The Best Laid Plans Regime Undermines the Competitiveness of Our Economy by Increasing Costs, Reducing Choice and Inhibiting Flexibility”

best laid plans cover (HDS).qxp 10/01/2007 12:04 Page 1

In three previous publications for Policy Exchange, Alan W. Evans and Oliver Marc Hartwich have shown that most of the problems with the housing market – low supply, high prices, overcrowding – can be attributed to the planning system. In this report the authors turn their attention to the effects of planning policy on the UK economy.

Writing in the foreword, the chief executive of NEXT plc,

Simon Wolfson, states that “the UK’s restrictive planning The best laid plans regime undermines the competitiveness of our economy by increasing costs, reducing choice and inhibiting flexibility”. Evans and Hartwich show what can be done to strip the The best planning system from over-regulation so that it can deal with what it was actually meant to achieve: the coordination of development. laid plans

How planning prevents economic growth Alan W . Evans and Oliver Mar c Hartwich

Alan W. Evans and Oliver Marc Hartwich

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ISBN 10: 1-906097-0-1 ISBN 13: 978-1-906097-01-1 Policy Exchange Policy Exchange Clutha House 10 Storey’s Gate London SW1P 3AY

www.policyexchange.org.uk Think Tank of the Year 2006/2007 The best laid plans How planning prevents economic growth

Alan W. Evans and Oliver Marc Hartwich

Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will foster a free society based on strong communities, personal freedom, limited government, national self-confidence and an enterprise culture. Registered charity no: 1096300.

Policy Exchange is committed to an evidence-based approach to policy development. We work in partnership with aca- demics and other experts and commission major studies involving thorough empirical research of alternative policy outcomes. We believe that the policy experience of other countries offers important lessons for government in the UK. We also believe that government has much to learn from business and the voluntary sector.

Trustees Charles Moore (Chairman of the Board), Theodore Agnew, Richard Briance, Camilla Cavendish, Iain Dale, Richard Ehrman, Robin Edwards, George Robinson, Tim Steel, Alice Thomson, Rachel Whetstone. About the authors

Alan W. Evans is Professor of Economics Dr Oliver Marc Hartwich is a Research and Director of the Centre for Spatial and Director at Policy Exchange with responsi- Real Estate Economics at the University of bility for economic competitiveness. He Reading Business School. He is the author was born in 1975 and studied Business of The Economics of Residential Location Administration and Economics at Bochum (1973), Urban Economics (1985) and No University (Germany). After graduating Room! No Room! (1988). He was co-editor with a Master’s Degree, he completed a of Public Economics and the Quality of Life PhD in Law at the universities of Bochum (1977) and The Inner City: Employment and Sydney (Australia) while working as a and Industry (1980), and has published Researcher at the Institute of Commercial extensively in urban and land economics. Law of Bonn University (Germany). His most recent books are Economics, Real Having published his award-winning the- Estate and the Supply of Land and sis with Herbert Utz Verlag (Munich) in Economics and Land Use Planning, both March 2004, he moved to London to sup- published by Blackwells in 2004. He has port Lord Matthew Oakeshott of Seagrove also carried out consultancy for the House Bay during the process of the Pensions Bill. Builders Federation, Ove Arup, Pro Svi (Milan), Hong Kong Centre for Economic Research and others.

Alan W. Evans and Oliver Marc Hartwich have co-authored three previous publications for Policy Exchange: Unaffordable Housing: Fables and Myths (2005), Bigger Better Faster More: Why some countries plan better than others (2005), and Better Homes, Greener Cities (2006).

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ISBN 10: 1-906097-0-1 ISBN 13: 978-1-906097-01-1

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2 Contents

Acknowledgements 4 Foreword by Simon Wolfson 5 Executive Summary 7

1 Introduction 9 2 Control and constraint 12 3 Economic growth, delay and the level of detail 30 4 The effect of planning on interest rates 40 5 The Barker Review of Land Use Planning 42 6 Conclusions and recommendations 47

www.policyexchange.org.uk • 3 Acknowledgements

Philip Booth Richard Ehrman Matt Hancock James O’Shaughnessy Hugh Pavletich Mark Pennington Craig Salter James Swaffield

