António Horta-Osório signed Lloyds Banking Group up to Chancellor George Osborne's Help to Buy scheme (Reuters)
Pressure has been added to the government over the sluggish pace of its planning reforms after António Horta-Osório, the Lloyds Banking Group boss, warned that planning law must be liberalised to avert a house price bubble amid the Help to Buy scheme.
At the end of 2012, the government set about relaxing planning law to help boost the struggling UK economy because red tape was perceived to be holding back construction work, but little appears to have been achieved so far.
Planning reform is also being pushed to help increase the supply of new homes into the housing market, which is desperately short of stock as demand soars off the back of mortgage-easing schemes such as Help to Buy and Funding for Lending.
"It is important that planning permits, building authorisations and social housing projects are [liberalised] so that the increase in [mortgage] transactions does not lead to a substantial increase in house prices," Horta-Osório, whose bank is using the Help to Buy scheme, told the FT.
Prime Minister David Cameron set up a special cabinet sub-committee to explore planning reform as a means of boosting growth. There has also been the ongoing Red Tape Challenge, which is seeking to strip away dated and unnecessary bureaucracy around planning.
However, the government has seen criticism from both sides of the debate. Local governments, which have responsibility for planning, and the communities they serve fear their powers will be weakened and as a result see building work going ahead without their approval.
Meanwhile, building firms say planning law is cumbersome and an unnecessarily large burden which makes work less appealing and more difficult, limiting construction of projects such as new homes and infrastructure.
On top of planning reform, the Local Government Association, which represents the authorities, is urging the government to lift a borrowing cap on local councils so they can access the markets and fund the building of a new wave of social housing.
The Department for Communities and Local Government did not respond to IBTimes UK's request for comment.
Help to Buy, which sees the government underwrite mortgage lending at a bank for a fee, has stoked fears of a house price bubble because supply is already so far behind demand.
Critics say mortgage easing at a time when there is little investment in housebuilding is dangerous, but Chancellor George Osborne hopes that fuelling further demand will trigger constructions firms to address the imbalance.
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