Boosting economic growth is a key focus for both major parties in the run up to the General Election, appearing in both Labour’s 5 missions, and the Conservatives’ 5 top priorities. UK productivity growth has been slow since the Global Financial Crisis, and output per capita is 15-20% below the highest performing G7 countries of Germany and the USA.
Labour productivity is increasingly important given its bearing on attracting inward investment, ability to pay higher wages and higher tax revenues for the Government which can be reinvested in critical services and infrastructure. The UK’s low labour productivity is a major reason why our growth has stalled and why we are less resilient to economy shocks compared to other major global economies.
An undersupply of housing has contributed to this problem. A shortage of new housing connected to growing employment locations limits the ability of workers to move to more productive jobs. In turn, this means that the potential for cities to benefit from the agglomeration effect, where higher concentrations of firms and workers drives economic efficiencies, is constrained.
High housing costs can also act as a disincentive for investment and employers. We have previously highlighted the risks to the growth potential of cities like Cambridge and Bristol. When considering the location of their business, commercial occupiers need be sure they will be able to attract and retain the workers they need and a key part of that is being confident that there is an adequate supply of housing. In some high growth knowledge intensive sectors, the choice of location is not limited to different UK centres but includes international competitors. Delivering the housing to support productive locations is therefore fundamental – a key piece of infrastructure to support long term economic success.
Room for improvement
At present, economic growth projections or ambitions are not factored in to planning for housing in England through the Standard Method calculation. Instead, housing affordability and household projections are the key metrics to consider. However, building a strong economy is outlined as one of the three overarching objectives of the planning system in paragraph 8 of the NPPF, and paragraph 67 states that the housing requirement figure in a local plan may be higher than the identified need if it “reflects growth ambitions linked to economic development”.
How far are local plans actually responding to economic growth projections? We have split the country into quintiles using Oxford Economics forecast for GVA growth over the next five years. The areas with the highest economic growth (shown in dark blue on the map) are mainly in London and the South of England, with the Oxford-Cambridge Corridor and Thames Valley standing out. Beyond the South East, Manchester, Newcastle, Bristol and the South West peninsula are the top performing regional economies.