Housing and Planning

Central planning for housing has failed. Let us give the market a try.

How many blind alleys will the Conservative Party’s policy advisers have to go down before they hit upon the only solution to the housebuilding crisis that will work?

Of course, one problem is that policy is so centralised that only one blind alley can be tried at a time. And given that policy is in stasis, we are merely peering down the alley – so we never actually discover that half-baked proposals will not work.

So, first, let us allow local areas to try entirely different approaches to land-use planning. Policy could be determined at unitary authority and county levels and then that level of government could delegate further if it wished. For example, if local authorities wish to borrow money to build houses, they could be freed to do so, as long as the borrowing was ring-fenced and securitised, with the interest on the securities being financed by the returns on the housing with absolutely no central government guarantee.

But let us not pretend that more local government housebuilding is the solution to our housing problem as is increasingly suggested by Conservative policy strategists, and others: we already have one of the highest levels of social housing in Europe. It is often suggested, bizarrely, that because we built enough houses in the 1950s and council building was part of the mix, the private sector alone cannot deliver.

What about the 1930s or the 1890s (both decades when as many houses per family were built than in the 1950s)? What about more or less every other developed country in the world? Why were more houses built in Doncaster and Barnsley from 2008 to 2013 than in Oxford or Cambridge? How can those who propose more council housing believe that the private sector is blind to entrepreneurial opportunities to multiply the value of land by 200 by building a house on it? I am afraid that it is not that councils are so much more entrepreneurially alert than businesses – it is because of planning control.

The central planning tendency in the Conservative Party knows no boundaries. Recently, it was suggested that new homes should be built and set aside for young renters. It is bad enough believing that the Government knows how many houses should be built each year, but the idea that it also knows who should rent or buy them must have been the product of an accidental visit to one of John McDonnell’s summer seminars. Why can we not build new houses for whoever demands them so that the houses of those who take the new ones are then available for the young?

Additions to stock are additions to stock. Perhaps it will soon be proposed that we should only build cheap cars for first-time car owners in the future rather than have youngsters buy the second-hand cars sold by those who buy the new ones.

It is very clear that the problem is the green belt and other planning constraints. The map of the green belt is worth studying. In many areas, everywhere people are allowed to build has already been built on. The restricted supply of spare land defined in 1947 has been used up. It can be seen clearly from the map that the green belt is strangling London, Oxford and Cambridge and many other places with the highest prices. Counties such as Sussex that are not densely populated at all by UK standards remain more or less empty (as I shall soon see on flight to Gatwick on which I am writing this article).

The more we restrict building on the green belt, the more we remove the green lungs within urban areas as we densify and build higher. We are building eleven new tower blocks in Croydon whlist mainstream Surrey is more populated by golf courses than housing.

One question that is regularly raised is that of beauty. It is said that people don’t mind decent houses in their back yard. So how might we achieve that? The market can deliver beauty – just look at Bath or Eastbourne which were privately planned towns.

We need to develop something like a market in environmental amenity value. Instead of Section 106 money being spent on council hobby horses, developers should be encouraged to provide direct compensation in cash or kind to residents affected by housing. These might be road widening schemes to ensure that infrastructure met the new housing needs; restrictive covenants put on green pieces of land with an endowment to develop them as a nature reserve or corridor; cash payments and/or new doctors’ surgeries, for example.

Developers could make different offers to different areas. Those who valued environmental amenities more would get less housing but miss out on the benefits. If a scheme was more sympathetically designed, those affected would demand less to support it. An institutional mechanism would be needed to facilitate agreement, which could be the lowest level of local authority. Of course, the aim should not be unanimity amongst affected residents, but to create a package that led to a consensus in favour of, rather than against, development.

This is not a perfect way forward. But it is a way of dealing with the transactions costs of having huge numbers of people affected by development. It creates the potential for constructive engagement instead of an argument with one winner and one loser. Furthermore, currently, large builders have a particular comparative advantage when dealing with local authority bureaucrats. Small companies neither have the aptitude nor specialist staff to engage with the current planning system. Under this approach, small builders could deal with the community at a very local (perhaps parish) level. And there would always be the threat of planning permission being granted in any case, under current rules, if the local community did act reasonably.

There are other concerns about how what is often misdescribed as a ‘market’ works, of course, such as so-called land banking. Once again, we could allow local authorities to find their own solutions. For example, as soon as planning permission is given, local authorities could be allowed to charge the equivalent of either business rates or council tax on an undeveloped plot at the level that would apply if it were developed for its highest value permitted use. That would provide incentives to local authorities to give permissions and to builders to make sure building took place – it would be the seller of the land who would take the initial hit with the builder suffering only if he delayed development.

Central planning has failed. Let us give the market a try. In other words, let us do things a bit more like everywhere else in the world and a bit more like we used to in the UK. It worked before and it works elsewhere. You never know, it might work here again.

This article was first published on Conservative Home.

Further IEA Reading: The Housing Crisis – A briefing

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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.

1 thought on “Central planning for housing has failed. Let us give the market a try.”

  1. Posted 24/08/2018 at 18:42 | Permalink

    Not to worry Philip, the government central planners have come up with the solution! Corporate Prefabs!
    Tax credits, grants and regulations are to be used to encourage the building of prefabs, of course there are not many SME construction companies that can afford a multimillion pound prefab factory, so that unimportant freemarket thing called “competition” will be removed. I am sure corporate interests will ensure all the cost savings of building compressed cardboard houses will be passed onto the consumer.
    It is becoming obvious that the conservative government have become reliant on corporate lobbyists and protectionist trade bodies to help them set policy. I remember a time when the conservative government promoted SMEs & competition, those days are long gone!

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