  2. How would you classify the types of policy proposals announced on freeing up the new-build property market in terms of your answer to question 1?
  3. What will determine the success of the policy measures in stimulating (a) the new-build property market; (b) the economy generally?
  4. What externalities are involved in relaxing the regulations on home extensions?
  5. If you were in power, how would you go about stimulating the property market? Would there be any downsides of your proposals?