Abundance of land, shortage of housing: a rejoinder
One group of comments could be summarised as ‘Yes, planning is important, but it is not the only thing that matters.’ For example, one reader mentioned that house prices have been hugely volatile, experiencing many sudden and unexpected jumps, while the planning system has been largely the same for sixty-five years.
My argument, though, is not that nothing apart from planning restrictions matters. My argument is that planning restrictions amplify price drivers wherever they originate. Suppose two countries, Nimbya and Developmentistan, are identical in every respect except for their planning systems (you have probably guessed in which way they differ). Now both experience a wave of immigration of the same magnitude. In Developmentistan, house prices experience a minor, transitory bulge; in Nimbya, they shoot upwards and stay there.
You could now argue that planning was not per se to blame for the house price increase in Nimbya: had there been no immigration, there would have been no price escalation. But the relevant comparison is not between Nimbya before and Nimbya after immigration. It is between the house price increase in Nimbya and in Developmentistan, i.e. the difference in differences. Yes, immigration has ‘caused’ the house price increase in Nimbya, but it did not have to cause it.
A second group of comments refers to developers sitting on land for which they have planning permission, without bringing it to the market. Why give them yet more planning permissions, the argument goes, if they are not even fully using the ones they already have?
Here, we need to ask why a developer would hoard land at all, because after all, this involves a risk and huge opportunity costs. They do it for the same reason that you would hoard a bottle of vintage 2000 Bordeaux, or a rare first edition of a famous book, after observing that its price has gone up: you have good reason to expect the price to go even higher. But that requires very specific conditions; above all, supply must be largely fixed. You would not hoard a bottle of supermarket wine or a Harry Potter book. In Nimbya, developable land has a lot in common with fine vintage Bordeaux, so hoarding makes economic sense. In Developmentistan, it is more like a supermarket Rioja Crianza: if you can sell it now, you do it.
The third group of arguments is about ‘balance’; it holds that while the present system may be too much tilted in favour of NIMBYs, the alternative I am proposing would be too much tilted in favour of developers. What we should do, instead, is steer a middle course.
This argument makes sense within a corporatist setting, where big groups negotiate on a big round table, mediated by big government. In such a setting, less power for one big group (e.g. trade unions, consumer groups) must mean more power for another big group (e.g. industry federations, producer groups). However, I am not arguing within the corporatist logic, but for a movement away from corporatism altogether, and towards a more market-like process. Corporate developers are as much part of the present system as NIMBY groups. Restrictive planning raises the fixed cost associated with development, favouring a more concentrated market structure.
There’s a world of difference between being development-friendly and developer-friendly. It’s the essential difference between market-friendly and business-friendly.