4 Foreword

Political debate around planning is domi- battle can only be won through the slow nated by the myth that land in the UK is a process of breaking down prejudice using scarce resource. The result is a system that persistent and rational argument. To this strictly rations a commodity in bountiful end the Evans and Hartwich series on supply. In an earlier report Alan W. Evans planning has made significant headway by and Oliver Marc Hartwich brilliantly providing a clearly researched and well exposed both this myth and the forces that argued case in favour of a different keep it alive, not least the contribution that approach to planning. urban densification has made to perpetuate the misconception of an overcrowded island. There is even a danger that we get so used to the The effect of this artificial rationing on “ delays and inconsistencies of our planners that we our economy cannot be overestimated. If wealth creation is about making things of cease to see it as a problem” value, and for most people their homes are their most valuable possession, then a system that rigorously prevents the construc- This report takes the argument one step tion of better homes must inhibit wealth further by demonstrating how the UK’s creation. restrictive planning regime undermines the So far, the impact of land rationing is competitiveness of our economy by too indirect on people’s everyday lives to increasing costs, reducing choice and create the required political pressure to inhibiting flexibility. To many of us force change. The connection between involved in commerce, frustration with the soaring house prices and restricted supply planning system is an accepted fact of life. is little understood. Government has even There is even a danger that we get so used attempted to engineer affordable housing to the delays and inconsistencies of our through further restrictions to develop- planners that we cease to see it as a prob- ment – with the ironic but inevitable effect lem. My own place of work has been of increasing house prices! Even less under- forced to build a multi-storey car park (at stood is the effect that our restricted hous- huge expense), while un-farmed scrubland, ing market has on interest rates. Limited complete with electricity pylon and motor- supply of housing means that economic way view, is “conserved” right next door! growth in the UK tends to create dispro- Even when the answer is favourable, the portionate increase in house prices. In time taken to make planning decisions in turn, this inflationary pressure contributes itself slows down our economy. A shop towards a need for higher interest rates. opened six months late as a result of a plan- The argument in favour of quicker, sim- ning enquiry is six months lost profit. In pler and less restrictive planning will be the time it took Hong Kong to build a new hard to win. Those sympathetic to house airport the UK could not decide whether building are caricatured as wanting to to build an extra runway at Heathrow! The “concrete over” the whole country. In fact time value of planning delays is never using less than one percent of rural land quantified but must undermine our ability would be sufficient to increase land avail- to compete in a global market. able for housing by more than ten percent! The more I think about it the more I This equates to less land than is currently believe that the debate about planning is designated as agricultural set-aside. The really a debate between optimists and pes-

www.policyexchange.org.uk • 5 The best laid plans

simists. The optimists believe individuals be more environmentally friendly. The and businesses can develop the country pessimists mistrust development. Of responsibly with relatively light regulation. course we must value and preserve our her- We believe that there need not be a conflict itage but if our love of the past is stronger between environment and prosperity, if we than our hope for the future then we will manage the process of development prop- condemn our nation to slow decline. erly. In fact, given space, we can develop greener towns and cities that are safer, SIMON WOLFSON cleaner, more comfortable, and designed to Chief Executive, NEXT plc

6 Executive Summary

In three previous publications l The planning system reduces con- (Unaffordable Housing: Fables and Myths, sumer choice and leads to higher Bigger Better Faster More: Why some coun- prices. It has also been responsible for a tries plan better than others, and Better high degree of market concentration in Homes, Greener Cities) we have shown that the retail sector where new entrants can most of the problems with the housing be blocked through the planning sys- market – low supply, high prices, over- tem. Consumers have to pay the price crowding – can be attributed to the plan- for this through a lack of choice in ning system. A policy constraining land “clone town Britain” and much higher supply had led to the population being retail prices than in other European housed in homes that are on average small- countries. er, older and more expensive than houses l The quality of life has suffered in in other developed nations. In this report, British cities as they could not grow we turn our attention to the effects of the outwards due to containment policies, planning system on the UK economy. but have had to accommodate more While the basic justification for plan- and more people in existing spaces. ning is the coordination of development, This has led to the ‘greying’ of cities as we found that, first implicitly and later well as overcrowding in housing, servic- explicitly, the main objective of planning es and transport. has been to limit the spatial extent of cities. l Restrictive planning has led to higher This artificial reduction of land supply has interest rates, punishing those with had – and continues to have – severe con- mortgages. Rapidly rising land and sequences for society, the environment and house prices had to be controlled the economy: through higher interest rates, and again the price of this policy was paid by l Planning and high land prices have those struggling to pay their mortgage become one of the main obstacles to rates, while those with money to invest social mobility in the UK. Rising land benefited. prices in the UK have benefited some but harmed most. They have favoured land and property owners while others have had to pay the price through higher rents “ It is high time for a reform of the planning system and higher retail prices. They have if we do not want to harm the social and economic favoured wealth over wealth creation, aspirations of large parts of the population property over enterprise, old over young. ” l The UK has lost out on numerous economic opportunities because of high land prices. Manufacturing has declined These severe economic, social and environ- much more rapidly than in other devel- mental distortions are the result of a plan- oped nations as land-intensive industries ning system that favours the rich at the have been rendered uncompetitive. Jobs expense of the poor. It is high time for a that could have been created here have reform of the planning system if we do not gone elsewhere, while the North espe- want to harm the social and economic cially suffers from a lack of economic aspirations of large parts of the population, development. especially the young generation. Such a

