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Planning for better and cheaper homes

Published in Planning in London, No. 55, October 2005

Learning from Britain’s mistakes and international experience

I am probably a strange choice to deal with the British planning system, what in German would be called “a virgin with child” (“wie die Jungfrau zum Kind kommen”). First, I am not a planner or architect but a lawyer and an economist. Second, although my surname may suggest otherwise, I am not even British but German (albeit resident in, and with a great deal of sympathy for this country). In other fields, that would probably matter less. When it comes to land-use planning and housing, however, mentality and some national characteristics cannot be ignored. For example: When Germany’s former chancellor Helmut Kohl once visited Britain, he noticed a gloomy newspaper headline warning of falling house prices. Startled, Herr Kohl he asked his hosts what the problem was. To him, coming from a land of tenants, falling house prices were obviously a good thing; it had not occurred to him that for a country of owner-occupiers the opposite might be the case.

On moving to Britain last year, I often asked myself why British houses appeared to be smaller, older and more expensive on average than the houses in my native country. Alan W. Evans and I presented the first part of our answer to this question in our report Unaffordable Housing – Fables and Myths, published by Policy Exchange in June. Our first task was to prove that there is indeed a housing problem in the UK. All the statistical material that we found supported this assumption. For example, Britain’s newly-built houses are only 76 m2 on average – a far cry from the 109 m2 in Germany, 116 m2 in the Netherlands or 137 m2 in Denmark. Britain’s dwelling stock is also comparatively old, with 38.5 per cent of all dwellings built before 1945. In Italy, Germany and Austria this share is below 30 per cent, and in Ireland, Portugal, Greece and Finland it is even below 20 per cent. But while these figures suggest that the British dwelling stock is of rather poor quality on average, house price inflation over the past three decades has nowhere been stronger than in the UK. Adjusted for general inflation, UK property prices have more than tripled. Germany and Switzerland, in contrast, have both managed to keep them stable.

Clearly, there is something rotten in the state of UK housing. The rest of the developed world enjoys living in modern, spacious and affordable accommodation. Meanwhile the British are living in houses in which single-glazing windows moving against each other can hardly be cleaned and hot and cold water runs from two separate taps – a caricature of British housing published recently in Germany’s leading quality daily Frankfurter Allgemeine Zeitung.

How can an affluent and otherwise advanced country like Britain be content to put up with the oldest, pokiest and least affordable housing in the developed world? Of course, the easy answer to this question is the planning system which has made it possible first to control and then effectively to restrain the housing supply. However, a planning system that produces such poor quality housing could only persist over time because it was supported and justified on the grounds of some public interest arguments – as Hamlet said: “Though this be madness, yet there is method in ‘t”. What I mean is this: The British have been led to believe that they are living on an overcrowded island, that the countryside has almost disappeared under concrete and that high-density living, building on brown and protecting green fields were absolutely necessary to save the country from becoming one big, unhealthy and unsustainable megalopolis. Nothing, however, could be further from the truth.

Alan Evans and I carefully went through all of these popular myths and debunked them one by one. To give only a few examples: Britain – an overcrowded country? Wrong: Only around eight per cent of the country is in fact urbanised. The South East – the most urban part of Britain? Think again: The degree of urbanisation is much higher in the North West. Saving greenfields to help the environment? Not true: Plants and animals thrive in low-density residential areas. Agriculture – necessary to feed the country? An erroneous belief: Britain uses more of its land for agriculture than the European average, and this is heavily subsidised.

In fact, not a single of the arguments that the opponents of a more intense building activity frequently present stands up to closer scrutiny. This brings us to another puzzling question: If none of the arguments for central planning actually holds, what is really behind the opposition to more building? For an economist, one way to approach such a question is to analyse the groups involved in the whole process of planning. What becomes evident is that the key groups in the process are local planners/politicians and local voters. As one of the former group’s primary interests is to be re-elected, one might assume that they pay great attention to the wishes of their local voters. But this is not unproblematic: Local voters are often not interested in seeing more buildings in their immediate vicinity. After all, they are already living there and may not want others to spoil the view. The people who would also like to live there, however, do not yet have a vote and therefore hardly count to politicians. The result is an effective coalition of people with a ‘Not-In-My-Backyard’-attitude and the politicians who depend on their support. Thus, the planning system has become an effective tool for preventing development. It is no wonder that initiatives to increase building only come from central government – Whitehall is usually too far away to be confronted with protests against specific local developments. Local planners and politicians, on the other hand, do have to take local opposition against development into consideration, and have hardly any positive incentives to provide more housing.

So how can this planning gridlock be broken? To see if other countries are more successful in delivering bigger, better and cheaper homes I travelled to Germany, Switzerland, Ireland and Australia. The results of this comparative research can be found in our second publication Bigger Better Faster More – Why some countries plan better than others, launched in September.

Out of the four countries examined, Ireland and Australia derive their planning systems from the British model. Unsurprisingly, some of the housing problems in these two countries bear a strong resemblance to the British situation, with rising prices and frustrated first-time buyers. It was quite surprising, even ironic, to see that a country as vast as Australia has nevertheless managed to create a land supply problem through land-use planning. This reminded me of the saying that socialism, if tried in the desert, would probably lead to a shortage of sand over time. And Ireland is a classic example of what happens if you let a huge demand backlog build up: In the end you will get hastily constructed, low quality but nevertheless expensive houses.

Germany and Switzerland, in contrast, both operate a localized zoning system under which local planners and politicians are directly confronted with the effects of their decisions. Local politicians know that their budgets largely depend on attracting new residents, and planning policy thus has an important influence on their budgets. This forces local politicians to engage in competition literally to make their cities ‘attractive’ – meaning both pleasant places to live and places that draw more inhabitants.

If this is the key to their success – a localised and incentivised system of competition in planning – then it should not be difficult to figure out what the lessons for Britain should be. Policy Exchange will soon publish a third report on planning with our proposals for a reform of the British system. We hope it will make those involved in housing and planning rethink their current positions. I am convinced that there is a better way to build the houses Britain needs and deserves.

Dr Oliver Marc Hartwich is a Research Fellow at Policy Exchange carrying out research on planning and housing policy in Britain. He was born in 1975 and studied Business Administration and Economics at Bochum University (Germany). After graduating with a Master’s Degree, he completed a PhD in Law at the universities of Bochum and Sydney (Australia) while working as a researcher at the Institute of Commercial Law of Bonn University (Germany). Having published his award-winning thesis Wettbewerb, Werbung und Recht (Competition, Advertising and the Law) with Herbert Utz Verlag (Munich) in March 2004, he moved to London to support Lord Matthew Oakeshott of Seagrove Bay during the passage of the Pensions Bill 2004.