We have one of the most centralised systems of government in the world. We also have one of the worst housing shortages. This is no coincidence.
Some local councils are, in theory, sitting on fabulous housing wealth – but needless regulation, endless obligations and pointless Treasury rules, mean they are unable to access it. Islington, for example, owns one-third of the land within its own jurisdiction, right next to one of the biggest financial centres on the planet, while many of its tenants live in overcrowded poverty. Worse, they have very little power to delegate and get some of those problems out of their hair.
A landowner with those assets who wasn’t shackled by central government rules could make vastly better use of them – making everyone in the borough happier in the process. As for the many councils without valuable landholdings of their own, they could derive enormous benefits from the almost complete monopoly on granting planning permission that they gained under the 1947 Town and Country Planning Act. But they are tied up by extensive rules preventing them from doing so.
Councils face tight rules on developing private housing and selling it to provide their own funding. They are barred from forming for-profit limited liability partnerships (LLP) that could reduce their exposure to corporation tax. They are also banned from investing their funds in low-cost exchange traded funds (ETFs), and instead have to use expensive managed funds that cost the taxpayer dearly.
What should be done? In a report from New Local today, my co-author and I explain how to start fixing these problems.
On council finance, we suggest removing the restrictions on using funding from the sale of private housing, on creation of LLPs and on use of ETFs. To incentivise councils to allocate land for housing, we suggest that the undeveloped portion of sites allocated from now on should pay an annual tax on land value from five years after allocation. That would take us one step closer to the more efficient property tax systems of other countries.
Those changes would let a council redevelop land for private housing and easily use the proceeds, free of corporation tax, to provide much needed services or council tax reductions. The funds could be invested at low cost until they are used. And councils will have more reason to allocate private sites for housing in their local plan if they know that they will either get housing or an attractive flow of payments.
We also suggest letting councils encourage climate-friendly infill development in under-used parcels of land within their jurisdiction, and start to rid themselves of the endless wave of applications for householder extensions, which never cover the cost of planning officers’ time. We suggest allowing small groups of residents the power to set rules to allow additional development on their own street or within their own block of houses – ‘street votes’ or ‘block votes’. I may have mentioned them before. They seem to be making progress.
Giving councils and residents more power to unlock incentives may also help solve the political blockages to reform. Politicians fear getting blamed for change, but clever delegation can divert the blame elsewhere. And direct democracy is a proven way to bypass the tiny minority of veto players who block much progress today.
Nobel laureate Elinor Ostrom showed that the right framework can allow local communities to make the best of their area – to benefit from the enormous wealth currently sitting on the ground, waiting to be picked up. We suggest sensible steps in that direction. The best way to level up communities is to let them level themselves up.
The Treasury is right to be careful about spending. Without that, many more stupid schemes would have cost taxpayers dearly. But it has inadvertently allowed a dysfunctional command economy in many sectors, particularly housing and planning. The nation has paid the price; but the way forward is clear.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.