The Institute for Fiscal Studies (IFS) recently published a working paper on the determinants of local housing supply in England, shedding light on the underlying factors that contribute to regional disparities in housing availability.

The study estimates an average local housing supply elasticity of 0.14 over the period from 1996 to 2021, indicating a limited responsiveness of housing supply to changes in demand. This is significantly lower compared to other countries like the US, France, and Germany. The low elasticity is attributed to several constraints including planning policies, geographical factors, and land availability. In rural areas, these constraints are often more pronounced due to the preservation of agricultural land and protected natural areas.

The working paper identifies that areas with less land available for development, greater differences in elevation, higher historical population density, and stringent local planning authorities exhibit lower supply elasticities. Specifically, the share of land available for development and pre-existing urban density are highlighted as major determinants, accounting for 80% of the variation in local housing supply responses. In rural areas, the availability of developable land is often further constrained by agricultural use and protected land designations, such as Green Belts and national parks.

Rural areas face unique challenges in housing supply. The constraints of land use, combined with stringent planning policies, often limit the ability to develop new housing. This leads to increased housing prices and reduced availability, which can hinder economic growth and demographic diversity in rural communities. The working paper suggests that if rural areas had housing supply elasticities comparable to more flexible regions, they could better accommodate population growth and housing demand.

The analysis reveals stark regional differences in housing supply responses. London and other urban areas, despite significant demand, have a poor record of building homes where they are needed the most. Conversely, areas like the East of England, with fewer geographical constraints, show higher elasticity and better responsiveness to demand changes. Rural areas, particularly those with stringent land use policies and significant geographical constraints, exhibit some of the lowest supply elasticities.

The findings highlight the need for policy interventions tailored to the unique challenges of rural areas. Simplifying planning processes, increasing the availability of developable land, and re-evaluating land-use restrictions, particularly in rural regions, could enhance housing supply elasticity. Additionally, targeted policies to incentivize development in rural high-demand areas could help mitigate the housing shortage and promote sustainable rural communities.

The IFS working paper provides crucial insights into the factors limiting housing supply in England. Addressing these constraints is imperative for improving housing affordability and ensuring that homes are built where they are most needed. Policymakers must consider these findings to formulate effective housing strategies that align with regional demands and geographical realities, especially in rural settings.

For a detailed understanding, read the full working paper HERE.