No we don't need land reform, we need planning reform

Hardly a week passes without someone trying to pretend that housing markets are somehow immune to the rules of supply and demand. Many of these are just politicians and pundits trying to pretend that black is white but some lay claim to some sort of intelligent analysis - a bit like this from Laurie Macfarlane at Open Democracy:

How did we get here? A popular explanation is ‘we’re not building enough homes’. While this is part of the answer, it is far from the whole story. At the root of the problem lies something that has for a long time been overlooked: the role of land in the economy.

Now before we start on why this argument is problematic, I'll say that for the last couple of hundred years land has become - with each passing year - less important as a part of the economy except where its supply has been barred from a given market (ie housing). Yet people write long articles explaining why this isn't so and how, if only we reformed how we see (or tax, or buy and sell) land, then all these problems would be over.

The article that quote comes from is pretty typical of the genre, interesting and informed but still churning a set of misunderstandings. We can start with this one:

Land first began to be treated as tradable, private property in the 16th century, triggering the birth of modern capitalism. But this transformation gave rise to a tension. On the one hand, landed property empowered people by providing physical and economic security, including collateral to leverage credit, which helped drive economic growth and technological advancement. But at the same time, private property in land was inherently exclusionary: by its very nature, granting some people exclusive rights over what was previously a common resource involves taking away the rights of others.

There are lots of examples that show this argument is false - from Roman law through the edicts of Charlemagne to the Magna Carta - but let's just stick with the last one and Steven Gastowitz QC on the subject:



So, back in the 14th century land (and earlier) was a tradeable private property. Moreover, the fact that property rights - and the desire to have government defend and protect those rights - go back into ancient times tells us that saying their existence triggered "the birth of modern capitalism" is also false.

The whole (and this is pretty crucial) point about the modern market economy is that is is not based on land and the ownership of land. It is possible to be a billionaire and not own a square inch of land (unlikely I'll grant but possible). Business, in its modern identity, is based as much on intellectual property and brand equity as it is on the supposedly 'underlying' value or availability of land. Indeed a great deal of the real estate business isn't buying and selling land but rather the rights associated with land.

The problem is spotted by Macfarlane:

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. We don’t know the exact breakdown between these two components (bizarrely, there is currently no reliable public dataset on the land market in the UK) but the available data implies that land under homes is currently worth around £3.7 trillion – nearly 70% of the total value of the housing stock. This makes residential land the UK’s most valuable asset, even in today’s high-tech economy.

Now we can talk about financial markets and that 'land values increase natually over time' but the main reason why residential development land is so expensive is because there is so little of it in the places where people might actually want to live (there's plenty - millions of acres - of developable land unrestrained by planning rules at rock bottom prices in places people don't want to live). The result is that government either cheats by giving itself the power to buy land at lower values than could be achieved in an open market - a cheat that Macfarlane notes got clobbered by the courts - or else throws out lots of subsidies. Macfarlane (wrongly but that's a different story) blames Margaret Thatcher:

With the arrival of Margaret Thatcher, the government withdrew from large scale house building, and councils were forced to sell their housing stock through ‘Right to Buy’, and prevented from building more. There was a shift away from supply side subsidies of ‘bricks and mortar’ towards demand-side subsidies of paying housing benefit to boost households’ incomes to enable them to access accommodation. Whereas in 1975 more than 80% of housing subsidies were supply-side subsidies intended to promote the construction of social homes, by 2000 more than 85% of housing subsidies were on the demand side aimed at helping individual tenants pay the required rent.

Although Macfarlane has mentioned the 1947 Town & Country Planning Act ("kept land in private hands, but nationalised the right to develop it") we've arrived at 2000 without asking whether the decisions made under that Act and its assorted successors has any role in driving the lack of residential development land? The problem gets hinted at when Macfarlane talks about financial liberalisation:

An ever increasing supply of credit interacted with a fixed supply of land, fuelling a house price boom. In turn, households were forced to take out ever larger mortgage loans to get on the housing ladder. Thus, a feedback loop emerged between mortgage lending, house prices and ever increasing levels of household debt.

The myth that land reform folk want to push is that this fixed supply of land is a simple fact driven by that old agage - 'buy land they aren't making any more of it'. Yet, at the same time, we're reminded that England uses only 10% of its land for towns and cities - not just the houses but all rest of that urban infrastructure. And, at the same time, significantly less than 1% of England's remaining land is earmarked for housing development. If you wanted to make a big difference the best way would be to double the amount of development land - something that could be done at a (very long, very painful) stroke of the proverbial pen.

Yet Macfarlane and the land reform folk still can't see the simplicity of such a solution preferring instead a government-driven and bureaucratic approach:

Compulsory purchase laws should be changed to enable public authorities to purchase land at agricultural prices, enabling the planning and development uplift to be captured for public benefit once again. A new National Land Bank should be established and made responsible for developing and leasing land, acquiring idle and vacant land for resale, and developing more New Towns. Planning authorities should be given more resources and stronger powers of plan making or zoning so that planning can be a ‘market maker’ rather than a market stifler.

Everything about this approach is wrong. Most of all giving local councils more ability to 'zone' as 'market makers' simply invites the worst sort of rent-seeking. Decisions about what is built, where it gets built and who builds it are no longer determined in a market but instead are the gifts of local council and planning power brokers. By seeking to "level the playing field between tenures" we recreate the world of council housing that so many came to hate and which right-to-buy ended.