www.policyexchange.org.uk • 7 The best laid plans

reform of the planning system has to deal Using Parliament’s power would speed with many issues at once: up the development of vital infrastructure, such as new airports, power stations l Development must be incentivised at and high speed rail routes. the local level. We suggest the intro- l The reintroduction of simplified plan- duction of a Social Cost Tariff (SCT) to ning zones to reduce delay and speed compensate local communities for the up the planning system, a system that social cost of development. This SCT had been experimented with in the would be worth a maximum of 1980s. In such a zoning system plan- £500,000 per hectare, but variable ning proposals would only have to be downwards. The SCT would replace all given in outline, thereby reducing the existing charges associated with devel- level of detail that planning authorities opment, such as Section 106 agree- are currently dealing with. ments, and would go entirely to local l Finally, we argue for a general reduc- councils. tion of complexity in the planning sys- l The national green belt policy should tem. Over the past decades, the plan- be abolished and replaced by local ning system has been used and abused communities making their own deci- to deal with numerous issues from sions about their environment. environmental sustainability to region- l Projects of national importance should al policy. We believe that it is time that be decided by an Act of Parliament. We the system is stripped from this ballast recognise that there are limits to local so that it can deal with what it was decision-making, and this applies partic- actually meant to achieve: the coordi- ularly to projects of national significance. nation of development.

8 1

Introduction

In the last two years Policy Exchange has this report we will look at the use of land put out three publications which looked at for commercial activities. the impact of planning on the housing market. The first, Unaffordable Housing: , showed that the UK Fables and Myths Increasing development and growth, on the other planning system, and its policy of con- “ hand, would be profoundly progressive because it would straint, had resulted in new housing in the UK being expensive, small and poky. In disproportionately improve the lives of the worst-off in other developed countries with compara- society – the poor and the young ” ble income levels, new housing was cheaper, larger, and more spacious. The second, Bigger Better Faster More, Discussion of the impact of planning on looked at the way in which things were commercial activities in the UK tends to done in four other countries: Germany, concentrate on the system and the way it is Switzerland, Australia and Ireland. The operated. Permission has to be obtained for third, Better Homes, Greener Cities, looked any building, or for most changes in the again at the UK system and proposed use of existing buildings. The system is changes to the way it operated. These seen as overly concerned with matters of changes were necessary, it was argued, to detail, to the extent that the discussion of allow more and better homes to be built, detail of the operation of the planning sys- homes of a kind that people would want, tem, as well as of matters of principle, homes they would prefer, as opposed to results in delay. Our main thesis, on the those that politicians and planners thought other hand, will be a continuation of the would be good for them. theme of the three previous publications: Housing is only one kind of land use we will concentrate on the malign effects although, in terms of area, by far the of the policy of constraint, which has come most important urban land use. But to be the main thrust of the UK system of urban land is also used for commercial land use planning. This policy sees devel- activities – factories, warehouses, shops, opment as a problem to be prevented, if at offices, hotels, restaurants, banks, and so all possible, rather than encouraged as an on. It is also used for various public sec- engine of growth and wealth creation. We tor uses – schools, central and local gov- believe this to be a regressive policy, one ernment, universities, churches, uses which protects the interests of the proper- which are to a greater or lesser part not tied and well-off. Increasing development governed by the rules of the market. and growth, on the other hand, would be These ‘non-domestic’ uses account for profoundly progressive because it would about seven percent of the urbanised area disproportionately improve the lives of the of England, more than 90 per cent is worst-off in society – the poor and the 1. Kate Barker, Review of Land Use Planning - Interim Report, used for housing, roads, paths, etc.1 In young. 2006

