Monday, 30 December 2013

Another report on housing that ignores the planning system....

There is a growing number of people who think that the lack of housing - affordable or otherwise - in the UK is some sort of failing of capitalism and that, if we had a different system things would be all fine and dandy.

Here's a fine example of the genre from Michael Bauwens on the P2P Foundation blog:

The high cost of housing is draining money out of the productive economy, mainly through land and house price inflation, with damaging effects for national and individual household budgets. Many new homes are unaffordable to ordinary working people, some offer poor value for money in terms of quality or construction, design and energy performance, and cost pressures frequently drive out good design in the spaces between buildings and in the concept of supporting new neighbourhoods. Many new developments are socially, environmentally and economically obsolete from the moment they are conceived, let alone designed or built.

This is great but the author fails to adequately answer the question as to why housing is so expensive. Instead we have a straw man built for the author to attack: Britain, only 0.6% of the population – 36,000 people – own about half of the land. This is a significant structural reason for soaring housing prices and continuing wealth inequality.

Now this is true but there's a big problem with the argument. This ownership structure has absolutely nothing at all to do with the price of housing. Take a peek at the map of the UK. Most of the land these 36,000 people own isn't about to be used to build housing. Indeed, much of it is of pretty limited value - agricultural land values remain at below £10,000 per acre (in Scotland the value is below £5,000 per acre).

 Residential land values are another matter altogether - in 2010 the English average for residential land was about £950,000 per acre. In simple terms land for building on is nearly 100 times the value of the land for growing stuff. And more to the point, those 36,000 people our author thinks are the problem don't own most of this building land.

The problem isn't a question of market failure but a consequence of intervention in the market. We told in the article how wonderful the garden cities movement was:

The most notable example is the new town of Letchworth, 34 miles north of London, which was created in 1903 when developer Ebenezer Howard acquired 4,000 acres of farmland. He worked with ethical investors, Quakers, philanthropists and others to build a town whose land values would be community owned. 

The essential point here isn't that Howard had a wizard wheeze but that he was able to buy farmland and build houses on that land. And in building houses on the land (and shops, pubs, hospitals, etc.) Howard made it possible to capture (in our author's slightly partisan words):

...both the “unearned increment” of land value increases as well as “economic rent” of land (the excess returns commanded by a finite resource), so that everyone, not just investors, could benefit.

Howard was able to go into the market, buy agricultural land at agricultural land values and then get more value from the land by 'farming' houses rather than wheat or sugar beet. In England today this is not possible for the simple reason that residential land is worth ten times what agricultural land is worth. It doesn't matter whether you're running a co-operative, setting up a 21st century new town corporation or a wicked capitalist developer, you will pay nearly £1,000,000 per acre to the land owner (and a great deal more than that if you're anywhere near London).

The reason for the huge gulf between agricultural land values and residential land values isn't to do with capitalism, it isn't to do with who owns the land and it isn't to do with the uneven distribution of wealth. It's because of this:

In recent years the idea that physical planning should be conceived as a national, rather than a local, responsibility, has gained ground. The establishment of a Ministry of Town and Country Planning in 1943 was followed in the same year and in 1944 by statutes which brought this goal nearer to fulfilment. But the main weaknesses persisted. The 1947 Act seeks to cure them by solving the financial problems of local authorities and at the same time erecting a new structure of planning machinery to ensure that planning will be centrally co-ordinated and also effectively executed. 

There were few planning constraints on Howard's development at Letchworth or the later Welwyn Garden City meaning that the 'collectivist' model he preferred was fundable without government support or involvement. Since the 1947 Town & Country Planning Act and the creation of 'green belts' the model proposed here - an updated garden city movement - is simply not possible.

The reality is that any discussion of housing that doesn't mention the planning system misses the main barrier to lower values and more construction - planning. And we've seen the outcry when pretty minor changes to the planning system are introduced as the National Trust, the CPRE and national media plonk their heavy guns on the government's lawns.

Mutual systems of housing ownership and housing finance are a fine idea (although we should be careful what we wish for) but the real debate should be about how to balance the desire to protect open country and community identity - the reasons for the 'green belts' - with the equally pressing need for new housing, especially in the South East. And any report offering solutions to our housing challenges that ignores the planning system - as our author does here - is simply a waste of paper.


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