Yes land is scarce. But it's not so scarce that we are incapable of allowing a mature market in development to build homes - for sale or rent but mostly the former - for those people who want to buy them in the places where they want to live. But in all of Macfarlane's article - and for all I know the book it derives from - there's no recognition that, in a large part, the unaffordability of housing is a consequence of deliberately limiting the land available for housing. Yet that is precisely what our planning system does.

....

Do we obsess too much about land?

Let's start by agreeing with this statement (and I think the recent Housing White Paper starts to help):

Secrecy surrounds much of the country’s land ownership. It’s time for the Land Registry database to be completed and opened up to all

And then let's not disappear down the rabbit hole of believing that somehow everything in our economy is ultimately derived from land ownership or that what matters is acres not five pound notes. This is the mistake that Guy Shrubsole makes in this article:

“The ownership of land,” wrote the 19th-century radical economist Henry George, “is the great fundamental fact which ultimately determines the social, the political and … the moral condition of a people.”

Who owns land matters. Landowners get to choose how their land is used, and that has big implications for almost everything: where we build our homes, how we grow our food, how much space we set aside for nature. Owning land confers wealth, status and often political power.

Shrubsole goes on to talk about how many acres the Ministry of Defence owns and how much of the UK is grouse moor. The thing is that, as even Henry George knew, what matters is land value not acreage. Self-described 'radicals' have an unhelpful obsession with how much land folk own rather than how much that land is worth. This obsession harks back to a nineteenth century viewpoint that saw land as the sole source of value and the ultimate store of wealth.

Housing covers just 10% of the UK's land but represents by far the largest proportion of land value (I appreciate that part of Guy Shrubsole's mission is to answer the question 'what's all that land worth'):

The value of all the homes in the UK has reached a record £6.8tn, nearly one-and-a-half times the value of all the companies on the London Stock Exchange.

Since agricultural land values are typically about 1% of housing land values meaning that, for a back-of-the-envelope guesstimate, the rest of the UK's land outside cities is worth between £600bn and £1tn. And, discounting mortgage lending, owner-occupied property accounts for £4.4tn of that value (65% of £6.8tn). Back in the 1880s when Henry George was writing, land value probably was in the hands of a relative few men. Today this just isn't true - for all the 'Generation Rent' stuff (and this really only applies to London and the South East) we remain a property owning society.

The problem is that George and other 'radicals' were focused on rents and saw that much of the UK's national income came in the form of rents to that land meaning that taxing land value represented an effective and fair way to tax those rents. Not only does most of the UK's land value - all those owner-occupied properties - not generate any actual cash rent but most people's income comes from the less aristocratic process of trade. And there is precious little link between trade and land values.

Nor does land ownership have very much to do with the UK's (or rather London and the South-East's) problems with housing supply. I'm pretty confident that, were we to designate some land currently used for agriculture as housing land, there will be some happy smiling land-owners. Grubsole talks about the housebuilders sitting on land, something that may or may not be true, but fails to recognise that the amount of land actually allocated for housing in the UK is tiny (less than 1% of the UK's land area) and the housebuilders own only a small part of that housing land.

Our obsession with landed estates strikes me as an unhelpful hangover from a time when these estates really were where the UK's land wealth was held. Those estates are still pretty big and pretty valuable but they are pretty marginal to the UK's economy - the existence or not of moorland maintained for shooting may be a public policy issue but it isn't a matter of any real consequence for the economy or indeed for the majority of the population. And, for all its importance, agriculture is similarly insignificant as an economic sector.

Overwhelmingly the value added in our economy - our national income - does not come in the form of rents and is not dependent in any way on land values, however much you contort the concept. Yet people still look back wistfully to those nineteenth century 'radicals' as if people actually want "three acres and a cow"! Today, our obsession with land only continues because the systems we've created to govern the use of land make it that way. Our planning system creates that huge disparity between agricultural values and development values, local taxes are based (admittedly poorly) on land values, and because house prices are a staple of private conversation the experts in real estate become a mix of celebrities and exploiters of innocent punters.

But it's not the grand acres that this system is bothered with but rather the millions of little plots on which our homes sit. That's where the 11 million mortgages worth £1.1tn are found not on Lord and Lady McMuck's hundred thousand acres of Scottish moorland. Yet Guy Grubsole and the land obsessed fret more about the latter than the former. I agree that knowing who owns stuff would be useful but let's not allow this to distort our view of the UK's wealth simply to satisfy some sort of agrarian radical wet dream based on a world long gone.

....

Sometimes I just want to cry....

****

A tweet from Julian Dobson:

National Housing Federation wants public land released, but we should challenge private landbanking too - use it or lose it.

I read this. And then read it a second time. And then thought...what on earth, this man - a usually wise and thoughtful man - is talking about the confiscation of private property.

At the moment I live in a country where, if I choose to, I can buy a piece of development land and do absolutely nothing with it at all. This might be stupid. It is certainly a waste of money. But in Julian's world, I shouldn't be allowed to do this, it should be taken from me and given to someone else. Doubtless to some suitably cuddly, mutual, co-op sort of organisation filled with the righteously self-important.

...sometimes I just want to cry. Whatever happened to liberty?

....