Housing and Planning

London’s next mayor must be unashamedly in favour of airport and housing expansion


Economic Theory
Government and Institutions
In a centralised country like ours, regional and local politics will always play second fiddle to national events, such as stories about what the Prime Minister did at university. Having said that, the mayoralty can shape important policies. Housing and airport capacity are obviously the most acute issues to be dealt with. How do the candidates perform in these areas?

London’s housing problems are, at root, about land. With demand ever-rising due to higher incomes and population growth, the operation of a market would naturally see London expand – either outwards, or upwards, or both. Yet it can’t, because it is fenced in by large tracts of “green belt” and regulations on building heights in certain areas too. This creates structurally very high house prices and rents.

I haven’t seen any of the candidates take on the green belt shibboleth – perhaps unsurprisingly, given the ferocity of NIMBYism. But at least Syed Kamall, Andrew Boff and Stephen Greenhalgh acknowledge land availability is extremely important. Their stated focus on releasing public sector land, however, while useful, is a red herring. Yes, it could help meet need for two to three years, but given population growth, land-use reform more generally – including the green belt – is essential for the long term.

It seems from what Kamall says that he is closest to understanding this, and the need for more fiscal decentralisation to allow boroughs to gain from development. Goldsmith’s emphasis on brownfield sites, in contrast, is simply a dead end. Decontamination costs on these sites are often high, making the process long or uneconomic. Some of the candidates’ policies would actually worsen the situation. Goldsmith has jumped on the bandwagon of arguing for “longer tenancies” and “more certainty over rent increases” – as if landlords are to blame for structural problems in the market.

This helps nobody, and legitimises demands for rent control, depressing investment without improving affordability. Boff, meanwhile, wants to restrict new residential developments in all but five areas to just six storeys – another constraint which will merely prevent supply from meeting new demand.

The dividing lines on airport capacity are clearer. London desperately needs new capacity, but it would be preferable if where this occurs is decided by market processes rather than political decrees. Greenhalgh and Boff simply state the need for a (high risk) Thames Estuary airport. But clearly the market is signalling a demand for Heathrow expansion right now. While there’s no doubt this comes with noise and environmental costs – which leads to Goldsmith opposing any expansion – economists have long thought of ways to deal with these “externalities”.

Though Kamall is the only candidate who hasn’t ruled out Heathrow, his idea of a London-wide referendum to decide where new capacity occurs could throw up difficulties. Why should Londoners decide where the new runway goes, when many in London aren’t affected directly by Heathrow and other parts of the population are affected by the decision too? If I were advising him, I’d suggest revising his referendum to make it highly local for those directly affected by noise. The airport could tailor a compensation package, and this package could be put to a referendum of those affected, with changes made until the residents were satisfied with the deal. This would see the airport bear the costs of the externalities, and depoliticise airport expansion entirely.

In short, London needs a mayor who will be unashamedly in favour of expansion to meet demands – whether in housing or airport capacity.

Ryan Bourne is the IEA’s Head of Public Policy, and a co-author of ‘Smoking out red herrings‘, which deals with some of the issues raised in this article in greater depth.

This article was first published in City AM.

1 thought on “London’s next mayor must be unashamedly in favour of airport and housing expansion”

  1. Posted 23/09/2015 at 18:10 | Permalink

    Planning are not the only regulations that makes land valuable. Think of the rule of law, or economic rules and tax levels. We could reduce the value of land to zero overnight by making theft and violence legal. So picking on one set of regulations that makes values high as being bad, then picking on another set that also makes them high as being good, seems a little inconsistent. The truth is, high land values are GOOD. They only go bad when they are capitalised into rental incomes and selling prices. Why? Because they become a £250bn per year free lunch. A protected monopoly freeholder privilege. I’d have thought the IEA would say that people paying for the benefits they receive, would be a prerequisite to functioning land market. That way, people can exercise choice on whether they want to keep those planning regulations or not. NIMBYs may very well want to pay more tax for that privilege. Good for them, good for everyone else. Free choice and markets are the only way to sort out housing affordability issues. But as that would mean a fair economic system of not taxing wealth creation, and using land and other economics rents a public revenue instead. Not something the IEA and other fake-capitalists really want though is it?

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