www.policyexchange.org.uk • 9 The best laid plans

After this brief introduction, we go on, system is the level of detail which the in the next chapter, to look at the way in British planning system tries to control, a which the policy of constraint came into factor which, of itself, builds in delays. We being, at first unacknowledged, then as an then look at the relationship between land accepted but implicit policy, more recently, use planning, economic growth and com- since 1997, an explicit and formally petitiveness. This was first investigated by acknowledged policy of containing the the McKinsey Global Institute, which area of urban land. We also outline its eco- found that the planning system was one of nomic effects. We show that the result has the main features of the UK economy been a general increase in the price of land which inhibited economic growth. It does for all uses. We go on to demonstrate that this in three ways. First, the system, by giv- as the economy grows and land prices rise ing priority to land use decisions over eco- this results in a bias against ‘land extensive’ nomic ones, protected the growth of local uses such as manufacturing industry, and monopolies by restricting competition. that this bias is magnified by the current Secondly, the level of regulation was exces- government’s policy of encouraging resi- sive and hindered development. Thirdly, dential development on land in other uses, the policy of constraint discouraged the so-called ‘brown field sites’. growth of clusters of firms in the same or similar industries which might derive syn- ergies from spatial proximity. To function effectively, urban areas must be allowed to The system, by giving priority to land use decisions “ be dynamic, with the capacity to meet ever over economic ones, protected the growth of local changing needs. monopolies by restricting competition ” In the fourth, and briefest, chapter we set out the macroeconomic impacts of the policy of constraint as, by making the In the second half of this chapter we housing market more price volatile, it leads look at the arguments which have been put to interest rates being more volatile, and forward to justify the policy of constraint higher, in the UK than in other competi- and high land costs, and set out the less tive economies. In the fifth chapter we obvious costs of the policy. We produce a review Kate Barker’s recent report on the substantial amount of evidence to demon- land-use planning system, where we are strate that London is probably the most generally supportive of its analysis but crit- expensive city in the world, and that, per- icise its recommendations as being too haps more surprisingly, the other major timid. UK cities are also amongst the most expen- Finally, in chapter six, we summarise our sive, certainly in terms of the cost of office conclusions and set out our recommenda- space and the cost of industrial floor space. tions. In the main, perhaps unsurprisingly, In the third chapter we turn to the these are similar to our recommendations implications of the current land use plan- when we considered the impact of planning system for the economic growth of ning on the housing market in Better the UK economy. A major problem is its Homes, Greener Cities. In the first place the complexity. The system is complex and policy of constraint has to be put on an legalistic and results in delay. This delay economically rational basis; it must not be means that investment takes place later subservient to the views of vocal pressure than it should (if it has not been aban- groups, whether local or national, since doned), with a consequent loss of efficien- these are usually the views of the ‘haves’ cy. Associated with the delays built into the trying to protect their interests from the

10 Introduction

‘have-nots’. We argue that a Social Cost posed to deal with problems which it was Tariff (SCT) should be paid when green not designed to deal with, like global field sites are used, but this SCT should be warming or regional economic develop- based on the actual social cost of the use of ment. We therefore conclude by arguing this land, rather than on the exaggerated that the system has to be made simpler; social costs implicit in the current price of that it should be a system designed to pro- urban land. vide a frame for development rather than, We go on to argue that the British sys- as it has become, a system apparently tem of local government finance should be intended to control every aspect of devel- restructured so that some incentive is given opment and to fit it into a centrally to local government to allow development, planned mould. rather than, as now, if anything, a disincen- In 2005 the economist Kate Barker was tive. asked by the Chancellor and the Deputy We also add three further proposals. The Prime Minister to review the working of first is that, generally, the level of detail the planning system. Her interim report which the system should have to deal with appeared in July 2006 and her final report should be reduced. If the level of detail in December 2006. We are indebted to her with which the system has to concern itself for these reports, which present evidence could be reduced then it could operate which tends to confirm our analysis of the more transparently and more quickly. economic impact of planning, both on the We make a further recommendation supply of housing and on commerce and that proposals which are of national or industry. We critically discuss her recom- regional importance should be dealt with mendations in chapter five, but one piece at the proper, i.e. national or regional, of evidence cited in her final report we level. They should not be bogged down in would wish to quote here. In our earlier lengthy planning inquiries. There should reports we suggested that the British have certainly be some facility for resolving an exaggerated view of the degree of urban- questions of local importance, but if the isation of their country. A survey was car- previous proposal was accepted, then these ried out on behalf of the Barker Review questions of detail would be fewer. which completely confirms this sugges- There has been a tendency over the years tion. This survey showed that the majority to complicate the system, to try to get it to of the population of England believe over deal with wider and wider problems, and half the country to be urbanised, where the to include within it both consultation at true figure is around ten per cent. In read- the local level and policy as laid down by ing the report which follows it is worth central government. Public choice theorists bearing in mind that political support for will recognise the tendency. It is a way of the policy of constraint by the population trying to keep everybody happy. But the is based on a comprehensive misunder- result is an overcomplicated system which standing of the situation and a lack of few really understand and which is sup- knowledge of the true facts.

