The Centre for Cities recently suggested England should end its housing crisis by ‘turning Japanese’ and copying their planning system.
One can see the attraction. Japan uses a system of zoning where the government sets out in advance guidelines on what can be built in each area. Any development that fits the rules is allowed by right. This is far clearer and more efficient than England’s discretionary planning process, which involves putting nearly every development to a decision by the local council, which slows things down and has led to gridlock. Unsurprisingly, Japan builds a lot more homes than England.
But zoning is not a panacea. You can build by right in New York, which has a zoning system, but the maximum height to which you can build today is often set lower than the existing buildings on that plot, so it is little better than England at increasing housing capacity in old urban centres. And let’s not forget that even in Tokyo, land can be very expensive, the price of a home is far above the cost of building it, and the right to build is very valuable. Homes could be much cheaper, even there.
In fact, England already has a little-known zoning system. Through a neighbourhood development order, councils can effectively adopt zoning in a specified area, but very few have chosen to do so.
One problem with the Centre for Cities proposal is it suggests government should nationally impose what is called upzoning, in which planning guidelines are changed to allow denser development by right. As this often goes against local wishes, it’s questionable as to how feasible this policy actually is in a democracy.
And it is those local wishes that are crucial. After all, planning law is ultimately determined by politics. To put it crudely, whether an area has restrictive planning depends on what the electorate wants. Areas that don’t want housing will elect representatives to push for tighter planning.
The political science of housing is still young, but more restrictive planning systems often exist in long established cities and particularly in wealthier areas with higher numbers of homeowners.
That’s because a house is often a person’s biggest investment, which they naturally want to protect. Local homeowners will often lobby against development near them, which they see as a potential threat to the value of their property, whereas those who need new homes are spread across the country and their voice is diluted. When homeowners are a majority of voters, naturally politicians listen to them and restrict development.
An overnight switch to a zoning system that suddenly allowed millions more homes to be built would clearly cause a house price crash. We have met no politician in, or with any chance, of power who wants that. The sad truth is that once you have blocked nearly all development and let house prices rise far above costs of building, as England has done, it is extremely difficult to reverse.
The American experience is instructive here. The eminent political scientist Anthony Downs argues that there is no US example of a state abrogating substantially all planning powers from municipal government except in relatively low-cost areas during periods of crisis, and that increases in density are difficult and unlikely except perhaps in those circumstances.
It is often easier to relax restrictions in less expensive areas where less potential wealth is at risk, such as Oregon, which recently banned single family zoning. When blanket upzoning has been tried in more expensive places with tighter planning laws, such as California, it has failed. Multiple upzoning attempts there have been blocked by powerful homeowner coalitions.
Japan has never had to deal with these difficult political issues. Most Japanese buildings in cities are fairly new due to earthquakes, fires, American bombing in World War Two, and the rapid urbanisation which took Japan’s urban population from 20m to 90m over the 20th century.
The Japanese have long seen buildings as temporary. There were few opportunities for established NIMBY coalitions to form, and the rapidly increasing urban population made housebuilding a political necessity. What’s more, the Tokyo upzoning happened during an economic crisis and when prices had already started to fall.
The Japanese system of national, top-down zoning exists because of factors unique to Japan. You cannot simply transplant that system to a country with entirely different traditions and socio-political factors. We know of no example of a discretionary system of planning being transformed overnight into a liberal zoning system.
New Institutional Economics tells us that practical reform must take political realities into account. Assuming that England can become Japan is to commit the classic economist’s error of assuming a can opener – or, in this case, a dictator who can push through the change and ignore the screaming hordes of upset homeowners.
People, including many planners have been pushing to liberalise the planning system, including moving to a zoning system, for over fifty years. They have been talking about the social and economic costs of the current system for all that time. Why will that suddenly work now?
Moreover, saying we can get to a Japanese zoning system at some uncertain future date – after fifty years of people pushing zoning – is just more wishful thinking.
Ultimately, any attempt to reform England’s planning system will fail unless it takes into account the entrenched interests that dominate its housing politics. No democratic government is likely to sustain measures causing a house price crash that will hugely damage the wealth of most of its electorate.
So what should we do? The only feasible way see to achieve something similar to large-scale upzoning in Britain is to delegate some planning power to individual streets. Residents of each street should be able, by two-thirds majority vote, to approve a design code and grant planning permission for extensions or new buildings of up to five or six storeys for every dwelling on this street. This would be subject to rules and possibly compensation mechanisms to protect the neighbours. That will allow those residents to directly capture the value and benefits of new housing while improving their streets.
The solution to our housing crisis involve reforms that lead, over a period, to large increases in supply while being palatable to most homeowners. Anything else is a waste of time.
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