Yes, planning regulations really have driven up house prices

Adam Smith Institute


By: Tim Worstall
Date: 7 August 2014

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Yes, planning regulations really have driven up house prices

Not that we ever suspected differently of course. But there are those who do insist that it’s not planning regulations, who may build what and where, that increases the cost of housing in the UK. It’s just some combination of rising population and perhaps not enough council houses or summat. Definitely not, it couldn’t be, State restrictions on housing that make housing so expensive. So it’s nice to see news of a paper that addresses exactly this question. What actually is it that has contributed to the sky high house prices of today?

What about the physical restrictions? In a hypothetical world where they could be magicked away, prices would be 15pc today lower than they would otherwise have been. The majority of these constraints can be felt in highly urbanised areas, for obvious reasons: there is not as much space available in city centres and lots in the countryside. Some parts of the country are easier to build on than others.

Everyone wanting to live in the South East, where all the jobs and money are, obviously has some effect. Housing is, at least in part, a positional good in that we can’t all actually live in Central London. But that’s not the only effect:

They find that house prices in England would have risen by about 100 percentage points fewer, after adjusting for consumer price inflation, from 1974 to 2008, in the absence of regulatory constraints to housebuilding. In other words, they would have shot up from £79,000 to £147,000, instead of £226,000. Another way of putting this is that prices would have been 35pc cheaper.

Had the south-east of England, in practice the most regulated English region, been as liberal as the North East, the least regulated over the past 40 years, house prices would still have been roughly 25pc lower. As it happens, the authors aren’t necessarily advocating deregulation: they are trying to calculate, using sophisticated econometric techniques and a wealth of detailed data, the effect of constraints.

The authors aren’t advocating deregulation but of course we are. For example, those greenbelts where it’s almost impossible to build houses cover rather more land than we have actually already covered with houses. Relax those restrictions and housing will become cheaper. To put the blame where it really lies, the reason British housing is so expensive is because the Town and Country Planning Act exists.