www.policyexchange.org.uk • 11 2

Control and constraint

The causes and consequences of increasing land prices

Summary In this chapter, we look at the way in into force with the Town and Country which the policy of constraint came into Planning Act 1947. The object of the sys- being, at first unacknowledged, later as an tem was to bring order. Development implicit policy. Most recently, in the years before the war had been largely uncon- since 1997, it has become an explicit poli- trolled, and even though, in southern cy of containing the spatial extent of the England at least, new factories had been urban area. We show that the result has built and a growing population accommo- been a general increase in the price of land dated in better housing, this ‘unplanned’ for all uses, whether residential, commer- development was seen as a symptom of dis- cial and industrial. We show that as the order.2 Within towns bomb damage was economy has grown and land prices have extensive, particularly so in the big cities risen this has resulted in a bias against ‘land where the older industrial areas, notably extensive’ uses such as manufacturing the East End of London, had been the industry, and that this bias is magnified by main targets. the current government’s policy of encour- Under the new system development aging residential development on land in would be ordered and controlled, in short, other uses, so-called ‘brown field sites’. planned. This was in accord with the dom- In the second half of this chapter we inant political philosophy of the time. The criticise the arguments which have been post-war Labour government had gained a put forward to justify the policy of con- landslide victory and was committed to the straint and high land costs, such as that it nationalisation of the means of produc- is a kind of regional policy or that it is tion, distribution and exchange. The UK intended to promote sustainability. In the had anyway been centrally planned for five course of the chapter we produce a sub- years, possible more centrally controlled stantial amount of evidence to demon- than Italy and Germany.3 It was anticipat- strate that London is probably the most ed that the bomb damaged areas in the expensive city in the world, and that, per- cities could be cleared and rebuilt at lower haps more surprisingly, the other major densities. New towns would be built to UK cities are also amongst the most expen- accommodate firms and their workers who sive, certainly in terms of the cost of office would move out of the big cities into space and the cost of industrial floor space. decent, uncrowded, accommodation. The outer boundaries of the built up areas of 2. See, for example, Colin the major cities would be defined by the Buchanan, Mixed Blessing ,1958 The origins of the planning system inner edges of green belts. Within these 3. Alan Taylor, English History 1914-1945, 1965 The UK land use planning system came built up areas, together with the new

12 Control and constraint

towns, it was estimated that there would be The result of the demographic changes enough land for the projected industrial, was an increase in the demand for commercial and residential uses. It was dwellings in terms of the number of expected that regional policies would effec- homes. The result of the economic changes tively deter too much development occur- was an increased demand for larger homes ring in the South, diverting manufacturing with more space. The various structural industry to the areas where unemployment changes accentuated a change which had had been so high in the 1930s. With the begun between the two world wars – an new towns and some expansion of existing increase in the economic importance of the urban areas, it was anticipated, and there- South against the North, reversing a shift fore planned, that there would be no need in their relative importance which had for any other development in rural areas.4 begun with the industrial revolution and Farmers could therefore be left free of reg- dominated the 19th century. ulation to grow food, an essential priority at the time; they were freed of planning controls in a way that no other industry was. They were indeed to be the custodians “ An implicit policy of constraint came into being, con- of the countryside. straint which was more evident where demand was high, It is reported that Harold Macmillan in the South, than where it was low, in the North was once asked what, as Prime Minister, ” did he have most to worry about. ‘Events, dear boy, events’, he is said to have replied; and so it has been with British planning. In Since these changes were not anticipat- the course of time conditions changed, but ed, and therefore not planned for, the plans did not. Perhaps the changes might increase in the demand for land was not have been foreseen, and, if foreseen, met by a similar increase in the amount of planned for, but they were not, and even land allocated in plans. So, unacknowl- when these changes were occurring the edged by any government, Labour or plans changed little and slowly. Incomes Conservative, an implicit policy of con- increased, as they had not before the war, straint came into being, constraint which in a long relatively unbroken period of sta- was more evident where demand was high, ble prosperity. The population increased, in the South, than where it was low, in the as it had not done between the wars. North. Households became smaller. Car owner- The first acknowledgement of this ship increased.5 Regional policies were rel- phenomenon in academic work was in atively ineffective in diverting demand the extensive study The Containment of northwards, and, in any event, manufac- Urban England by Peter Hall and a team turing industry, mining and agriculture of geographers, published in 1973.7 But declined in relative economic importance. the policy of containment had economic 4. Barry Cullingworth, 'British Services and office employment increased.6 consequences, as well as a geographical land use planning', Urban Studies, 1997

