Why radical reform of urban planning is essential

Here are two facts about land use in England: houses and gardens occupy just 5.9 per cent of available land; and land with permission to develop can be worth 100 times as much as land without it. The notion that there is a shortage of land for additional housing is ludicrous. Moreover, the planning system is much the biggest market distortion in the economy: it is throttling supply, to the benefit of homeowners, who have made huge unearned gains.

In a column on 21 March, I argued that inadequate supply explained why house prices had risen so much in some parts of the country. In an editorial on 28 April, the FT considered reforms needed to expand supply. The discussion here will focus on the most important obstacle to this: planning. This is timely, since the Queen’s Speech made a promise to legislate changes to the planning system, “so that more homes can be built”.

Almost all the debate is cast in Soviet terms: “need”, not demand, and numbers of units, not prices. But market signals are telling us that the public wants more land in residential use, which is vastly more valuable to them than in its main current use, agriculture; 63 per cent of land is currently farmed, while all developed land, plus gardens, plus outdoor recreation, is a mere 15.3 per cent. Moreover, 84 per cent of the UK’s population lives in urban areas, which must generate a still bigger share of gross domestic product. The share of farming in GDP is 0.61 per cent: economically, it is a hobby.

We need a planning system that internalises what people actually demand. Opponents will insist that the amenity value of open land is overwhelming. Really? At present the ratio of agricultural land and other open spaces to residences plus gardens is 14 to one. If we increased the housing stock by 10 per cent, with gardens added, at the expense of farms, that ratio would still be 13 to one.

This would not be my recommendation. But the idea that we have no land left for houses or that every bit of farmland has imperishable amenity value is absurd. Is it not far more important that children grow up in large houses with gardens? Are urban green spaces not far more valuable than vast acreages of monocrop production? The opposition to any erosion of the greenbelt is also hysterical. These are not sacred oases: they are cordons sanitaires intended to keep hoi polloi out of leafier areas.

We need to introduce a presumption for development based on three considerations: the value of a piece of land when developed, against its value in current use; its amenity value in current use; and the cost of providing needed infrastructure. Where the first greatly outweighs the second plus third, development should not only be allowed, but mandated. Crucially, local governments need to gain a sufficient share (possibly all) of the planning gain, in order to finance needed infrastructure and improve services to all residents. Furthermore, where local authorities do not take responsibility for development, they should be able to tax holdings of any land with planning consent, to encourage development.

Needless to say, no government will do all of this. They are too wedded to the planned approach to land use. But they can at least make the system more flexible and more rational, as recommended in an excellent paper from Policy Exchange in 2020. The Centre for Cities also produced imaginative ideas for development around stations in the green belts in 2019. Crucially, last August, the government produced its own proposals.

Paul Cheshire of the London School of Economics gives the government’s proposals two cheers, arguing that they are the “first serious attempt to reform our dysfunctional land use planning system since its inception”. In particular, he argues, they would reduce the risks and uncertainty the present system imposes on builders, while providing some incentive to local communities to accept new development. The proposed system would force local authorities to make plans in a standard format and move away from individual decisions on every significant proposal towards a rule-based system. In addition, the current unpredictable negotiations over conditions and the “community infrastructure levy” would be replaced with a flat rate levy for infrastructure.

These proposals are a small step towards sanity. But the system would still not be based on rigorous economic considerations. It would still over-emphasise housing “need” over demand and often ugly agricultural acreage over the aspirations of the great majority for better and cheaper housing. The very least we can hope for is that the government stands its ground and does not now make a cowardly retreat.

martin.wolf@ft.com