Housing policy in the public choice trap

Nearly ten years ago, IEA author Mark Pennington argued that British land use planning policies were characterised by public choice problems. Since no single individual’s vote has a discernible effect on the political outcome, it does not pay to spend time and effort on acquiring accurate information about the planning system’s effects. It is, instead, entirely rational to remain ignorant. Widespread ignorance then provides ideal conditions for special interest groups to pursue legislation that benefits them at the expense of others, financially or ideologically. This combination – rational ignorance of the many, a high degree of activism of the few – can arise whenever the gains to the latter are highly visible while the cost to the former is more opaque.

Pennington argued that these conditions apply to the planning system. There are vociferous groups which are fiercely opposed to any new development, at least near them. And they can be counted on to mobilise when their perceived interests are threatened. Meanwhile, those who cannot get a foot on the housing ladder are conspicuous by their political passivity. Remember the last campaign for new development and affordable housing? Exactly.

The latest edition of the British Social Attitudes Survey has now provided further evidence for Pennington’s point. It documents the public’s views on housing policy, and the results are just what those familiar with the aforementioned monograph would expect.

The BSA asks: ‘if the government were going to do something to make homes more affordable, what do you think the most useful action would be?’ No fewer than 69% of respondents favour some kind of demand side intervention, like subsidies for home buyers. Only 5% picked the relatively obvious option ‘Allow developers to build more homes’. These figures show a complete misjudgement of the situation on the housing market: High house prices in Britain are a supply side, not a demand side phenomenon.

The BSA also shows that 46% of respondents are openly opposed to new homebuilding. This is a relative majority, since about a quarter of respondents just have no opinion on the issue. Interestingly, about a third of the opponents are ‘strongly opposed’, while hardly anybody in the pro-development group feels strongly about their position.

Opposition is strongest on the outskirts of big cities, in suburbs and in villages. It is most common among homeowners, of course, but even among renters, 35% oppose new development while 21% are indifferent.

These results are fully compatible with the public choice perspective on the housing market, and they provide a consistent explanation for the political dynamics we observe in the housing debate. When the government coalition announced a modest reform of the planning system, the anti-development lobby immediately set their propaganda machinery in motion and met with very little criticism.

The way to break the public choice trap, then, is to reduce the cost of gathering information about the true nature of the planning system. Martin Durkin, for example, manages to make this rather dry topic accessible:

‘“Hands off Our Land!” screams the Daily Telegraph, like some shotgun-toting red-faced farmer. The newspaper, on behalf of the reactionary toffs who form the least pleasant section of its readership, has launched a campaign directed against “urban sprawl” (i.e. the rest of us). […] Britain is not a crowded island – contrary to the frothing rants from the misanthropes at the Telegraph. […] The reason why Britain feels, to most of us, like an overcrowded island, is because all most of us ever see are congested towns and cities.’ 

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).