Maybe the demographic changes might impact. The increase in demand and the 5. Ibid have been anticipated. But it is doubtful limitation of supply resulted in land 6. Peter Hall, Urban and that the changes in economic structure prices steadily increasing at a rate faster Regional Planning, 1980 could have been planned for. It is in the than the general rate of price inflation.8 7. Peter Hall, H. Gracey, R. Drewett, & R. Thomas, The nature of economic change that it results So by the 1970s, in most parts of the Containment of Urban England, from innovation, and innovation is, by country, the price of land with planning 1973 definition, difficult to predict. Plans can- permission for development was greater, 8. Kate Barker, Review of Housing Supply: Interim Report - not be made for the unpredicted. often substantially greater, than the price Analysis, Chapter 1, 2003

www.policyexchange.org.uk • 13 The best laid plans

of the same land without planning per- been previously developed, so called mission. ‘brown field sites’, with a target of at least Prices continued to rise in the 1980s as 60 per cent.10 Nevertheless the fact that the accidental and implicit policy of con- this policy depended on, and resulted in, tainment was continued. But, when con- both high house prices and higher land cern began to be expressed, any connection prices for all uses has never been acknowl- between a restriction on the supply of land edged. Indeed, we are told that the view at and its price was denied. Only in 1992 did the former Office of the Deputy Prime the then Department of the Environment Minister (ODPM) was that somehow commission a report on the possible con- these brown field sites were equivalent to nection, and in consequence was forced to green field sites. So although the implica- accept the conclusion, that restrictions on tion that these policies would result in the supply of land could and did result in higher land and house prices as well as higher land prices.9 commercial rents might be obvious to This belated commitment by govern- those interested in housing and with some ment to an understanding of economic acquaintance with the laws of supply and theory was, however, only a symbolic vic- demand, it went unrecognised in the tory. Symbolic alone because the policy of UK’s central government until the advent constraint had been reinforced in the of the 21st century. Some connection Planning and Compensation Act of 1991 between housing land supply and house

9. Gerald Eve, with Department by a requirement that development should prices was only accepted in central gov- of Land Economy, Cambridge, not be permitted which was not in accord ernment with Kate Barker’s two reports The Relationship between House Prices and Land Supply, 1992 with central government approved plans. on the supply of housing in 2003 and

10. DETR, Planning Policy In the late 1990s, the policy of con- 2004. The impetus for these reports, Guidance Note 3: Housing, 2000 straint ceased to be implicit, and became, however, came from the Treasury rather 11. Kate Barker, Review of Land very definitely, explicit. The new Labour than the ODPM. Albeit reluctantly and Use Planning: Interim Report - Analysis, Chapter 1, p.151, 2003 government made it a matter of policy with little sense of error, one has to say, (data from the Property Market Report 2006 of the Valuation that a high proportion of any new hous- since little has in fact changed in the past Office Agency) ing should be built on land which had few years.

Table 1: Land value for different uses in the regions11

Region Mixed agricultural Land for residential Industrial and Business Class land, £/ha use, £/ha warehousing, £/ha B1, £/ha

North East 6,701 2,210,000 167,000 235,000 North West 9,633 2,740,000 425,000 583,000 Yorkshire/Humberside 9,159 2,330,000 522,000 557,000 East Midlands 7,595 2,060,000 438,000 500,000 West Midlands 11,945 2,200,000 525,000 639,000 Eastern 7,739 3,615,000 1,038,000 1,269,000 South East 11,787 3,240,000 1,393,000 1,672,000 South West 10,416 2,340,000 662,000 760,000 Wales 9,774 2,270,000 223,000 266,000 England & Wales excl. London 10,023 2,600,000 660,000 779,000 London n/a 7,625,000 1,767,000 2,138,000

