Friday, 13 December 2013

Enshrining Individual Rights to Remove the Planning System

Originally taken from the Liberal Reform publication "Coalition and Beyond: Liberal Reforms for the Decade Ahead", published in September 2013.

It is undeniable that something is wrong with the UK property market. Since 1952 property prices have risen in real terms by 253%1. An average house would have cost you 3.2 years of average pre-tax income in 1952, today it would cost 6.15 times2. What explanation is there for this price rise?

Obviously wages have risen considerably since the 1950s and material costs have likely risen too, leading to higher construction costs. The most striking difference, though, is the change in the cost of land. Between 1994 and 2008 the price of land rose in real terms by 267%3. Again, why is this? Prices will only increase when supply outstrips demand.

Yes, demand has steadily increased owing to our ever-increasing population; but it has been primarily led by the increase in those choosing to live (or, in the case of family breakdowns, needing to live) in ever-smaller households. This is superbly illustrated by the growth in housing of 12.1 million since 1952 against an overall population increase of only 12 million.

Some argue that, after a century’s building, the supply of suitable land is now depleted. Obviously land is finite, but the fact that we find new land to build on each year at a reasonably constant rate whilst prices continue to increase suggests that the annual supply is being artificially limited.

One of the seemingly unshakeable myths commonly held is that England is already heavily developed. Perhaps this is because 80% of us live in the urban areas that take up around 25% of the nation’s land mass. In fact, only 2.3% of land in England is actually built on. Even in the South East, where development is densest, the vast bulk of land is classified as rural. Yes, this is what makes living there so pleasant – but is it really right that the dream of living in the countryside should be permanently restricted to 20% of our citizens (who are likely the most economically successful)? We often talk of how important it is to preserve green space for our children, so why then do we want them growing up in urban communities, isolated from it? Is ‘the British dream’ really living in a pokey flat with the countryside as something that’s either distant or for ‘other people’?

We need urgently to look instead at the mechanism through which supply is governed. The UK planning system grants privilege over whether something is built or developed – or not – to local authorities. This is a decision that becomes inevitably politicised. Building new homes is unpopular among those who already own homes and few building programmes ever galvanise more supporters than those they alienate.

Decisions are made at local authority level by a combination of the personal preferences of individual councillors and what the electorate will tolerate. As for the people themselves, their reaction is understandable. Why would anybody actively desire new house-building near them? What benefit is there to an ordinary citizen in seeing new homes constructed on a field near their house? They’ll receive all the negatives – their quality of life detrimented by built-up surroundings, increased traffic and more pressure on local infrastructure and facilities – while somebody else benefits from all the positives.

This, then, is the current situation. And the longer it is maintained, the greater the problem becomes. Those who pay a high price to get on the ‘property ladder’ gain a vested financial interest in shutting others out. This isn’t a malicious decision, it’s simply part of the complex decision-making that individuals instinctively make every day to maximise their own personal outcomes.

We can only ever build enough properties with public acceptance – acceptance not only of the need for more house-building nationwide, but also on our own doorsteps. Perhaps we could benefit from an educational campaign about the need for housing, as well as appealing to people who want sufficient homes for their own children. Ultimately, though, there are only two ways enough homes will be built: either through ‘brute force’ (illiberal); or by ensuring people are content with, even actively desire, new development (liberal).

Liberals should be instinctively suspicious of any attempt by governments, local or national, to manipulate the mechanisms of supply and demand. Are we really surprised that a market in which the government exerts such heavy influence is so horribly broken? Centralised planning was very popular in the 20th century but constantly ended in disaster4. During the 1980s, many markets were liberalised and this is a trend that has since continued, bringing with it greater efficiency and freedom of choice. The principle that shone so clear in the time of Adam Smith once more emerged; incentives matter.

How then do we make people desire development? We have to give them a stake in it. The planning system currently exists to protect people’s rights, although it does so through a community-orientated ‘for the greater good’ approach where it’ll often decide (sometimes arbitrarily) to trample over the rights of individuals.

Instead we should look to legally enshrine those rights that we value and wish to protect but give individuals the right to commoditise them so people can reach their own decisions as to the relative merits of a project. I’m sure we’d all agree that somebody living next to a green field that is proposed for development should have a say on the proposal – and indeed probably a greater say than somebody who lives a few miles away, even if they are in the same electoral district.

Rights could be allocated based on a combination of various factors, for instance: loss of light from tall buildings, a blighting of your scenic view, additional noise generated by new residents, or even simple proximity to development.

Groups of individuals could pool together their various rights and trade them for new schools, leisure centres or roads. This direct control by affected parties would mean that all building work was, by definition, popular, at least with a majority; otherwise it would never be signed off. It would also use market mechanisms to find the ‘sweet spot’ that best suited all parties. Developers would only be able to offer a certain amount for a particular plot before somewhere else became cheaper or the project became unviable. This would mean existing residents couldn’t excessively profiteer or the deal would fall through and they’d get nothing at all.

Who would you trust to make the best decision about building on your doorstep? Your local councillor, likely elected by a small, vocal minority, who has extremely limited time; or you and your neighbours, who are directly affected? I would personally choose to have the final say every time (likely following advice given by reputable third parties), just like I do day in, day out..

Of course, there should be exemptions. Areas with national designations should still be protected by national policy. This would include areas of outstanding beauty, ancient woodland and other irreplaceable habitats. It should not however, include the rather arbitrary Green Belt. If local residents had control over building they’d be able to make their own determinations of how their community should look.

This policy wouldn’t apply only to housing. Where a company wishes to build a supermarket or office block the same rules would apply. It would also apply to cases where mineral rights were to be found. Communities are often opposed to fracking for shale gas, and understandably so. Why would you want the risk (however small) of earthquakes and groundwater contamination without some sort of tangible benefit?

There are, it should be freely admitted, some potential pitfalls with these plans. Most notably, we can’t say for sure exactly what would happen to the land market. It’s possible that the fees required to procure rights would add to the price of housing while not radically increasing supply: in this eventuality the situation would worsen. However, I do not think this is likely to be the case. What is more likely, I think, is that removing control based on estimating demand and moving instead to a free market would bring large volumes of land into use, freeing owners to compete with one another in order to sell otherwise useless land.

We need to be alert to the unpopular realities of this proposal. If they worked as planned and increased land supply and thereby reduced land prices we would see a serious backlash from those who either enter negative equity as a result, or who had viewed their property value as a ‘nest egg’. This is the hardest issue to tackle. While the property market is clearly a bubble waiting to pop, the government which finally pops it will risk vast unpopularity. This should ease over time, though, as anybody hoping to ‘move up’ the property market realises this is now cheaper.

For those who feel queasy at the thought of this backlash, I ask one question: what alternative is there? Inaction will lead to greater numbers of people living in increasingly over-crowded areas with all the inherent problems this produces. The status quo cannot continue indefinitely. The age at which people can afford their first home is rising and shows all signs of continuing to do so. Eventually, enough people will become alienated from home ownership to take action through the ballot box and the homes will then be built – quite possibly, through ‘brute force’. Would you rather change things now on terms friendly to all, or see central government make the decisions for you?

There is always uncertainty plunging into the unknown but past experience has shown that whenever we give people power over their own lives they make better decisions overall than those made previously by others on their behalf.