It is always pleasing to publish an IEA monograph and find that the subject is being talked about for months or years after publication. Very often, of course, the true measure of success is that the topic becomes so widely talked about that the source of the original ideas is lost. In this context, it is worth reminding readers of Kristian Niemietz’s monograph Redefining the Poverty Debate which looked at how government action made poverty worse. Kristian argued that the anti-poverty movement should be a pro-market movement just as it was in the mid-nineteenth century.
Everybody now seems to be talking about living costs with many on both sides of the political divide believing that we can just legislate to cap them. This is a great plan if you like queuing but is not a sensible policy. However, a sensible debate about planning and housing seems to have developed. There is an excellent article on the ConservativeHome blog by Andrew Gimson looking at the history of the rapid house building in the 1950s. The one mistake we made then was to build lots of council houses. Jon Cruddas argued recently at Civitas that it was ridiculous that only 5 per cent of government spending on housing went on building and the rest went on cash benefits. This is an economically illiterate argument. 100 per cent of all government spending for child care goes on cash benefits for child care and zero on building nurseries (or at least if nurseries are built by governments it is not generally part of a government strategic policy, but just filling in gaps here and there). There is no reason why the government – if it is going to subsidise people’s housing – should not provide people with cash with which they rent houses built using the capital put up by the private sector. Shelter argues in Andrew Gimson’s article that the mass council house building of the 1950s complemented the private sector. Again, that is an odd argument. Council housing on the scale of the 1950s was a disaster – grim and huge satellite estates with dreadful building standards emptied out city centres and undermined labour mobility. If you wanted to move house, you had to swap with somebody else: it was like the somewhat esoteric badge I used to wear as a student, ‘Communist with pork pie seeks similar with knife and fork’.
Given that building land can easily have a value 20 times greater than farmland, the government does not need to subsidise house building – even if it might have subsidise some people’s rent.
The main arguments in favour of more house building have been in relation to the cost of living, which is driven up by the high cost of housing. The links have not generally been made to other important political issues. We have significantly less than half of the retail space per head than the US and all land used for retail in the UK could fit into 30 per cent of the Isle of Wight. This reduces competition and productivity and raises the costs of using modern logistics. One of the reasons why childcare and eating out is so expensive in the UK is the high rents caused by low levels of building.
Economists at the LSE estimate that Britain’s planning policy has reduced the productivity of the retail sector by 20 per cent on extremely conservative assumptions. This affects the poor more than anybody because of the proportion of their income they spend on food and because – not mentioned by the LSE authors – retail tends to be an employer of low-wage people. Total office occupation costs are also 40 per cent higher in Birmingham than in Manhattan despite higher construction costs in Manhattan.
Furthermore, at the moment, we have large swathes of the country that are propped up by public-sector supported activity whereas in the south and London, we see much higher rates of private sector productivity. If the public sector stopped supporting activity in the rest of the country productivity might rise – but that is a separate issue. However, whether the public sector does or does not withdraw, the productivity gap between north and south has to be enormous before people can afford to move house (ignoring the issue of stamp duty which is also an impediment to moving). The equation is relatively simple – the more restrictive is land-use planning policy, the greater the gap has to be between productivity and wages in the north and productivity and wages in the south to attract people to the south. Every person who stays in the north as a result of planning policy lowers his potential productivity and real income.
Plenty of ways have been suggested of reforming the planning system to ensure proper compensation to those who tacit rights are affected by new building. In so far as there is a silver bullet in policy terms, it is land use planning. If the primary concerns people have are: the cost of living, the productivity crisis, the level of unemployment and the fall in real wages, then liberalising land-use planning is a major part of the solution to all these problems. Never before have we forced people to live in relatively low productivity areas to such an extent. Planning policy raises house prices directly; it raises the cost of providing all goods and services; and it prevents people from moving to areas where better paid jobs – reflecting higher productivity – are available. We need to start talking about these other dimensions of land-use planning policy too. Allowing people to build is likely to be the single most important policy to raise productivity and real wages.