14 Control and constraint

The price of land where they found the value of land for If the price of land for housing is high does industry to be about £50,000 per hectare, this impact on other commercial uses, somewhat less than the figure for residen- activities that are our concern in this pub- tial use, while the price of land for retail lication? The answer is that it may but use was over £2.5 million per hectare. that this depends on the operation of the (There were no instances of land sold for policy of constraint, and the extent to offices.)12 which different degrees of constraint are While the price of industrial land in applied to different land uses. Table 1 Darlington in North England was lower shows the price of land in different uses than the price of land for residential use; and different regions. It can be seen that the price of industrial land was much there are large differences between regions greater in South East England where, and larger differences between uses, with indeed, it was higher than the price of land for housing being everywhere the land for housing. The lower price in the most expensive. northern region is evidence both of lower This has not always been true. Up to demand, and of the fact that, because of the 1980s there was a view, often not that lower demand and hence higher expressed explicitly, that industry was unemployment, there was in effect little productive but that other commercial constraint on the development of land for uses such as offices and retailing were not. industry.13 Firms could quickly move into Although it is difficult to comprehend new factories so that, it was hoped, today this attitude can be traced back to employment in the area could be Marx, maybe even further. Nevertheless, increased and unemployment reduced. one can understand this way of thinking The price of industrial land could there- at that time, after the war, when manufac- fore be taken as the cost of ‘raw’ agricul- turing industry, and its exports, were seen tural land plus the cost of putting in as of crucial importance to the economic infrastructure, roads, and other commu- survival of the nation, whereas offices and nity services. Certainly other evidence shops simply provided services to local suggests that the cost of providing soft inhabitants. This attitude meant that the and hard infrastructure may account for degree of constraint on the availability of as much as 90 per cent of an industrial land for manufacturing industry was low, plot when land is supplied at agricultural but that the constraint on the availability use price.14 But since the price of industri- of land for retailing and offices was high. al land in Darlington represents a kind of Unfortunately, detailed data is scarce and base price, the data also tell us that the often dated, but a study carried out in prices of land in other uses, prices which Reading in 1984 suggested that the price were higher both in the North and in the of agricultural land was about £2,500 per South, were higher because of the opera- hectare but that the price of land for tion of the policies of constraint, which housing land at the edge of the urban area reduces the supply of land, and higher was about £500,000 per hectare. The again in the South where demand is higher. 12. Paul Cheshire, Stephen value of land for industry was about £1 The late 1980s and early 1990s repre- Sheppard, and Alan Hooper, The million per hectare, and the value of land sented a period of turbulence in the prop- Economic Consequences of the British Planning System, for other commercial uses still higher, at erty market. Most noticeably there was a Department of Economics, least £1.25 million for offices and over £6 boom followed by a bust. This can be seen University of Reading, 1985 million for retail. At the same time the in Figure 1 which shows residential and 13. Ibid authors carried out a comparative study industrial land values in the West 14. Alan W. Evans, Economics, Real Estate and the Supply of of Darlington, in North East England, Midlands. Land, p.215, 2004

www.policyexchange.org.uk • 15 The best laid plans

Policy Guidance in the early 1990s, and Figure 1: Residential and Industrial Land Values in West this flow of new development ceased Midlands 1983-2005 (£m per hectare, nominal values)15 around 1996.17 On the demand side the law changed. Whereas the hours at which 2.5 Residential land British supermarkets could open had been

