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Half the problem, and half the solution Print E-mail
Written by Carly Zubrzycki   
Friday, 25 July 2008

The UK's land-use system drives up housing prices. Though academics have been telling the government that for decades, apparently a few more MPs have just noticed this.  The question is whether they'll actually do something about it. At the moment, they seem to get about half of the problem, and half of the solution... hey, that's better than normal! Zoning restrictions and complicated bureaucracies drive up land prices. When supply is artificially restricted but demand increases, amazingly, prices go up! 

The problem is not simply the "stratified communities" or a lack of warm fuzzy feelings that these MPs seem to be concerned about. Land restrictions benefit exactly one group: wealthy homeowners.  Everyone else suffers the consequences, from the obvious (higher housing prices) to the subtle (higher food prices). There is a vast body of research that suggests that zoning laws redistribute wealth from the poor to the upper and upper-middle classes.

At least politicians now realize where the solution lies: to reducing the barriers to production. But they aren't willing to go far enough. The government wants to continue to play social engineer in the attempt to artificially impose a sense of community onto towns by requiring that new homes be low-cost and sold only to local labourers. So they'll lift one layer of restriction, but create a whole new set of restrictions and bureaucratic processes for developers to deal with.

The economic impact of the lack of a real market in land in the UK is widespread. At the moment, I'm working on a paper that seeks a middle ground – a market-based solution that will give residents control over their own neighbourhoods but prevent them from imposing the costs of their preferences on the rest of society. In the meantime, any action that actually lifts the barriers to building affordable housing would be a welcome step.

Comments (3)Add Comment
Mr
written by Kevan Jones, July 25, 2008
Decades of land use restrictions have certainly resulted in exceptionally high prices for even small plots of land. Trying to get any government, but particularly the current manipulative expression of the "Nanny State", to unravel restrictive laws and bureaucracy will be like trying to push water uphill with a sieve! It needs to be remembered of course that many members of the government will be personal beneficiaries of these high prices!

I believe that the situation is a significant factor contributing to the "Rip-Off Britain" label, every business has to deal with high premises and rates costs.

If we weren't one of the most densely populated significant countries in the world this wouldn't be such a critical factor (Unfortunately very few of the world governments are prepared to accept that the over population of the world will probably be our downfall as a species.), but the government continues to allow high levels of immigration.
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written by Mark Wadsworth, July 25, 2008
All we need is liberalisation of planning laws (carrot) and Land Value Tax (stick).

The longest period of low and stable house prices in recent English history was in the 1950s and 1960s when:
a) We were building 400,000 houses a year - rather than 100,000 or 200,000 as now - and that with a smaller and poorer population, and
b) We had Domestic Rates and Schedule A taxation that amounted roughly to a Progressive Property Tax (an inferior version of Land Value Tax).

But what makes you think that politicians WANT house prices to be low and stable? They don't, for two simple reasons:
1. Rising house prices create an illusion of wealth (see Barber, Lawson & Brown booms) The gummint is complicit in this with articifically low BoE base rates and restrictive planning.
2. Most MPs own two homes.

Here endeth today's lesson.
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written by vincent, July 25, 2008
Although not at the same level than UK, we have the same concern in France. I've suggested in several circles, to promote a law that would make every land developpable by default, and, if, for some reason, a plot of land should be prevented to be developped, the owner should be compensated of the difference of value between locked and unlocked land.

The compensation would be affordable for collectivity only if the protected lands are few and unlocked land the very general case. This would prevent councils and other public deciders from restricting too much developping abilities on lands that don't represent significant environmental or historical value.

Of course, the number of MP's interrested can be counted on one hand's fingers.

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