John Myers: Fixing the housing crisis would probably raise average wages by a double-digit percentage

Freedom means you can use your property as you want, subject to the rights of others. It means liberty from oppression by a needless shortage of homes. It means the right to dream, to strive, and to move to opportunity. Instead, UK homeowners are currently frustrated in their hopes for another bedroom or a shorter commute. Tenants suffer stress, bad housing, insecurity, and lost life chances caused by rents being far higher than they need be. And the homeless — in one of the wealthiest nations in history — suffer even more.

Since the beginning of the current planning system in 1947, we have never grown the housing stock at the net percentage rate of the 1840s, let alone the far higher rate of the 1930s. Supply has dwindled until we now have about the most expensive homes in the world — worth, in total, some £4 trillion more than they would cost to rebuild — and the weakest housing supply in the OECD. It would be hard to make it worse. Although almost nowhere in the world does it perfectly, almost everywhere does it far better than we do.

That shortage of homes near well-paid jobs — like a twenty-first-century Statute of Labourers, or a very British hukou — stops workers from moving to better-paid jobs, and depresses wages in regions with fewer jobs than workers. It increases inequality, and makes the whole country poorer. Fixing it would probably raise average wages by a double-digit percentage. This is not a zero-sum game. We can use land better, with more freedom to build, and more affordable homes within more welcoming, beautiful places. Our failure to do this has left trillions of pounds lying on the ground, waiting to be picked up.

Property rights are meant to ensure that two people can agree to do something, if they both benefit. Of course, that may affect other people, however — and with more people involved, reaching agreement gets harder, as we will see. But talking about property rights raises the question: which rights? A century of US research on property rights is mainly unknown in the UK. A right to light is a property right, like a right against trespass. An easement prohibiting your neighbour from overshadowing your garden is a property right, too. You might agree with your neighbour to waive your rights and tolerate a bit more shade from their extension, in order to get the right to extend your property, as well. But the current planning system prevents those sorts of agreements — named after the British Nobel laureate, Ronald Coase — and millions of more ambitious ideas to build more housing.

Until 1939, in London, people had the right to build pretty much whatever they liked, up to a maximum height of 80 feet plus two storeys of roof, if they respected rights to light and setback rules. Then the State nationalised development rights, and after decades of muddling reforms, it is completely unclear who owns them now. You are allowed to build on your property only if the council gives you permission, so clearly you don’t have the right to develop — but the council isn’t allowed to charge you a market rate for the privilege, so it doesn’t entirely have the right either.

We have transformed development rights into an overlapping mush of quasi-rights to veto, held by an ill-defined mess of different interests — neighbours, lobbyists, rentiers — partly depending on who can shout the loudest into the ear of the right official. That tangle of overlapping veto players has caused near-total deadlock — or gridlock, as Columbia law professor Michael Heller calls it — making everyone less free.[1] It’s a small wonder we have an appalling and unnecessary housing crisis.

Our planning system was originally designed, largely with the best of intentions, when the world was far simpler, with far fewer homeowners worried about the price of their house, and with a real national consensus to build vast new swathes of housing. It was designed for compulsory purchase orders, slum demolition, and new towns, not a world in which people want more control and won’t defer to officials.

Perhaps a visionary politician could build overwhelming majorities in Parliament and their party, to cut the Gordian knot through radical deregulation. Some have suggested allowing more homes on the green belt, and building upwards in cities. But, of course, the people currently living there may grumble. Deregulation is easier when it’s victimless, than when people think you are taking away their property rights.

If radical change proves too hard, the obvious next best option would be to adapt the rules to let small groups of people decide together how to unpick the tangle locally, in order to benefit themselves and their area, while rules protect others from interference. This could be the people of a parish choosing to allow well-designed new homes in green-belt areas next to the village, in exchange for the money for a new village hall. It could be a street of residents voting to pick a design code and give themselves planning permission to extend or replace. Or it could be the residents of a suburban block of houses voting to give each house-owner permission to add a cottage at the end of their back garden. It might involve community land auctions, or other ways to spread the benefits. It might be based on a more European system of devolved incentives. We should try all of these things: ways to give people the freedom to find solutions that suit them, and to free the whole country from a needless housing shortage.

You might have thought that the point of a central planning system was to test to see what works best — as the NHS and our education system now do — following best scientific practice. Sadly, the Ministry for Housing, Communities and Local Government has conducted only one randomised controlled trial in its entire history, and that was in methods of teaching the English language,[2] not in planning. We could boost wages and growth and get a freer, fairer country, if only we fixed the planning system to enable far more homes in the right places. We can do this with the support of local people, while making the places in which they live better. We just haven’t tried yet. We urgently need to.

 

[1]Michael Heller, The Gridlock Economy: How too much ownership wrecks markets, stops innovation, and costs lives(New York: Basic Books, 2008).

[2]Ministry for Housing, Communities and Local Government, Measuring the impact of Community-Based English Language Provision: Findings from a Randomised Controlled Trial, 2018 https://www.learningandwork.org.uk/wp-content/uploads/2018/03/Impact-evaluation-of-CBEL.pdf

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