Planning restrictions are the real obstacle to house building

iea
Institute of Economic Affairs

By: Kristian Niemietz
Date: 13 August 2014

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Brick shortages come and go. Planning restrictions are the real obstacle to house building

An unexpected increase in construction (from an extremely low base) has left building materials, especially bricks, in short supply, leading to a sudden surge in prices. Anti-development activists are having a field day, because this turn of events has provided them with a convenient excuse to explain away the negative effects of their obstructionism. A shortage of bricks, not Nimbyism, is causing the housing crisis, or so we are told.

It comes just at the right time, because the usual excuses are beginning to turn stale. ‘Why build in the countryside when we can build on brownfield sites instead?’, the obstructionists cry. Except, development is already heavily skewed towards brownfield sites, and has been since time series began. Brownfield development already accounts for more than two out of three new homes built. The main reason why it does not really take off in absolute terms is that a large proportion of brownfield land is either in the wrong place, or (for the time being) prohibitively expensive to decontaminate.

‘Why build new homes as long as there are so many empty ones that we could bring back into use?’, the activists say. Yet this is a red herring, because empty housing units rarely remain empty for long. The UK is a fairly mobile place, which is why a large number of houses and flats stand empty at any given point in time. But flats and houses that are left empty for a year or longer account for less than one percentage point of the housing stock, and in London, less than two thirds of a percentage point. Nice try, though.

The shortage of bricks is another non-issue. Construction is an inherently volatile sector, and the prices of input materials fluctuate a lot. But one of the great strengths of a market economy – and this is a point that even most anti-capitalists grudgingly concede – is that price signals usually lead to swift adjustments. In the brick market, this adjustment is already underway. The current world market leader, the Austrian brickmaker Wienerberger, has already announced it will reactivate two currently derelict British brickworks (‘brownfield sites’, if you prefer) and kick-start production there, while also pumping additional investment into their existing UK outlets. Brick imports have also surged. In short, the problem is taking care of itself. Nimby excuses are usually quite transparent, but to blame the housing shortage on a shortage of bricks is a new low.

To make sense of the housing market, we have to distinguish clearly between the short-run and the long-run determinants of housing supply. In the short run, housing completion rates can fluctuate like mad, as they are pushed up and pulled down by a confusing multitude of factors. This is why even at the highest level, housing market experts often disagree in their assessment of current events.

But when it comes to the long run performance of the housing market, things become a lot less complicated. There is a consensus in the empirical literature that ultimately house prices are determined by land use policies: Places that release enough land for development experience stable house prices, places that unduly restrict land for development experience property price inflation (for a review of the literature, see pp. 74-80). It really is as simple as that.

Ever since the late 1980s, annual housing completion rates in the UK have been below 40 housing units per 10,000 inhabitants, trailing well behind the rest of Europe. As a result, we are now the bottom-placed club in terms of residential floors pace per household, far behind any other Western European country. A shortage of bricks is not the reason.

The reason is that we have the most restrictive planning regulations in Europe, the most unreasonable anti-development campaigners, and a political class that is terrified of upsetting the latter. While the politics may be a minefield, the economics is rather simple. We need tax competition between local authorities, so that permitting development becomes fiscally lucrative, and obstructionism becomes expensive. We should abolish greenbelt status, and protect genuinely attractive landscapes in an intelligent and selective manner – not in the form of a blanket development ban. And we need a change in the terms of the debate. We should stop ennobling well-housed drawbridge-pullers, who seek to deny the housing opportunities they take for granted to everyone else, by referring to them as ‘countryside campaigners’ whose ‘concerns’ ought to be ‘taken seriously’. Breaking the housing gridlock is good economics – but it is also the right thing to do.

This article was originally published by ConservativeHome.