The way out of the housing crisis

Local planning, local tax autonomy

The empirical evidence from around the world is as clear as it gets: In the long run, housing costs are mostly determined by the severity of planning restrictions (see here, pp. 17-19). Those who are emotionally attached to the British planning system try their best not to see this connection by looking for explanations, however implausible, outside of the planning system. What they do not realise is that most of the research tests alternative explanations, and carefully controls for a wide range of other potential factors. But the bottom line is that other factors, while not irrelevant, are ultimately sideshows when looking at a sufficiently long period. The first and foremost reason why housing is so expensive in the UK is that the planning system does not allow enough homes to be built. We only need to look at the number of dwellings completed over the past thirty years, and compare it to any other country for which data is available (p. 14).

But if planning restrictions drive house prices – what is it that drives planning restrictions? Or in other words, why would the electorate deliberately and permanently deprive itself of housing space?

Part of the answer is that while restrictive planning is damaging on the whole, some people do benefit, and the benefits are concentrated and tangible. For landlords as well as homeowners living close to undeveloped land, the benefits of planning restrictions are obvious: The former can charge much higher rents than they otherwise could, and the latter enjoy greater housing wealth and open space nearby. Less intuitively, corporate developers can also be counted among the beneficiaries. The system raises the fixed costs of development, leading to a heavily concentrated market structure dominated big players. In most of continental Europe, corporate developers play a much smaller role than in the UK.

Meanwhile, the cost of the system is much more dispersed and opaque. The result of this asymmetry is that the beneficiaries of planning restrictions are much more likely to be politically organised, and voice their interest in the political arena. Organisations like the Council to Protect Rural England can always be counted on to be active on the anti-development side. But there is no obvious lobby representing those who cannot get a foot on the housing ladder, those who struggle with high rents, or those who are trapped in social housing. Not to mention those who are stuck in the endless waiting lists.

Some of those frustrated with the current system have resorted to attacking ‘nimbys’ as selfish snobs, but what we have to realise is that the current system makes nimbyism entirely rational. In principle, development brings costs as well as benefits to a community. Yes, it is a nuisance to residents, and it does lead to a loss of open space. But it also enlarges the local tax basis, which could enable either better local public services, or lower local taxes. The key problem is that the tax structure in the UK has become so overly centralised that this latter consideration plays virtually no role at all anymore. Local tax revenue in the UK represents a risible 1.7% of GDP. For comparison: Even in France, which has traditionally been considered the textbook model of super-centralised governance, the share is 5.2%.  

What this means is that the downsides of development are felt by local people, while the advantages of development are collectivised at the national level. Should we be surprised if people act ‘nimbyistic’ under these conditions?

The way out of the housing affordability crisis is to get the incentive structure right. Local authorities should become self-funding. They should finance their own expenditure from locally raised taxes, be it a local income tax, a local property tax, or whatever they see fit. They should then also obtain full control over planning decisions in their surrounding. Local residents would finally be able to reap the benefits from development, instead of just bearing the cost. Nimbysim would not disappear, but it would greatly reduce, because it would simply become too expensive to be nimbyist.

Photograph: Getty Images

Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow.

Kristian is currently a PhD student in Public Policy at King's College London, where he also teaches economics. He is the author of the recent IEA Discussion Paper on planning reform, Abundance of Land, Shortage of Housing.

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Keir Starmer MP: Choosing ideological purity before power is a dereliction of duty

The former director of public prosecutions believes getting involved with Brexit negotiations is crucial. 

 

Three weeks after Brexit, Keir Starmer held a public meeting in his London constituency of Holborn and St Pancras. “We had hundreds turning up,” he remembered. “The town hall was absolutely packed - it was standing room only and we had to turn people away. We haven’t had a public meeting of that size for some time.”

When it comes to Brexit, Starmer is an obvious Labour asset. Director of public prosecutions from 2008 to 2013, he has the legal background to properly scrutinise an EU deal. His time spent as a shadow immigration minister means he understands some of the thorniest problems facing negotiators.

But instead, the MP finds himself on the shadow back benches.

“My decision to resign was driven by Jeremy’s decision on the referendum,” he told The Staggers. “I was particularly troubled by his suggestion that we should invoke Article 50 straight away, and start the exit process [Corbyn has since backtracked on this suggestion]. 

“That is not for me a question of left-right politics. When he said that, I felt he was in fundamentally a different place from me in terms of how we fight for the future of our country.”

Starmer is not a man to enjoy life in opposition, and he has little time for airy promises. “Jeremy talks of dealing with inequality and housing projects, and a fairer society - all of which I would agree,” he said. “What I haven’t seen is the emergence of detailed policy that would get us to these places.”

He also gives purists in the party short shrift. “I would reject wholeheartedly any notion of a Labour Party that is not committed to returning to power at the first opportunity,” he said. “Of course that needs to be principled power. But standing on the sidelines looking for the purest ideology is a dereliction of the duty for any Labour member.”

Starmer believes Labour should be joining Scottish and Northern Irish leaders in trying to influence Brexit negotiations. He sees the time before invoking Article 50, the EU exit button, as crucial. 

Nevertheless, the man named after the Scottish founder of Labour, Keir Hardie, is pessimistic about the future of the UK. 

“It is going to be increasingly difficult to resist a further referendum in Scotland,” he said. “It will be increasingly difficult to keep Scotland as a part of the UK. I hope that doesn’t happen, but everyone knows David Cameron has put that at risk.”

Starmer may be a London MP, but he follows events in the rest of the country closely. While still in his shadow cabinet post, he embarked on a countrywide tour to learn more about attitudes to immigration.  

He condemns the increase in racist attacks post-Brexit as “despicable”, but insists there is “a world of difference” between these and genuine concerns about resources. “If you lose your job because there has been an influx of labour from another country, that is a legitimate cause for concern.”

He is equally scathing about the Government’s net migration cap. “If immigration is simply seen as a numbers game, nobody will ever win that debate,” he said. “The question should be: what is it we want to achieve?

“What do we expect of those who are arriving? What is the basic deal?”

In January, Starmer visited the informal camps in Calais and Dunkirk. “What I saw in Calais was appalling,” he said. “It is an hour from London. 

“To see families and children in freezing, squalid conditions without any real hope of a positive outcome was enough to make anybody think: ‘This is not the way to solve the refugee crisis.’”

The new PM, Theresa May, built her reputation on a rigid asylum policy, but Starmer believes a strong opposition can still force change. “If you take the Syrian resettlement scheme, that started life as a scheme for victims of sexual violence,” he said. “When pushed, it became a scheme for 20,000 Syrians but not if they reached Europe. When pushed, the Government accepted the case for some unaccompanied children in Europe to come to this country. 

“Labour needs to keep pushing.”

For now, though, Labour is divided. Starmer has been tipped as a future leader before, in 2015, but declined to run because of a lack of political experience. One year and a Brexit on, he certainly has some of that under his belt. But he rules himself out of the current leadership challenge: “I am 100 per cent behind Owen.” What will he do if Jeremy Corbyn wins? “Let’s cross each bridge when we come to it.”

Starmer is clear, though, that Labour can only win an election if it comes up with a more ambitious project, an economy with purpose. And the Brexit negotiations provide an opportunity. “We have to ask ourselves,” he said. “Do we simply want a series of trade agreements, the more the merrier? Or do we want deals that achieve certain ends? It is a moment to recast the future.”