House building for UK growth? Or 'ripping the lungs out of England'?

The answer? Neither. The Chancellor's bold claims for planning reform and his opponents' dire warnings against it bear little resemblance to the real effect of his proposals, writes Ed Howker

Has planning reform ever been so toxic? Over the summer, Britain has heard tales of political donations totalling millions, of drinks parties and clandestine caucuses, of collusion between politicians and property developers. The result, claim some, is that wide-eyed ministers have effectively given carte blanche to builders eager to asphalt the New Forest and erect 20,000 executive homes in its stead.

Reform, wrote one columnist, will "rip out the very lungs of England", another claimed that it "threatens to tear the heart out of our green and pleasant land".

It all sounds tortuous. So it won't surprise you to learn that George Osborne is behind the plans. "No one should underestimate our determination to win this battle," the Chancellor said, before making the case that planning reform can transform the British economy.

But what is the truth? Are opponents fighting the good fight against venal developers, or, as the Government claims, are they actually slowing economic recovery and putting the prospects of future generations at risk?

For the Chancellor, the National Planning Policy Framework (NPPF) is the vital heart beating in an otherwise anaemic "strategy for growth". Osborne is well aware that, this year, Britain has built fewer homes than at any time since the 1920s. He notes that, with 2.5m unemployed, we desperately need these construction jobs.

So, his simple calculation is that developers should be permitted to cut a swath through Britain's labyrinthine planning system, employ thousands, and raise Britain, Titanic-like, from the stagnant economic depths.

The Communities Secretary Eric Pickles says planning will at last be community-oriented, and that more than 250,000 homes could be built each year. But backbench Conservative MPs fear that a presumption in favour of development in the NPPF will create ugly estates on the green fields of their constituencies. Some estimate that as many as 200 Tory seats may be affected.

Outside the party, aggressive criticism has come from Labour members, from the Campaign to Protect Rural England (CPRE) and from commentators on both right and left.

Then, of course, there is Dame Fiona Reynolds, the £170,000 head of the National Trust who has emerged as Nimby poster-girl 2011. So far, she has led the Government a merry dance; refusing to meet Planning minister Greg Clark one minute and sauntering round for coffee the next. All the while, the trust fans the flames of public anger.

But Dame Fiona has done all this before. Back in the 1980s, when the Tories last attempted to liberalise planning, Ms Reynolds stood firmly in their way while assistant director of the CPRE. Before the decade turned, reform had been shelved and protesters were filmed burning effigies of environment minister Nicholas Ridley.

If the planning reform row continues it will not be long before the tinder is lit below coalition ministers, but there's reason to take a calmer approach. The concern among housing-market analysts and planning specialists is that neither the Chancellor's bold growth claims nor Dame Fiona's dire warnings bear resemblance to the real effect of what has been proposed.

The first fallacy about the reforms is that they will destroy the countryside. The new framework does scrap the requirement for councils to favour development of "brownfield" sites and this will lead to some "urban sprawl". However, the "presumption in favour of development" will only apply if councils fail to prepare sufficiently bold plans for new housing.

Roger Humber, a policy adviser to the House Builders Association, which represents small and medium-sized developers, is clear: "These reforms don't mean you can rape and pillage forests and beauty sites – the restrictions will still be broadly the same."

And if the case against reform is overstated, there is reason to think the case in favour is too. Some developers even worry that the new rules will make their job harder. In Britain, gaining planning approval is an almost Sisyphean task. If an application is approved by a local council, it can still be subject to judicial review by objectors. If it is rejected, Whitehall planning inspectors and, finally, the secretary of state, can be brought in to decide the outcome. The new, slimline system will still be subject to these measures.

Worse, if the NPPF keeps to the schedule, a huge chunk of these cases will begin landing on Eric Pickles' desk from 2013. Instead of being dissipated through councils, huge quantities of local unhappiness will be focused right into the heart of government just in time for the election.

"The idea that some wand has been waved and all our problems are over is nonsense – they're just beginning," explains Humber. " Local authorities don't like making difficult planning decisions so they're very likely to kick them up to Whitehall. That's a highly unstable position. The policy will only work if Eric Pickles backs development and he will be taking the heat in when he is least able to bear it."

Perhaps all the centralising and the controversy will be worthwhile if the reform achieves the housing, employment and growth promised by Osborne. But it may fail because of the developers themselves. Since 2007, the value of the UK house-building sector has fallen from £20bn to £10bn. This is not an industry at the top of its game.

Matt Griffith, a housing specialist at think tank IPPR, says the economics just don't work: "The Government's claims about getting growth through planning reform don't take into account the underlying position of the house builders. They can only deliver homes if they can borrow the money to do so. But right now their two main sources of funding, the stock market and the banks, are not providing the money ... We're in for a decade of stagnation."

This stagnation is why the huge numbers of homes promised won't actually be built. As a result of restrictions placed on development in the past 20 years, the market has been dominated by half a dozen developers who make their money from high profit margins on the sale of a limited number of homes; builders such as Barratt, Persimmon, Bovis, Redrow, Taylor Wimpey and Berkeley Homes.

When prices were rising, the model worked by developers buying land and waiting for prices to go up. Now the music has stopped, house prices are flat, and developers are left with planning permission sufficient for nearly 300,000 units – but on land bought at the top of the market. Until prices rise, they can't realise their assets. The business model developers have relied on for decades is broken.

There is another problem. In a market where land was scarce, developers became fixated by rising land costs financed by squeezing every last drop of profit from each unit. As Harry Rich, the head of Riba, the architecture industry body, said last week: "Thousands of shameful shoe-box homes are being churned out all over the country."

So, what does the Government actually want to achieve? If it really wants to build more homes for the next generation it must encourage developers to pursue a model that works even when land prices fall. It might consider releasing public land to dynamic smaller builders – such as Urban Splash – which, with help, can break the cartel of big developers. It should consider the enforcing of housing standards and building homes with public money.

Among all this, the coalition must argue on behalf of the 2.8 million families who are delaying having children because they can't afford stable housing. Its fight should be on behalf of the next generation.

The reform plans are already prompting warnings from pro-development, pro-growth policy makers. Just before the Conservative Party conference, Policy Exchange, the Cameroon think tank, will present a detailed report on why the plans will not boost the economy, housing numbers or quality, but create an intense political backlash. Politely, they say they are "deeply concerned".

And all this means that even if the battle for reform is one the Chancellor is "determined to win", unless his proposals are improved, it might not be worth fighting in the first place.

Ed Howker is the author of 'Jilted Generation: How Britain has Bankrupted Its Youth'