Michael Gove, the new Housing Secretary, told us his thoughts on housing when he was housing spokesman back in 2006.
He dislikes trying to centrally plan land use in advance; he prefers carrots to sticks; and he would like to let homeowners do more with their property. That brings hope that he might break the losing streak of his dozens of predecessors since the Second World War and bring in market-powered solutions that can at long last fix our broken housing supply.
Given the history of eighty years of failed planning reform, mainly because homeowners outvote renters two to one, there is only one market-based way to get from where we are to plentiful housing. All else is pure copium.
Mr Gove’s predecessor, Robert Jenrick, received some ill-judged advice and ended up uniting an astonishing coalition of unlikely bedfellows against his proposed reforms, while spurring the meteoric rise of a whole new organisation – the Community Planning Alliance – to join CPRE, the country side charity, in opposing new housing imposed by Whitehall.
Proposals to allow some more development everywhere are, without a political mechanism to get there, sadly not going to happen. But if you don’t allow development everywhere then ultimately some central planner in Whitehall is going to have to dictate where should be developed, or set targets about where it should happen. These are mechanisms very familiar to the Soviets – the precise opposite of a market-based solution.
Residents generally don’t like the noise, fuss and bother (‘externalities’) of construction near them, and the current planning system gives them no incentive to support it, so no economist should be surprised that they don’t. They also don’t trust the government to come up with well-designed solutions, or to compensate them generously for things they don’t like. They want control and choice, like in the rest of their lives. So they vote against more homes near them imposed via the current system. This is not rocket science.
For everything governed by the normal law of property, these problems don’t arise, because people negotiate win-win outcomes to put up with inconvenience in exchange for benefits, or they sell to someone who will. That worked well for hundreds of years to keep housing prices around or below the cost of building houses, rather than three times higher, which is where the UK stands overall at present. You waive your rights against trespass to let me park on your car park in exchange for a fee, or to let me enter your shop in the hope I will buy something. If the principles of the current system governed the law of trespass, you would have to apply for permission from the council every time you wanted to invite someone in for a cup of coffee.
The most recent nationally-set permitted development rights for upward extension had to be deeply unambitious to avoid a massive backlash by pockets of grumpy and very noisy NIMBYism. They are limited to postwar properties and hedged about with caveats – and have been made subject to the same old discretionary control by local authorities. As a result, some local authorities are managing to block almost every use of them.
Better incentives for councils to allow more homes, like in Switzerland, will clearly help, and we should try them. But current residents often don’t trust councils to make decisions for them. And the green belt has formed a focal (Schelling) point to help all those residents coordinate nationally against greenfield development. The sort of council-driven urban extension that regularly happens in continental Europe is politically almost impossible in the most expensive parts of England, at least under a Conservative government.
So the only market-based solution is to fix the incentives for voters, which involves fixing the control. The key is to give residents power to harness the incentives for more development, free of the tangle, blame avoidance and veto players within the current planning system. In the jargon, if their current de facto veto rights are made alienable, they can bargain to allow more housing.
That might be by giving villages more power to allow housing next to the village where the residents judge it beneficial. It might be by allowing residents to vote themselves for permission to add traditionally-styled mansard roof extensions, or to build mews cottages along a disused back alley between their houses. It might be ‘street votes’ for permission to extend their own homes or to replace run-down bungalows or pairs of sprawling semi-detached houses with taller terraced houses that are already a familiar and comforting sight but deliver six times the amount of housing on the same plot. They will pick high quality designs to maximize the value of their combined land holdings.
Some doubt that anyone would want such permissions. But on many streets in the most expensive towns and cities, looking along the backs of terraces and semi-detached houses, they have all already used nearly every cubic centimetre of the permitted development rights that they currently have to extend their homes. It is inconceivable that none would vote for more. And these sorts of mechanisms have already worked elsewhere, in places such as Tel Aviv, Houston and Seoul.
If Mr Gove fixes the incentives and the control, the market and the natural preferences of homeowners themselves will deliver much of what he wants. That is in line with his instincts. Let’s hope he follows them.
