Martin Wolf – The solution to England’s housing crisis lies in the Green Belt

Martin Wolf ‘The Worlds leading economics journalist’ writing in the FT.

I don’t necessarily agree (certainly not 100%) and will be writing a response to the article to the FT later today.

Building an economy upon a massive and growing distortion in the market for land is foolish.

How would one describe a market in which the value of the same commodity varied by more than 100 to one? “Hugely distorted” is the answer. Yet that is precisely the situation for land near England’s most prosperous urban centres. As I have recently argued, these anomalies are the product of the UK’s system of land planning, introduced by the postwar Labour government in 1947. Their effect is to make a mockery of the claim that the country has a competitive market economy. If it did, these discrepancies simply could not exist.

In an excellent book on housing, Housing: Where’s the Plan?, Kate Barker, a former member of the Bank of England’s Monetary Policy Committee, notes that in 2010, agricultural land around Cambridge was worth £18,500 a hectare, while neighbouring residential land cost maybe £2.9m a hectare. Land restricted to agricultural use and land open to development lie side by side but their value is hugely different.

In a recent paper, Christian Hilber of the London School of Economics and Wouter Vermeulen of the Netherlands bureau for economic policy analysis, note that real house prices have grown faster in the UK over the past 40 years than in any other member of the Organisation for Economic Co-operation and Development. Prices, particularly in London and the South East, are among the highest in the world. In the absence of controls, real prices would have risen by around 90 per cent between 1974 and 2008, instead of 190 per cent.

As usual, market distortions have large knock-on effects. Thus, a big proportion of the population have become land speculators; people who receive no help from their families are forced to live in cramped quarters or commute very long distances; the government feels forced to pay large subsidies for renting and now even house purchases; and the health of banking has come to depend on the continuation of the land scarcity. Paul Cheshire of the LSE even argues that these policies have made houses more similar to art or gold than to humble dwellings.

How can this be justified? The response is that this is how one preserves England’s green and pleasant land from the blight of urbanisation. Let us leave aside the fact that the majority of people want to live in cities. The big question is whether the amenity value justifies forgoing the value revealed in the extraordinary prices of residential land.

To this, Prof Cheshire offers a powerful response. The core question, he notes, is what is to be done with the green belts around our cities. Supporters of the policy of “urban containment” argue that this is a small island whose countryside risks being concreted over.

In fact, the land in green belts alone is one and a half times greater than in all cities and towns together. Moreover, the towns are far “greener” than green belts. Gardens cover nearly half of the 10 per cent of England that is urbanised, while the dominant use of land in green belts is intensive arable farming, which is mostly hideous and offers less biodiversity than urban parks and gardens. Nor do green belts offer much if any amenity to the bulk of the population that lives in the great cities. Their value goes to the small number of people who own houses inside them.

So what is to be done? The price mechanism should rule. There should be a presumption of development in green belts, unless the cost of new infrastructure exceeds the benefits. Developers should pay a fee to local councils at least equal to the additional infrastructure costs, and ideally more than that, in order to encourage development. Some combination of fees and subsequent taxes on beneficiaries should also meet all additional cost of public services. A tax on undeveloped sites would help ensure that land was developed. Finally, those prepared to argue that a valuable amenity risked being lost should be entitled to challenge the presumption of development. But they would also need to produce evidence of value of the lost amenities.

I understand the vested interests of those with houses in or near the green belts. I understand, too, the risks of a policy that might actually lower house prices. But building an economy upon a massive and growing distortion in the market for land is foolish. We do not need to concrete over England. We do need to stop constraining the growth of the places where people really want to live. It is untrue that the green belts are areas of outstanding amenity. They are rather sources of increasing misery, as an ever-larger population is crammed into an artificially limited space.

This is a really big issue. That is, of course, why no politician dares touch it.

 

One thought on “Martin Wolf – The solution to England’s housing crisis lies in the Green Belt

  1. The analysis is sound but the rather libertarian prescription could be the pendulum swinging too far the other way. The answer lies is those 1947Planning Act prescriptions with the faultlines fixed. Plan for development in the right place (maximising use of existing infrastructure & facilities, building new with captured value) & allow planning authorities (as masterbuilders) to acquire the zoned land, service it, and work with housebuilders under licence to build homes, ensuring completion rates & quality – the right development in the right place. The land should be CPO’d but on basis of residual value paid over course of development (rate per house) – oh, and take the politics out of it. If that sounds too statist it is the price necessary to overcome 30yrs of neo liberal dogma that has taken us to this present and utterly dysfunctional cul de sac. Oh & by the way – that is the model used in places such as Stockholm, Amsterdam, Copenhagen where we see the finest developments in Europe.

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