The strain of running the NHS is clearly getting to its boss, Simon Stevens. With daily headlines of woe perhaps it is understandable that he should have lost the plot. Stevens has given his imprimatur to the phoney “garden city” movement, by redubbing its estates “healthy towns” and offering to send in his apparatchiks.

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Fantasy answers to the ills of modern life are as old as Thomas More’s Utopia. England’s first official garden city, Letchworth, was born in 1903 as the result of a book – always a bad sign. It was Ebenezer Howard’s To-Morrow: A Peaceful Path to Real Reform. Its slogan, “health and efficiency” was adopted by early nudist magazines.

Letchworth was wonderfully bonkers. It was a “cottagey” settlement of teetotalism, co-education, poetry evenings, book-binding, embroidery and sandal-making. The nonalcoholic pub, The Skittles, served Cydrax, Bovril and adult education. It was advertised as “a meeting place for striking workers”. It sounds just the place for today’s junior doctors.

Adding the word healthy to a property may help sales – as in the Vale of Health in Hampstead – but no one can control who lives in these places over time. Letchworth’s builder, Raymond Unwin, soon escaped to Hampstead and the residents cried out for booze, and got it. Like their contemporaries they sprawled over rural Hertfordshire, heavily dependent on cars.

Stevens has updated the spirit of Letchworth to hipster digital. His garden towns will be run by “Wi-Fi carers”, Skyping GPs and an internet of things. There will be “dementia-friendly” streets, fast-food-free zones, and a “designed-out obesogenic environment”. This sounds like a brave new world.

Today the phrase garden city has become a euphemism for building in the green belt. It is laundered planning. The most recent such city, Milton Keynes, is shockingly wasteful of land and infrastructure. One of Stevens’ 10 proposed sites is our old friend George Osborne’s Ebbsfleet. It is a not a garden city but a 10-year-old failed housing estate in north Kent. People do not want to live there – even in flats priced at £150,000.

The idea that any of this has to do with the so-called housing crisis is absurd. Stevens’ new towns are mostly development sites where builders can gain the highest profit: on green land round London, Oxford and Cambridge, and in Hampshire and Cheshire. Since the developers will have to pay for them up front, they will be calling the tunes. We know the result: more sprawl.

Housing policy at present is driven by one interest group alone, the out-of-town speculative house-builders. They are in the business of new build, and have brilliantly engineered themselves one Osborne house-buying subsidy after another.

New build comprises barely 10% of property transactions, less in cities. There is no evidence that house prices reflect the rate of new building. They chiefly reflect the cost of money, which in Britain has never been cheaper. That is why prices continue to rise, despite the hysteria.

London’s biggest housing handicap is simple. It has one of the lowest housing densities of any big world city, a quarter that of Paris. This density is what conceals London’s true housing reserve, its empty rooms, empty flats, vacancies above shops, wasted airspace above low-rise dwellings. It is what imposes a near intolerable burden on commuter transport, which out-of-town housing will exacerbate.

The job of policy should be to encourage surplus space on to the market. Yet at present every single housing policy works in the opposite direction.

Density should be encouraged by increasing council tax, not suppressing it. Downsizing should be encouraged by lowering stamp duty, not raising it. Planning should encourage extra floors on low-rise houses.

Ever more Londoners are renting not buying, as in Berlin. Yet buy-to-let – which should be encouraged, to drive down rents – is penalised, and will thus drive them up.

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It is modern cities, not Stevens’ countryside, that are truly green, efficient, potentially healthy places. He should read the American environmentalist Ed Glaeser, who points out that the greenest Americans live in Manhattan. They walk a lot, share energy and live in easy reach of jobs, shops and services. “Those who move out to leafy, low-density suburbs,” he says, “leave a significantly deeper carbon footprint than Americans who live cheek by jowl.”

The NHS should campaign to make the city healthy, not a few privileged out-of-towners. Stevens should demand a slash in urban pollution. He should plant trees, build proper streets where walking and shopping are safe and children can play, instead of today’s lumpy, glass-bound boxes. He should read Jane Jacobs on “defensible space”, on what makes modern cities livable (streets), and what kills them (estates).

The government’s role in housing should be to remove obstacles to the market for everyone, but to spend money only on the genuinely poor. The obsession with “affordable housing” – a new house at 80% of market price – may please Tory voters but it merely drives up house prices. Public money should go to those in need of hostels and special units, of which London is chronically short.

For those who want to build, there are huge spaces in London and other British cities lying fallow, old industrial sites and air rights serviced but frozen by planning failure. But the gold lies not in new building. It lies in the millions of rooms, the thousands of flats and houses, lying empty on the ground or “virtual” in the air over low-density urban acres.

Healthy living does lie in counting daisies in a meadow. It must grow from the guts of a greener, smarter city.