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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Over a Martini with my mother, I decide I'd rather not talk Brexit

A drink with her reduces me to a nine-year-old boy recounting his cricketing triumphs.

To the Royal Academy with my mother. As well as being a very competent (ex-professional, on Broadway) singer, she is a talented artist, and has a good critical eye, albeit one more tolerant of the brighter shades of the spectrum than mine. I love the RA’s summer exhibition: it offers one the chance to be effortlessly superior about three times a minute.

“Goddammit,” she says, in her finest New York accent, after standing in front of a particularly wretched daub. The tone is one of some vexation: not quite locking-yourself-out-of-the-house vexed, but remembering-you’ve-left-your-wallet-behind-a-hundred-yards-from-the-house vexed. This helps us sort out at least one of the problems she has been facing since widowhood: she is going to get cracking with the painting again, and I am going to supply the titles.

I am not sure I have the satirical chops or shamelessness to come up with anything as dreadful as Dancing With the Dead in My Dreams (artwork number 688, something that would have shown a disturbing kind of promise if executed by an eight-year-old), or The End From: One Day This Glass Will Break (number 521; not too bad, actually), but we work out that if she does reasonably OK prints and charges £500 a pop for each plus £1,000 for the original – this being at the lower end of the price scale – then she’ll be able to come out well up on the deal. (The other solution to her loneliness: get a cat, and perhaps we are nudged in this direction by an amusing video installation of a cat drinking milk from a saucer which attracts an indulgent, medium-sized crowd.)

We wonder where to go for lunch. As a sizeable quantity of the art there seems to hark back to the 1960s in general, and the style of the film Yellow Submarine in particular, I suggest Langan’s Brasserie, which neither of us has been to for years. We order our customary Martinis. Well, she does, while I go through a silly monologue that runs: “I don’t think I’ll have a Martini, I have to write my column this afternoon, oh sod it, I’ll have a Martini.”

“So,” she says as they arrive, “how has life been treating you?”

Good question. How, indeed, has life been treating me? Most oddly, I have to say. These are strange times we live in, a bit strange even for me, and if we wake up on 24 June to find ourselves no longer in Europe and with Nigel Farage’s toadlike mug gurning at us from every newspaper in the land, then I’m off to Scotland, or the US, or at least strongly thinking about it. Not even Hunter S Thompson’s mantra – “When the going gets weird, the weird turn pro” – will be enough to arm myself with, I fear.

The heart has been taking something of a pummelling, as close readers of this column may have gathered, but there is nothing like finding out that the person you fear you might be losing it to is probably going to vote Brexit to clear up that potential mess in a hurry. The heart may be stupid, but there are some things that will shake even that organ from its reverie. However, operating on a need-to-know basis, I feel my mother can do without this information, and I find myself talking about the cricket match I played on Sunday, the first half of which was spent standing watching our team get clouted out of the park, in rain not quite strong enough to take us off the field, but certainly strong enough to make us wet.

“Show me the way to go home,” I sang quietly to myself, “I’m tired and I want to go to bed,” etc. The second half of it, though, was spent first watching an astonishing, even by our standards, batting collapse, then going in at number seven . . . and making the top score for our team. OK, that score was 12, but still, it was the top score for our team, dammit.

The inner glow and sense of bien-être that this imparted on Sunday persists three days later as I write. And as I tell my mother the story – she has now lived long enough in this country, and absorbed enough of the game by osmosis, to know that 17 for five is a pretty piss-poor score – I realise I might as well be nine years old, and telling her of my successes on the pitch. Only, when I was nine, I had no such successes under my belt.

With age comes fearlessness: I don’t worry about the hard ball coming at me. Why should I? I’ve got a bloody bat, gloves, pads, the lot. The only things that scare me now are, as usual, dying alone, that jackanapes Farage, and bad art. 

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 23 June 2016 issue of the New Statesman, Divided Britain