geograph-4895165-by-David-P-Howard

A planning crisis

Partly due to its success in attracting jobs and talent, demand for housing in London has outstripped supply and now home ownership is unaffordable for many households. In a well-functioning market, increases in house prices should incentivise large scale housing development. But this simply has not happened. So what is constraining housing development in the capital? Or, in the jargon of economics, what are the barriers to entry?

A 2016 study by Christian Hilber and Wouter Vermeulen at the London School of Economics (also the subject of an interesting recent talk) provides us with some answers.

Hilber and Vermeulen assessed the impact of three different supply constraints on house prices across England: those imposed by the planning system, a lack of physical space and hilliness.

Employing rigorous statistical methods, they find that the planning system in England is the main cause of the high prices. In the absence of these regulatory constraints, the authors estimate that house prices in England would have increased by about 100% less (after accounting for inflation) between 1974 and 2008. A lack of physical space for development is also an important factor in urban places such as London.

Hilber argues there are three key flaws with the current system.

The first is that the system is too complex. That complexity makes it costly to develop and involves lengthy consultation process that give significant weight to NIMBYs.

Second is a lack of local fiscal incentives. Permitting new development is costly for local authorities as they incur additional infrastructure and service costs but our centralised tax system means that they do not receive sufficient tax revenues to offset these costs.

This issue is likely to worsen in the short term with proposals for local business rate retention. Business rates are a commercial tax; without similar proposals to devolve property taxes, local authority’s incentives will be skewed in favour of permitting offices and shops. Commercial growth is vital to maintaining London’s competiveness but not if they are at the expense of housing delivery.

The final flaw is that the current system prevents residential development in all directions. In London the green belt stops development from spreading out horizontally and height restrictions and view corridors prevent vertical development. The map below shows just how much of central London is restricted for development due to conservation areas and protected views.

The capital is a victim of its own success but the British planning and tax systems are largely responsible for its housing crisis. Sadly it seems as though the recent housing white paper shows that the government is no closer to solving this issue.

Height Protected Areas map

Map: Taken from SERC DISCUSSION PAPER 154 by Professor Paul Cheshire

Image: Sheltered Housing Construction by David P Howard is licensed under CC by 2.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.