Planning – killing four birds with one stone

It is always pleasing to publish an IEA monograph and find that the subject is being talked about for months or years after publication. Very often, of course, the true measure of success is that the topic becomes so widely talked about that the source of the original ideas is lost. In this context, it is worth reminding readers of Kristian Niemietz’s monograph Redefining the Poverty Debate which looked at how government action made poverty worse. Kristian argued that the anti-poverty movement should be a pro-market movement just as it was in the mid-nineteenth century.

Everybody now seems to be talking about living costs with many on both sides of the political divide believing that we can just legislate to cap them. This is a great plan if you like queuing but is not a sensible policy. However, a sensible debate about planning and housing seems to have developed. There is an excellent article on the ConservativeHome blog by Andrew Gimson looking at the history of the rapid house building in the 1950s. The one mistake we made then was to build lots of council houses. Jon Cruddas argued recently at Civitas that it was ridiculous that only 5 per cent of government spending on housing went on building and the rest went on cash benefits. This is an economically illiterate argument. 100 per cent of all government spending for child care goes on cash benefits for child care and zero on building nurseries (or at least if nurseries are built by governments it is not generally part of a government strategic policy, but just filling in gaps here and there). There is no reason why the government – if it is going to subsidise people’s housing – should not provide people with cash with which they rent houses built using the capital put up by the private sector. Shelter argues in Andrew Gimson’s article that the mass council house building of the 1950s complemented the private sector. Again, that is an odd argument. Council housing on the scale of the 1950s was a disaster – grim and huge satellite estates with dreadful building standards emptied out city centres and undermined labour mobility. If you wanted to move house, you had to swap with somebody else: it was like the somewhat esoteric badge I used to wear as a student, ‘Communist with pork pie seeks similar with knife and fork’.

Given that building land can easily have a value 20 times greater than farmland, the government does not need to subsidise house building – even if it might have subsidise some people’s rent.

The main arguments in favour of more house building have been in relation to the cost of living, which is driven up by the high cost of housing. The links have not generally been made to other important political issues. We have significantly less than half of the retail space per head than the US and all land used for retail in the UK could fit into 30 per cent of the Isle of Wight. This reduces competition and productivity and raises the costs of using modern logistics. One of the reasons why childcare and eating out is so expensive in the UK is the high rents caused by low levels of building.

Economists at the LSE estimate that Britain’s planning policy has reduced the productivity of the retail sector by 20 per cent on extremely conservative assumptions. This affects the poor more than anybody because of the proportion of their income they spend on food and because – not mentioned by the LSE authors – retail tends to be an employer of low-wage people. Total office occupation costs are also 40 per cent higher in Birmingham than in Manhattan despite higher construction costs in Manhattan.

Furthermore, at the moment, we have large swathes of the country that are propped up by public-sector supported activity whereas in the south and London, we see much higher rates of private sector productivity. If the public sector stopped supporting activity in the rest of the country productivity might rise – but that is a separate issue. However, whether the public sector does or does not withdraw, the productivity gap between north and south has to be enormous before people can afford to move house (ignoring the issue of stamp duty which is also an impediment to moving). The equation is relatively simple – the more restrictive is land-use planning policy, the greater the gap has to be between productivity and wages in the north and productivity and wages in the south to attract people to the south. Every person who stays in the north as a result of planning policy lowers his potential productivity and real income.

Plenty of ways have been suggested of reforming the planning system to ensure proper compensation to those who tacit rights are affected by new building. In so far as there is a silver bullet in policy terms, it is land use planning. If the primary concerns people have are: the cost of living, the productivity crisis, the level of unemployment and the fall in real wages, then liberalising land-use planning is a major part of the solution to all these problems. Never before have we forced people to live in relatively low productivity areas to such an extent. Planning policy raises house prices directly; it raises the cost of providing all goods and services; and it prevents people from moving to areas where better paid jobs – reflecting higher productivity – are available. We need to start talking about these other dimensions of land-use planning policy too. Allowing people to build is likely to be the single most important policy to raise productivity and real wages.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

3 thoughts on “Planning – killing four birds with one stone”

  1. Posted 18/10/2013 at 13:32 | Permalink

    “100 per cent of all government spending for child care goes on cash benefits for child care and zero on building nurseries”. It’s worse. 100 per cent of all government spending to help with buying food and weekly essentials goes on Income Support & JSA, and zero on building supermarkets.

  2. Posted 29/10/2013 at 13:06 | Permalink

    1) Abolish all planning laws, except for certain types of facilities (power plants, sewage works etc), and certain areas (e.g. areas of outstanding natural beauty, areas of ecological significance)
    2) Relax building regulations (ideally we would have different organisations producing competing building regs, and builders/home buyers would pick the one they wanted)
    3) Use common-law offence of Nuisance to arbitrate disputes between parties, where one party has built/altered a structure so that it causes a loss to the other party (ASI have developed this idea more).

    Hey presto, new planning policy.

    1) People are allowed to do as they please on their own property, so long as they do not cause a nuisance/loss to another
    2) No hold-ups due from lack of planning permission
    3) Massively increases supply of land to be developed, thus lowering prices across the board
    4) Owners no longer need to apply for Change of Use for a building, meaning the real estate market is much more dynamic

  3. Posted 08/11/2013 at 17:17 | Permalink

    While it seems intuitive to build more homes, the Coalitions blunderbuss approach has removed choice from local people who are in the best place to understand their local market needs. Therefore localism in planning is VERY sick and we are ruled by centralist policies mediated through Planning Inspectors.

    In the Southwest we have been forced to cater for the overspill of people from the Southeast.

    Farmland, by its increased price, has made it second only to gold as a speculative investment.

    The combined result has been to drive homes beyond the value of 11 times annual earnings for local people.

    However there is no evidence that building on the scale we are being forced to accept has any effect on house price escalation. The prices are simply not falling yet real disposable income is.

    Therefore our only local approach is to insist on a proportion of affordable homes which can create a sub-market for local people to rent or buy after a period of renting. The NPPF and Planning policies from the Coalition has weakened even this by allowing viability issues to degrade affordable housing policies.

    Is the Coalition’s obsession with house-building sustainable? No – not if we continue to destroy productive farmland and export a high proportion of basic agricultural products.

    These policies are creating a very fragile economic, environmental and particularly a fragile social problem. What we need is more local value-added production of food and related products and housing driven by local needs first.

    Therefore help as recommended by Philip Booth to home-buyers is certainly one way forward; but only if we avoid a housing debt bubble when interest rates rise. If not we re-enter boom-bust economics and promote personal tragedies.

    What we need therefore is fiscal stability and a reasonable localism and social planning policy approach. We can then develop despite the change and turbulence of the world economic changes. We know that these are created by BRIC countries’ growth and the Arab countries with high oil revenues, who collectively now own most of the liquid financial assets (as mapped by Harvard Business review)

    So If the primary concerns people have are not just the cost of living, the level of unemployment and the fall in real wages, even less the issue of productivity, but how to afford the housing which has become such a major part of the household budget

    Liberalising land-use planning is certainly not a major part of the solution to all these problems, it is a factor which could worsen the situation outside the south-east by destroying the environment, rural economy and the ease of moving house to get a job, therefore freezing most of us into local enclaves which are unable to exercise democratic rights nor responsibilities.

    This is why we regard the 43% reduction in Local Government expenditure compared to the real cuts of less than 15% in the central Civil Service as unacceptable.

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