Closing the chasm between winners and losers in the housing lottery

'We need to average 225,000 new homes a year, against the 140,000 we are managing now'

We have to build more homes. We have to build them in places where people want to live and work. And they have to be built to decent standards.

The two-thirds of the country that live in homes they themselves own is probably pretty relaxed about the house-price boom. You don't have to listen very hard to catch snatches of conversation about how much people have made on their homes. We are back to one of those strange periods when many people find they have made more on their property over the past year than they made in their jobs.

But socially this is a catastrophe. It is a catastrophe because people in "key worker" jobs cannot afford to live near their work – an issue that has been widely noted. But while an obvious problem, it is actually less serious than the divisions that are being created in society as a whole: the chasm between the winners and the losers in the great housing lottery.

Winners are older owners and people who own large homes in the booming South-east. Losers are the young, and those who own homes are in less buoyant parts of the country – and of course people who do not own their own homes at all.

Land for Housing, a report by the Joseph Rowntree Foundation (JRF) to be published on 19 March, argues that house-building must rise by 60 per cent to avoid a social crisis. The JRF reckons that we need 4.5 million new homes between 1996 and 2016, against a government estimate of 3.8 million. The Government, it feels, has allowed neither for increased longevity nor for net immigration, now running at nearly 100,000 people a year. So we would need to average 225,000 new homes a year, against the 140,000 we are managing at the moment and the 152,000 the Government thinks is needed.

Projections are projections. If you are disinclined to trust them, try the simple market test. The price of homes is rising at double-digit rates, yet we are building fewer new homes than at any time since the Second World War. Something must be up.

What is up is a planning process that not only inflates land values, and therefore increases the price of new homes, but actually inhibits home-building by creating bureaucratic obstacles. So what is to be done?

Well, the first thing to take on board is that if people wish to live in the South-east of England, they have a right to do so. The JRF suggests very sensibly that two-thirds of the new homes should be in the South-east. There is certainly no point in building homes where people do not want to live – that is madness. Just why one part of the country is so outpacing the others in economic growth remains a bit of puzzle. But from a housing point of view it does not really matter why the region is booming. Unless you want to muck up the regional economy (and some people do resent the success of the South-east) you have to plan to accommodate its growth.

So does that mean concreting over the green belt? Absolutely not. The key thing is to manage the growth in an aesthetically and environmentally sensible way. London is hugely fortunate in having both the green belt and an extremely high ratio of parkland to built-up area, the highest of any major capital city. What it does mean is following some very simple guidelines. Here are my top five.

Guideline one would be to create more development land without damage to the environment, and ideally by improving the environment. Sometimes this may mean a trade: using a bit of what is technically green belt (but actually is pretty scruffy) but creating new green space elsewhere.

Sometimes it is just sensible use of a particular site. A great example of this in London is the development of the Wetland Centre in Barnes, where disused reservoirs were converted into a bird habitat – the only thing of its kind in middle of a city in the world – financed by homes on part of the site.

Guideline two would be to follow market signals. There should be a presumption that if there is a strong market demand for a bit of land to be used in a particular way, that might actually be the most appropriate way to use it. Who knows best whether land should be housing or offices, the developers who look at demand or the local authority bureaucrats? If it is more profitable to build offices then offices should be built.

Does that mean a South-east full of offices and no homes? Of course not; look at the way many offices are now being converted into flats, plus the grand homes in the West End that had been turned into offices and are now going back to their original use.

Guideline three would be to welcome higher densities. Ken Livingstone is in favour, one of the things he has got right. High density need not mean high rise; the early 19th-century London terraced house is a masterpiece of design, cramming some 2,000 square feet of home on to a plot size typically 18 feet by 27 feet. Besides, high density, well done, creates the buzz that gives cities life. It makes it possible to have services close by; the higher the density, the greater the market for pubs, dry cleaners, health clubs, Tesco Metros and the like. Density creates convenience.

Guideline four is to worry less about social housing and more about all housing. Yes, we desperately need more affordable homes, but designating a portion of a development to particular occupations or requiring it to be set aside for social housing is often self-defeating. In the case of the public sector, it is much better to pay people properly than to try to compensate for lousy wages by subsidising their housing.

In any case, the present system can be distorting. Take the requirement for developments of more than 15 homes to set aside 25 per cent for social housing. Not only does that encourage firms to build 14 larger homes but makes them feel as though they are being rolled over in a rather nasty way. You know: "Yes, Mr Developer, of course you can have permission to build these houses, but there would be certain conditions that would make it much easier for us to facilitate the approval. You would not want too many delays, now would you?"

Finally, guideline five: improve public services, particularly policing. There is the gravest danger that we underuse perfectly good housing stock, and don't build new homes, because sites are in high-crime areas. There are profound social reasons for trying to create safer homes and streets, but there are also strong economic ones. You don't develop brown-field sites in high-crime areas because people won't move there.

Five suggestions – but no magic wand. One thing is for sure, though: the only way to have more affordable housing is to build more homes