What role can housing play in supporting economic growth? And how can the UK incorporate planning for housing into wider economic strategies? A key challenge is to get decision-making at the right geography, as local and regional economies don’t align neatly with local authority boundaries.

Impact of housing (under) supply

Residential development has long been a significant contributor to the UK economy. As we set out in 2010 in The Case for Housing, delivering an extra 100,000 new homes per year would create over 200,000 jobs, boost tax revenues by over £2bn and, in the long term, result in an additional 1% of growth in the UK economy.  

This was backed by ONS analysis in 2019, which found that every 100,000 new dwellings contributed 0.83% to UK GDP in the decade to 2018. In 2024 values, that would add £18bn to the UK economy every year.

But only focusing on the impact of the construction industry itself underplays the importance of residential development to economic growth. Housing has a fundamental role in enabling mobility in the labour market, allowing skilled workers to move to productive jobs.

If there are not enough homes available at reasonable price points within commutable distances of growing workplaces, there are fewer incentives for workers to move, making it harder for companies to attract the right employees and limiting the capacity of industries to realise their full potential.

The impact of long-term undersupply of housing on mobility patterns is already evident. The number of working age people moving into a higher housing cost area has decreased by 3% between 2002/3 and 2017/18 according to the Resolution Foundation. A move in 1997 for a median renter from a third decile earnings area to a ninth decile area would have seen a 26% uplift in their after-housing-costs earnings; in 2019, that same move would have left the earner worse off, as the growth in housing costs in the most productive areas has far outstripped wage growth.

What does this mean for planning?

The key challenge to reversing these trends is aligning planning for housing with employment areas. Currently, three quarters of a million people commute into the fifteen cities* in our study – which looks at the economic growth prospects for UK Core Cities and selected high growth areas beyond London - according to Oxford Economics, and this is projected to grow by 18% over the next ten years, as expanding employment markets pull more people from beyond the core urban area.

The census shows that the travel to work areas for our study cities are seven times larger than the area of the urban local authorities themselves, and on average, 20% of workers in the cities are not local residents. In Leeds for example, the proportion rises to almost 30%. Any aspiration to drive employment growth in Leeds will have consequences not just for the city’s housing requirements, but for the wider West Yorkshire region.  

Delivering the housing to support economic growth comes with many challenges. Across our 15 cities, only 68% of housing need is currently being met, which contributes to rising prices, increasingly unaffordable housing, and limited workforce mobility.

Land availability is a major constraint; within the urban local authorities, most development will have to be on brownfield land, and will tend to have to be high density apartments in order to be viable, so won’t deliver the wide range of housing types needed. Surrounding local authorities should accommodate some of the employment-generated housing need, but more strategic planning is needed, to tackle issues like Green Belt reviews, transport infrastructure to link jobs and homes, and power and water capacity.

But strategic planning is not consistently in place across the UK. 75% of the cities in our study don’t have any form of statutory strategic planning mechanism in place that could enable them to deliver their growth ambitions.

Tackling the mismatch between housing planning and functional economic areas should be a key priority for any incoming government aiming to improve the UK’s productivity. 

*The fifteen UK Core Cities outside of London included in our study are: Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham, Oxford, Reading, Sheffield and Southampton

Further information

Contact David Jackson or Emily Williams