2 thoughts on “Our terrible planning system causes untold damage to labour mobility and productivity”

  1. Posted 12/10/2018 at 15:06 | Permalink

    Very thoughtful and article, thank you very much.

    Out of interest, how much could rents and prices be driven down to? Has any research been done on this?

    If property in nominal terms was back to where it was in the 90s, i.e 2-bed terraced houses in the midlands costing about £30 – 40 thousand, life would be so much easier.

  2. Posted 15/10/2018 at 01:05 | Permalink

    John Myers would be quite right to be concerned if planning were holding back labour mobility thus misallocating resources, but there is not a shred of evidence this is the case. Unemployment in London is the second highest in the UK, which we wouldn’t expect if there was such a problem.

    There is also a wealth of data confirming that the supply of housing has more than matched household formation in every part of the UK for decades, so planning does not appear to be at fault for that either.

    Of course planning needs to be re-active to shifting demands in the economy. The National Infrastructure Commission has set out its vision for the Oxford-Cambridge corridor, so existing policies are in place to cater for this area’s needs. All is as it should be.

    Puzzlingly, Myers seems to believe that planning permission is worth £3.7trn. But if planning permission for high rise apartments were granted to a plot in the middle of the Yorkshire moors it would be worthless. So its not the permissions that are worth that value but the locations buildings occupy.

    Land is by definition perfectly inelastic in supply, so only how and where it is consumed changes. As aggregated demand in the economy results from the networking and concentration of resources(agglomeration), when labour and capital are supplied to where they are most in demand, so does that part of demand for proximity to them. So we see a rise in aggregated land values, wages and capital. The results of urbanisation around the world confirm this.

    It is therefore quite strange to complain that the aggregated value of any factor of production, including land, is too high as this simply misunderstands the fundamentals that drive the economy.

    What is different about land vs labour and capital is that the returns to the latter are fairly distributed (taxes upon them notwithstanding). Whereas the returns to land are not. Those excluded from valuable land suffer a loss of opportunity, which if not compensated leads to a net transfer of incomes, baking in excessive inequalities and resource misallocation. This is the sole cause of housing issues.

    If people were fairly compensated, via 100% tax on land’s rental value, its selling price would always be zero or close to it. Given that, housing would not only be optimally allocated by the market, but would become as affordable as it could possibly get for those who find it unaffordable now.

    Perhaps even more importantly is how such a tax would effect the incentives of the state. As per the above, high aggregated land rents result from optimal resource allocation. That means getting the right balance of laws, rules and regulations that grow the economy while preserving/enhancing our shared environment, thereby shifting peoples spending choices for locational amenity. Any developer of a large plot of land, like the Georgians were able to do, know getting the balance of development right is key in order to maximise their returns.

    Any land tax is set as the opportunity cost of not putting it to its best use withing current planning regulations. If, as Myers says, it would be beneficial for more urban areas to be turned into townhouses, the government would simply change the planning regulations and set the tax accordingly.

    If you really wanted to see a building boom, and one that actually delivered affordable, beautiful and efficient urban environments we only need change our choice of taxes and thereby incentives of the state.

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