By anyone’s reckoning Britain faces a housing crisis. We simply do not have enough houses in the places that people want to work and live. Why is our planning system so broken?
Well, folks, the clue is in the name: planning.
We have tested to destruction the idea that “plan-led” economies ever work. We know it in finance, we know it in manufacturing. It is a truth universally acknowledged that those contracting and those contracted know better their needs and their abilities than any grey bureaucrat could ever.
Why do we still think it will work for housing?
What’s odd about our clinging to the system is that it works less effectively now than it did when the planning system was introduced. You can sort of understand if you remember how it came about.
In the UK in 1948, the Second World War was barely over and Fordism was in full swing. The economy was still dominated by factories and factories were thought to be predictable. There was a production line, with a set strata of workers at various wage levels, with potentially predictable production frontiers. The world is ordered, it can be made to make sense, if only we didn’t have chaos — including the chaos of the market — everything would be neat and tidy and it would just “work”.
The Labour Party bought this hook line and sinker. It was committed to Clause IV of its constitution, which committed it to “common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.” Housing was just another of these areas that could be run centrally, from Whitehall, to the benefit of the many, not the few.
But there is a reason that Friedrich Hayek’s Road to Serfdom continues to inspire generation after generation of those on the Right in the free world. Borne out of social democracy and a desire to lift up the living conditions of the poor, the ideas of planning quickly morph into totalitarianism. What doesn’t fit the model must be an error – it must be made to fit it. The road to serfdom is paved with good intentions. Market after market fails when it is squeezed into a plan that will inevitably fail.
Housing is no exception. At first, as society seemed to follow the predicted path of people moving out of cities and into suburbs it looked like the plan was working.
To stop a continuous sprawl we put rings around our cities. But then something happened. We stopped moving out. Our economy changed, organically and chaotically and freely. Our new information driven economy needs workers close together, who then realise that lots of the things that make life worth living – food, friends, culture (in that order, thank you very much) are found much more readily when they’re close by in cities.
But the plans and restrictions never changed. So, while demand has risen in cities supply hasn’t grown to meet it. The average renter has gone from spending one fifth of their income each year on rent to spending over a third. Just 50 years ago land values in the UK amounted to 50 per cent of GDP, but now prices are nearly 200 per cent of the national income. Ownership is now out of reach of a growing portion of the population.
As homeowners have been the voting majority they have been able to block new supply and accumulate capital at others’ expenses. And seeing housing as an appreciating asset, rather than a depreciating one like the Japanese (who get it so right on housing) has meant that house prices have ramped up, and those of us paying mortgages or renting have been let down.
That restriction on choice between renting and ownership is near fatal in a society and an economic system whose popularity is built on its expansion. In our two-party system that means the siren voices of the left that call continuously for more control, more power to the state. In turn that means more failed markets and more lost productivity and growth.
So let’s admit that planning has failed us. Let’s shout it out loudly and proudly. It is, frankly, an admission that the idea of controlled economy fails to take account of our humanity. It is at the heart of everything that we believe – and more importantly it is, yet again, borne out by evidence.
The inefficiencies that state interventions lead to have never been so stark as in our failing housing market. When Hilber and Vermeulen investigated the costs of planning they found nearly 35 per cent of English house prices were made up by the state’s restrictions.
In a new think piece for the Adam Smith Institute, Patrik Schumacher sets out how he’d peel back the dead-hand of the state. Yes, we should let people that want to live in flats smaller than allowed presently the ability to do so.
Think of those businessmen that commute into town once a week and basically use the room to sleep in and nothing else, if they rent a flat at present they have to take one bigger than they need. That means more space is taken up, and high prices for everyone else.
Think of those that would live in dense cities, just as they do across Europe. Less light than allowed on current plans but it doesn’t seem to hold back the charm of Venice, Lisbon or Dubrovnik.
If you think, well I wouldn’t live like that so I’ll block the reform, remember what you’re saying: in effect it is that you would plan others’ lives for them. If they wouldn’t live like that either, then they’ll refuse to, they won’t pay the price. But your minimum standard is actually a minimum cost you are forcing others to bear.
In his YIMBY report for the Adam Smith Institute, John Myers set out ways to make supply more popular with voters, devolving power to mayors to encourage more building, and then to streets to build up, reforming the green belt, and densifying our cities. He estimated that GDP per capita could be up to 30 per cent higher in just 15 years if we built enough homes in the right places.
The costs of the state rationed housing market means money out of pockets every single month, and it rips away our country’s future prospects as it does so.
Free marketeers have been searching around for an example to give young people to convert them to supporting the private market. Well the argument is all around us. Wake up and start calling it out!