Our terrible planning system causes untold damage to labour mobility and productivity
Then imagine those permits to live in highly productive cities with high wages like Cambridge or London became so scarce over time that they ballooned in total value to £3.7 trillion pounds, or two-fifths of the entire net worth of the UK.
Can you doubt that productivity and average wages would be gravely harmed?
But that is exactly what we have done with housing: a 21st-century Statute of Labourers. Yet because these permits are concealed within homes and called planning permissions, the problem is less obvious.
Homes within reach of the best opportunities are now so scarce that the total value of UK housing exceeds the cost of building it by an eye-watering £3.7 trillion pounds based on the most recently available ONS data.
That is some 40% of the entire net worth of the nation. It mainly arises from needless scarcity caused by the planning system – a massive but unseen tumour taking up two-fifths of the net national balance sheet.
The scale of that distortion dwarfs every other. It dwarfs any subsidy you can name. It dwarfs the losses from any other bad regulation. It may have impaired GDP by more than any other single event in centuries.
There is no other problem we could fix that would have anywhere near the same benefits.
Quite apart from the construction boom, ending the shortage of housing would unleash a productivity boom on a scale not seen in living memory.
The shortage of houses holds down wages in places with fewer jobs than homes; and holds people away from high wages in places with fewer homes than jobs. No wonder the young are unhappy.
If young people could move more freely between, say, Lancashire and Cambridge, wages would not be so much lower in Lancashire.
Net of housing costs, some parts of the population are worse off than fifteen years ago. It’s hard to defend a free market economy to a youngster who must either be priced out of living near good jobs or live with six others in a London flatshare paying rents inflated fourfold by a needless shortage of homes.
That’s not a free market, nor a fair one. Economists call that arrangement a cartel: a regulatory cartel, caused by bad regulation. A very British hukou.
Re-balance the country all you like, but not like this. Fairer to move the capital to Manchester. (I wish you luck.)
High rents in this country are mainly caused by a regulatory cartel stemming from badly-written planning laws. Those rents are a large fraction of the cost of living of the poor.
But fixing that problem is hard because homeowners make up two thirds of voters and they are happier when house prices go up.
Trying to get reform without addressing that has doomed a thousand prior attempts. By way of perspective, it is still official government policy, set out for the Letwin Review, for house prices to keep rising.
But the good news is that the economic damage is so huge that we can afford to spread the benefits around to get more support for change.
One obvious way to do that, in the spirit of a brilliant suggestion by Mark Pennington in his 2002 IEA book, is to give an additional power to approve development to small groups of residents at a very local level so they can agree among themselves what makes sense for them. Because people do defect from cartels if you let them.
For example, we found parishes who wanted to allow cottages on some scrubland but were blocked by the county because it was green belt. Our report last year suggested local people should have power to allow that if they want to. Twelve months later, that is now in the National Planning Policy Framework and we know at least one village planning to do it.
Other than villages, another small grouping that makes sense is a single street within a town or a city. People are mainly affected by what happens on their street.
If you ask residents on a single street if they would like the right to vote – say by a two-thirds majority – to set a design code so that the end result will look good and to give themselves the rights to extend or replace existing houses, they very often say yes.
Think of it as a mini neighbourhood plan, but with a few dozen people rather than thousands, to make it easy. We suggest height limits that the Georgians would have found unremarkable – say, five or six storeys – and other rules to protect the neighbours and the houses behind.
There is vast scope to allow more homes within existing settlements, while making them more beautiful – fairer streets in every sense.
If you take a street of 1930s two-storey semi-detached houses and let people pick a design code and get permission for five storey Georgian-style terraces or handsome Edwardian-style mansion blocks, you can increase the amount of housing by a factor of five, while often making the street look better. Simply getting the permission can double or treble the value for the original homeowner.
You may not be surprised to hear that many homeowners like that idea.
Just that one single change, giving power back to residents, would unleash a building boom that over time could add millions of houses across the country, while being wildly popular.
Many streets will vote no, but that is fine. The current ways of getting planning permission will still exist, so people can always use those. Allowing local people to opt in focuses change where people want it, and prevents a backlash where they do not. That’s much politically easier than trying to impose change everywhere at once. Even the objectors on a street that votes yes will be somewhat consoled by the bump in their house price. The surrounding streets may also see a bump as people realise their streets could do the same.
To sum up, there are popular ways of ending the housing crisis. It is easiest if you bring at least some homeowners with you. One goal of our campaign is to flag some of those ways, based on research by Elinor Ostrom and others around the world.
You can make existing homeowners happy by letting residents take back control, letting them share the benefits and creating better places and many more new homeowners at the same time. If you want to win votes and increase fairness for younger people, why not try that?
If you want to defend a free market to people, first you must make sure that you have one.
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