Richard Koch Student Essay Prize Winner Ryan Khurana: Towards Freer Housing
The UK is in the midst of a housing crisis that has decimated the incomes of the bottom third of the income distribution. The 1990 Town and Country Planning Act and the 2004 Planning and Compulsory Purchases Act have together created a series of supply-side constraints which have limited the ability of the UK housing market to expand and meet rising demand. To respond, I propose the repeal of these acts, replacing them with a Freedom of Housing Act, which would serve to free up land while protecting areas of natural beauty or environmental importance, as well as re-work the incentives to build. Not only would such an initiative bring prosperity to the UK; the removal of planning permissions throughout developed nations would improve access to property for the poor throughout the rich world.
The current system of development dates back to the 1947 Town and Planning Act, which laid the groundwork for what is the strictest set of planning laws in the OECD. It has contributed to a marked decline in the growth of the housing stock, particularly since the 1970s. The Act stipulated green belt land to prevent urban sprawl, height controls, and reduced the local fiscal incentives to allow development. The 1990 update to the Act with its 2004 complement, the Planning and Compulsory Purchases Act, while changing details, did little to substantially change the constraints on housing supply that the original policy created. The fundamental tenet of the original policy, that private property requires government permission to be changed, is representative of the command economy that once existed in the United Kingdom, the inefficiencies of which have been carried over to this day.
If a Freedom of Housing Act were to come into effect, a series of steps would need to be taken to ensure that the transition was smooth and effective. First, a re-appraisal of the green belt would need to be undertaken to restrict the classification to the land which met a rigid set of criteria regarding environmental or aesthetic importance, freeing up a considerable amount of land for development.
Secondly, a repeal of the local authority dependent planning permissions, which sprawl hundreds of pages would allow greater private control over decision making, and allow for more free entrance into building contracts. The inefficacy of the current system has led to the rationing of commercial land, with the private sector often unable to create new jobs without government permission. It has also greatly driven up the cost of development throughout the country. These plans also result in permissions taking over a year to receive approval; ignore the market prices for already developed property, making projections outdated even before development; and create barriers to entry for new developers. The provision of social housing and various other initiatives to prevent exploitation exist outside of the remit of the Planning Acts, making the existence of this sort of legislation simply unnecessary interference in market processes.
The short- and long-term effects of the policy outlined above can be predicted with reasonable certainty. The reclassification of green belt land according to strict criteria rather than local authority designations would free up a considerable amount of the 12 per cent of England that currently has this designation. Expanding land for building would extend the development of major cities, which has been linked to productivity growth by many major economic studies.
These productivity gains improve the economy in several ways that benefit the most disadvantaged. First, the expansion of available land would lead to an increase in the construction of housing. Building these homes would require additional jobs in construction, increasing the availability of quality jobs for struggling families. As this housebuilding would be able to continue into the future, as there is no indication that UK population growth will decrease, and at present only 10 per cent of land is built upon, a certain stability would also come with these new jobs.
Another benefit reaped beyond the increase in good jobs, is the decrease in housing costs, and the greater availability of new homes for families. As the supply of homes rises, access to homes for young people and struggling families increases tremendously. The ability to climb the property ladder has been seen historically as one of the greatest markers of social mobility and increased prosperity.
The removal of local authority approval would significantly change the incentive structures for building. As the cost of developing falls, and builders can more freely enter the market, a much more adaptive market will emerge. Such dynamism will increase incentives to develop more affordable housing by market processes. It is sound economic logic to believe that if a producer can sell his product at greater than the fixed cost of production, he is incentivised to sell as many as possible on the market due to competition, rather than only cater to the richest segments and build fewer units. However, under current incentives, the restriction on the amount built, their space, and the high cost of building, all lead to an economy in which resources are allocated to high revenue dwellings. As profitability for developers becomes easier, the cost of new property would also decrease, improving access.
Accordingly, the group that benefits the most from these reforms is the bottom third of the income distribution. As the cost of housing falls to reasonable levels, it becomes easier for individuals to be approved for mortgages that no longer deprive them of financial security. Climbing the property ladder has always been one of the greatest moves towards household financial stability, so increasing the opportunity for this to be accomplished is certainly a step in the right direction. Simultaneously, it would increase the supply of rental accommodation, increasing competition between landlords, improving both access to and the quality of affordable rental space. As a result, this can be seen as one of the clearest means of reducing poverty in the UK.
The winning student entry for the Richard Koch Breakthrough Prize can be read online here.
Ryan Khurana is an IEA intern and studies Politics, Philosophy, and Economics at the University of Manchester.
As with all IEA publications, the views expressed are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.