A note for a housing policy forum. Part 4

#ObscenePlanningGain

We are not short of land

Key point: Planning permission adds enormous value to land

A plot of land big enough for a house costs less than £1,000 at agricultural prices.

In places like York, that becomes £50,000, sometimes much more, once the planners give building the go ahead. Planning permission makes no immediate difference to the land: but its name on a certificate in a council office gives an enormous unearned bonus to the land owner.

This increase is because planning permission is limited in supply. In the London catchment area the value of a housing plot with planning permission exceeds £100,000. More than fifty times its value as agricultural land.

Available land.

In England less than 10% of land is built up. In How much of your area is built on?, the BBC’s Mark Easton uses the European Union’s Corine land cover data

For the whole of the UK:

• More than half of the land area is farmland (fields, orchards etc),
• Just over a third is natural (moors, heathland, natural grassland etc),
• Under 6% is built on (roads, buildings, airports, quarries etc)
• Green urban is 2.5% (parks, gardens, golf courses, sports pitches etc).

Note that just 6% is built on.

In the UK only the London Region is a bit crowded.

The London Region is ten times more dense than other English regions.

But even the most dense borough in London is Islington at 157 people per hectare is not as dense as Paris (209), Athens(203) or Barcelona (159). Surrounded by the South East Government Region London is within easy reach of expanses of land where people could settle and have a decent life. The South East Region has a density less than one tenth of the London Region.

There’s plenty of room, so why then is there a housing crisis? Why are so few new homes built?

Plenty of room, shortage of planning permission

Timothy Worstall from the Adam Smith Institute has expressed a simple solution to the problem: Just issue lots of planning permissions and the market will force the cost of housing down:

So, we should get on with issuing more such permissions, which will lower the cost of housing: for it is quite simply the artificial restriction that government places on the number of planning permissions that increases the cost of housing.

He also says in Forbes Magazine

The solution to all of this is therefore obvious, just blow up the entire planning system. By preference, kill off the Town and Country Planning Act 1947 and successors.

The Town and Country Planning Act 1947 and successors.

The development value of land for building is almost completely the value of the planning permission. Without the possibility of planning permission, nearly all the value disappears from “development land”.

The Labour Government’s Planning Act in 1947 established that planning permission was required for the development of land: ownership alone no longer conferred the right to develop the land. It also provided that all development values were vested in the state. In short:

1) The state owned the development value

2) The planners were in charge

After 1947, any land would be purchased by a developer at its existing-use value and a “development charge” levied on the difference between the initial price and the final value of the land.

The 1954 Town and Country Planning Act abolished the development charge so that since 1954

1) Landowners own development value

2) The planners are in charge

Of course, “the planners have been in charge since 1947” is a simplification. Power in planning is split between several bodies, statutory planning bodies, the courts, and ultimately the Government who give guidance to planning authorities and can call in plans for the Secretary of State to determine.

These planners are under many pressures, more often these have been to restrict the supply of planning permission. Objectors with special interests, the NIMBYs and the countriside lobby frame their arguments as the protection of a “clean and green” countryside, which invokes a strong emotional response in many of us.

NIMBYs and the countryside lobby restrict planning permissions

NIMBYs (Not In My Back Yard)s try to stop any more housing near their own houses. In Why the nimbys are winning the UK’s housing battles the Guardian’s Colin Wiles wrote

Take Cambridge, where I live. I recently attended a meeting for residents’ groups about the examination of the local plan. Representatives from around 30 groups were present but all of them were from affluent parts of the city. Poorer neighbourhoods were simply not represented.

Yes. NIMBYS are affluent. They use their influence to stop developments “in their back yards” and these are usually sites near towns that give easier access to jobs, shops and schools and will have better public transport. Nimby campaigns stop developments that might “spoil” their area and decrease the value of their houses locally. Nationally the value of their houses rises by restricting the national supply of houses.

Thus Nimbys raise property prices to benefit the affluent at the expense of the poor. In general Nimbys are also the affluent.

Affluent homeowners benefit from planning restictions but the poor pay higher rents

Planning restrictions contribute to the increase in house prices to the benefit of home owners. I used the Land Registry data on house sales in a piece for Progress Online, The return of plotlands and prefabs and showed

Adjusting for inflation between 2000 and 2010, I found that property of the most affluent areas increased by just over eight times the average income in 2010. Property prices in the least affluent are rose by a factor of two. However, according to the 2011 census, only 20 per cent of households in the least affluent areas own their homes. In the most affluent areas home ownership rises to 90 per cent.

So

During the 2000s most households in the most affluent areas had large increases in their net wealth, at the same time most households in the least affluent areas paid increased rents.

Anna Minton blames housebuilders

Apart from home owners there are others that benefit. In Big Capital, Who is London for? Anna Minton has some strong comments:

The conundrum the Treasury was wrestling with was why the private sector was failing to respond to the demand for more homes. The reason is very simple: housebuilders have greater guarantees of profits if they limit supply and keep prices high, taking maximum advantage of the restrictions in land supply imposed by the planning system.

Timothy Worstall blames the planning system

In Geoffrey Lean’s still not getting it about housing, Timothy Worstall wrote

we would expect any responsible business to have enough, in stock, of its basic raw material to cover the lead time necessary to create more of that basic raw material… So, given that we have a constipated planning system we expect builders to have a stock of their basic raw material, land with planning permission.

That these land banks exist is proof, not that the builders are hoarding, but that the planning system suffers from that constipation.

Timothy has a point. Housebilders may need to accumulate land banks to plan their business – but once they own the landbanks what’s to stop them profiting as best they can and pushing up the price of new houses?

But don’t crash the banks?

Timothy Worstall’s suggestion was to issue lots of planning permission. However, there could be dangers to the economy if the fall in hous prices were too sudden. In and article for ProgressOnline, The return of plotlands and prefabs I wrote:

Reducing planning gain and cutting the cost of building could radically alter the housing market – but that brings dangers: for example, one of the Bank of England’s stress tests is to see if banks can survive a 31 per cent fall in house prices. If families were allowed to live in a £10,000 log cabin on a plot of land costing £2,000, would this depress the value of all other property and crash any banks? But is this a good reason for keeping house prices high (and rising) protecting the wealth of affluent house owners and punishing the poorer renters?

Let me ask this:

If families want to live in homes that cost well under £20,000

what justification is there when we insist they must live in homes

costing more than £200,000?

The next note will look at the cost of construction.