By William Schomberg
LONDON, July 9 (Reuters) - Britain will announce on Fridayan overhaul of rules on how and where new houses can be built asit tries to address a chronic shortage of homes and put itseconomy on a sounder footing.
A new plan to boost Britain's weak productivity will includepowers for the government to step in and draw up housing plansif local authorities fail to do so. Town halls that drag theirfeet on planning decisions may be fined, the government said.
Britain will also give automatic planning permission forhousing developments on suitable brownfield sites -- landformerly used for industrial or commercial purposes -- it saidahead of the release of the productivity plan on Friday.
The government hopes that a nimbler land and housing marketwill help improve Britain's poor productivity growth by makingit easier for people to own homes close to their work and forfirms to have more freedom of location.
Finance minister George Osborne said this week thatproductivity was Britain's "great economic challenge".
A strong recovery in the economy in the last two years haspushed employment to record highs. But growth in output perworker lags behind the rates of many other advanced countries.
Friday's launch of the productivity plan represents thesecond half of the government's first budget since theConservative Party of Prime Minister David Cameron won anoutright majority in national elections in May.
In the budget statement on Wednesday, Osborne announcedmajor cuts to welfare spending and the introduction of a higherminimum wage as he set out his plans to overhaul the economyover the next five years.
The finance ministry said Britain's economy would be 31percent bigger if it could match U.S. productivity.
The productivity plan will cover areas including highereducation and training, transport, trade and the devolution ofpower to cities and regions. But changes to planning rules forhousing would be the centrepiece.
"Britain has been incapable of building enough homes. Thereforms we made to the planning system in the last parliamenthave started to improve the situation," Osborne said.
"But we need to go further and I am not prepared to stand bywhen people who want to get on the housing ladder can't do so."
British house prices have risen sharply in the past twoyears thanks largely to a lack of properties on the market.
Other measures due to be announced on Friday includestronger compulsory purchase powers to bring forward morebrownfield land and the devolution of planning powers to themayors of London and Manchester.
Major infrastructure projects which include housingdevelopment may be fast-tracked and planning permissionrequirements could be relaxed for raising the height ofbuildings in London to the same level as an adjoining building. (Writing by William Schomberg; Editing by Catherine Evans)