I am not going to claim that Prof Alan Evans’s book No Room! No Room! The Costs of the British Town and Country Planning System, published by the IEA in 1988, was the first-ever study which showed how the planning system makes Britain poorer. If I did, I know that one of you would dig out some obscure paper in some obscure journal, which already made a similar case years earlier, and post it in the comment section. I have been in the think tank sector for long enough to know that hardly anything is truly original, and that almost every argument has already been made by someone, somewhere, in some form before.

Still – No Room! No Room! must have been among the very early studies to offer a comprehensive critique of the system, combining economic theory with empirical evidence. Since the problems Prof Evans identified are still very much with us today (except a million times worse) – let’s revisit his argument.

First of all, when Prof Evans talks about “the planning system”, he specifically refers to the system that developed in Britain after the Town And Country Planning Act 1947, not all planning per se. He accepts:

“We cannot simply abolish the planning system […]

[S]ome guidance of development is necessary to minimise environmental conflict” (p. 51).

Prof Evans’s overall assessment of the system is simple:

“The planning system has an impact on the process of development in a way which was not foreseen by those who originally devised it. […] The planning system has evolved over time from a system designed to guide development into what is regarded by the planners as ‘socially optimal’ land use into a system to control and restrict development” (p. 34).

Why is that a problem?

Because “if […] development is prevented […], there is an economic cost to this lost development which is seen in higher prices and a lower standard of living. […] [T]here is a connection between spiralling house prices in the South East and the reluctance of the counties and districts to permit development. But the costs of the planning system are not limited to higher house prices. These are only the most evident of economic costs” (p. 14).

Which sounds plausible enough. But is there any evidence for it?

According to Prof Evans – yes, there very much is. First of all, we have indirect evidence from abroad:

“To obtain such evidence we must study a variety of urban areas which are otherwise similar but differ in the amount of land which is available for development. This cannot be done in Britain where all cities are subject to similar constraints on development. It can be done in other countries, however” (p. 19).

Evans mentions a study of North American housing markets, which compares urban areas subject to stringent growth controls to otherwise similar urban areas where such controls are looser. It finds – believe it or not – that growth controls raise residential land prices.  

This has since been confirmed by a mountain of evidence (see pp. 74-80). But back to 1988.

Evans also finds direct evidence for the bite of planning constraints in the growing gap between the value of land with and land without planning permission. Of course, even in a very liberal planning system, we would expect land with planning permission to be worth many times more than land without it. But we would not expect that gap to systematically grow wider and wider over time:

“These differences between the price of agricultural land and the price of the same land but with planning permission […] indicate that if planning controls were relaxed, many owners of agricultural land would be able to sell it for development. […] The difference in prices in the two markets, at the margin, is maintained only by restricting the transfer of land from one market to the other” (pp. 17-19).

That gap, of course, has only grown further since.

The result is not just higher house prices and rents. It also means higher consumer prices in all sectors that require more than a minimum amount of space:

“[T]he price of hotel space in Britain tends to be higher than in other developed countries, as those who have travelled in Europe or North America can confirm. The same is true of restaurants. […]

Planning restrictions on the amount of space available for housing, shopping, hotels, restaurants, and leisure affect the cost and kind of facilities available to consumers and thus directly lower their standard of living” (pp. 30-31).

And it means lower wages:

“If the cost of land and space in Britain is higher than elsewhere, the higher cost of space is a burden which British manufacturers and commercial services bear and which they have to cover by reducing their costs elsewhere. […] [T]he higher land costs must either result in the firms going out of business or in their paying lower wages and salaries to their employees than those they compete with in international markets. In this way the costs of the British planning system are borne by the population in the form of lower real incomes” (p. 32).

Planning constraints have their greatest effect in high-demand areas. High-demand areas, of course, are high-demand for a reason: they tend to be the parts of the country which offer the best employment prospects. By making it harder for people to move to those areas, planning constraints make Britain poorer overall:

“[T]he house price differential also acts to choke off […] migration. House owners in the north find that they would be worse off if they sold up and moved, even if it meant moving out of unemployment into employment” (43-44).

This effect is many times greater today, since there is much greater variation in housing costs.

These are some of the ways in which planning constraints make Britain poorer. The overall effect is hard to quantify, but it is certainly not trivial:

“[T]he planning system […] has significantly increased land and housing prices […] and distorted the economic structure, all of which have led to the British standard of living being lower than it otherwise would be. […] The aggregate reduction is […] probably of the order of 10 per cent or more of national income” (p. 50).

The words “NIMBY” and “NIMBYism” had not yet caught on in Britain, so they do not appear in the book. But the concept certainly does:

“At present residents always oppose any development near to them. Only the extent of their opposition varies, and that can be measured by the amount of pressure put on local councillors to turn down planning applications by lobbying, petitions, letters, public meetings, and so on” (p. 52).

Evans points out a major inconsistency in the planning system, which still plagues it today: while it is easy to mobilise the opponents of housebuilding, it is almost impossible to mobilise the potential beneficiaries, who cannot be identified in advance.

“The future occupiers of the development […], who in one sense are those most affected by the decision, are usually unrepresented when the decision over land-use is made” (p. 51).

It is often claimed that the reason why development is so unpopular is that new-built housing is often ugly. Evans turns this logic on its head. Constraining housebuilding makes housing uglier:

“Since property has been made a scarce commodity, more or less anything can be put up and sold. An uninspired development devoid of architectural merit may sell for less than one which is better designed, but the reduction in the total profits will be minuscule compared with the profits made from obtaining planning permission in the first place” (p. 38).

While a bit vague on the solutions, Evans suggests that we need to find a way in which NIMBYs can be bought off, through direct compensation payments.

I will stop just short of calling Prof Evans a prophet. His emphasis on the outward expansion of towns and cities, and his apparent lack of interest in urban densification, was a bit off the mark. Otherwise, though, even with the benefit of 35 years of hindsight, I can only come up with fairly minor criticisms. In an alternative universe in which policymakers had listened to Prof Evans after the publication of this book, the housing crisis could have been nipped in the bud, and Britain would be a much richer country today.

 

A different version of this article was first published on CapX.