On Monday, Jacob Rees-Mogg and I released Raising the Roof: How to solve the United Kingdom’s housing crisis. This new IEA paper will feature in a book of the same title, including the winning essays for the Koch Prize 2018. The prize asked entrants to offer free market solutions to the UK’s housing crisis.

This housing crisis is uniquely severe. Our housing costs are among the highest anywhere: since 1970, the average price of a house has risen four and a half-fold after inflation, beyond any other OECD country. The capital is almost the most expensive major city in the world to buy a home; young people will often avoid moving to work in more productive sectors because nearby housing is too expensive. The proportion of people needing housing benefit is also almost unique.

Raising the Roof suggests that Britain’s unrivalled inability to build houses, and its unique centralisation, is no coincidence (it is important to note that this creates many other pathologies). But in particular, we are concerned with the centralisation of the planning system, and of tax.

Having expanded during the War, central government has considerably restricted the supply of land for housebuilding. The most drastic step in this direction was the 1947 Town and Country Planning Act. Although green belts of some sort had existed since the 1930s, this launched the concept on a grand scale. Green belts have since grown far beyond what was first planned, more than doubling since the 1970s, for example. They now take in derelict and already-developed land, causing building in more attractive places.

Government also created our centralised tax system: with 95% of tax collected centrally, local governments see a reduced incentive to allow housebuilding, gaining relatively little additional revenue from new residents while facing initial administrative cost. The adversarial, complex planning system that has resulted favours large incumbent housebuilders; the identikit estates that have arisen are a major cause of Nimbyism, making the housing crisis worse.

So the state “effectively nationalised land use rights”: but its planners went further, deciding in the post-war years to design housing itself. We propose that there are few better examples than the tower blocks that resulted of why markets and choice work better than state planning, and of the cruelty that results from our failure to observe this.

As the historian David Kynaston has described, petitions against these buildings, such as from 11,500 citizens in Bristol, were ignored. When the BBC in 1961 investigated growing depression within these estates, a GP complained of the ‘excessive demands for his services’ among residents. A correspondent noted: ‘There are, of course, social objections to compelling families with young children to live in high flats’, but this was not allowed to intrude on ‘integral plans’. One Marxist sociologist decided that ‘the success of the new tall blocks suggests that the traditional attitude is not permanent’.

In response to the housing crisis, the paper proposes a four-point plan. The first is cutting and decentralising tax. Here, tax distortions at national level can be reversed. Stamp Duty can be cut to 2010 levels and devolved, and distortions that inflate demand addressed: non-property Inheritance Tax can be cut to the level of property, Capital Gains Tax cut on shares.

Second, a new Right to Buy, where Reverse Compulsory Purchase Orders would allow the private sector to demand the sale of areas of government-owned land, with a cabinet minister responsible for identifying and releasing them.

Third, making the green belt do its job. Where green belt does not achieve its purposes, it can be re-classified with a presumed right to development. This would not impact most of the green belt, but would apply especially to derelict or already-developed sites. Only 3.9 per cent of London’s green belt would allow one million homes.

And fourth, choice not bureaucracy: freeing the market in beauty. Permitted development rights for individual streets or villages would let residents extend or replace (up to a number of storeys), then gain from building: local control creates a homeowner profit-incentive and lets people demand styles they actually want. Half the capital’s homes are in buildings of one to two floors. Over time, we could see five million more homes in London alone. Urban local authorities should also give self-builds fast-track planning permission.

Failure to solve our housing crisis may put our property-owning democracy itself under threat, the young essentially priced out of it. Not for the first time, the state’s unchecked growth has put our freedoms at risk. Hayek, however, should have the last word on why such decisions should not rest with the central planner:

[The] knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate ‘given’ resources — if ‘given’ is taken to mean given to a single mind which deliberately solves the problem set by these ‘data.’ It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.