re 2.0

cta 1.5 limited, now they were almost unrestrict- he 1.0 per ed. So customers were not forced to shop Industrial land £m £m 0.5 during ‘normal’ working hours. Shops and 0.0 1 7 7 1 3 5 3 5 3 5 9 supermarkets could remain open late, and 200 198 199 199 1999 198 198 198 199 199 200 200 some began to stay open for twenty-four hours. Almost the only remaining restriction was that larger stores could only open The boom was not only a price boom for six hours on Sunday. The change in the but also, to some extent, a building boom. law meant the demand was spread over a At the time, a number of changes in the longer time, and this demand could there- relative degrees of constraint took place. fore be met with less space. The combined First, in the process of the changeover from effect of the increase in supply and the Domestic Rates to the Community Charge changes on the demand side was that the and then to the Council Tax the taxation of price of retail space did not rise as fast and residential properties was substantially tended to be closer to the price of industri- reduced, largely to make the two changes al land. Of course the price of land for any politically acceptable. The level of taxation business use remains, as Table 1 shows, of commercial properties was not reduced, many times higher than the price of raw however, though its level became centrally agricultural land. rather than locally controlled. One would The current position is, as shown in the have expected residential land values to Table 1, that the price of land for commer- have risen relative to commercial land val- cial uses, industrial and B1 at least, differs ues and that is what appears to have hap- between regions but relatively little within pened. the regions. The price of land for housing Secondly, in the late 1980s it was recog- is now far higher, in all regions, than the nised that new ‘high tech’ firms were com- price of land for industry or commerce. ing into existence. It was unclear whether a Nevertheless, with the possible exception software firm, for example, was office or of North East England, the price of land manufacturing or, indeed, research. To for commercial and industrial uses is still allow for this a new use class, B1, was cre- itself far higher than the price of agricul- ated which covered Business, that is both tural land, even if one assumes that the cost office and light industry.16 (Use Classes B2- of infrastructure provision is included in 7 covered General Industry and Special the cost of land. In the South of England it Industrial Groups.) This had the effect that is far, far higher. What are the conse- the price of land for office space tended to quences of this? Is the policy of constrain- converge with the price of land for indus- ing the availability of land for commerce trial use. and industry good or bad for the nation? 15. Valuation Office Agency, Besides, the position with respect to Property Market Report, 2006 retailing also changed. On the supply side 16. Town and Country Planning (Use Classes) Order 1987 permission was given for a large number of A brief excursion into economic theory (England and Wales) new out of town supermarkets, so the sup- For over two hundred years economists 17. Valuation Office, Property ply of retail space increased. The position have tried to explain the reasons for inter- Market Reports, Spring and Autumn, passim changed with the issue of new Planning national and interregional trade. The

16 Control and constraint

received theory, due to the economist (and the world of economic policy rather than stockbroker) David Ricardo, was that economic theory it is the short and medi- nations, and regions within nations, had um run we are really concerned with. ‘comparative advantages’ in the production Besides, economics, properly understood, is of some goods and services, but not in oth- dealing with processes, not hypothetical ers.18 But in what did these comparative end-states. advantages lie? One of the basic theories of international trade argues that the advantages arise from the differing distribution A policy of distortion of the factors of production – land, labour The implications for the operation of the and capital. A country which had a small UK planning system will certainly have population relative to its land area, i.e. a been realised by the reader but, for the sake relative surplus of land, would export of clarity, we will spell them out. The UK goods which required a lot of land for their policy of constraint ensures that urban production, and import goods and services land is in short supply, in short supply that which were mainly a product of labour. is relative to other countries which do not Conversely an area with a higher ratio of have similar constraints on urban develop- labour to land would export goods which ment, whether man made or natural. required relatively labour intensive produc- Germany, for example, has a comparable tion, and import goods where production population density, but uses a higher per- required relatively more land.19 centage of land for development than the This pattern of trade would occur UK.20 As we have shown, the price of land, because the price of land would be relative- in any urban use, is therefore high across ly high where it was in short supply, while almost the whole country. Where the con- the price of labour would be relatively high straint is tightest and the demand is high- where it was the factor in short supply. est – with land for residential use – the Because of trade, however, as the pattern of prices are highest. Of course, since the con- production adapted to the pattern of trade, straint is man made rather than natural, the factor prices would tend, in the very the degree of constraint can be varied. It long run, to equalise. This is because activ- can differ between areas, and it can be dif- ities which used a lot of land would be driv- ferent for different uses in the same area. en out of business where land was expensive We saw that this was particularly evident and in short supply. These activities would in North East England, where the con- transfer abroad to where land was cheaper. straint on land for manufacturing has been On the other hand, activities which used a low. On the other hand, the evidence lot of labour would transfer out of areas shows that the constraint on land for com- where labour was in short supply and mercial uses has always been high in the expensive, and move to where labour was South – and that is even though the pro- 18. David Ricardo, Principles of cheaper. In economics this is called ‘factor portion of the land area of England which Economics, 1815 19. The theory is due to the price equalisation’. The non-economist is urbanised is only about 10 per cent; Scandinavian economists, should note that in practice there will only indeed, even including London – some 87 Heckscher and Ohlin. See, for example, Ronald Findlay, Trade 21 be a tendency towards equalisation, not per cent of which is in urban usage – less and Specialisation, 1970 actual equalisation. Economists tend to than a fifth of the South East of England is 20. Alan W. Evans & Oliver Marc overuse the term ‘in the long run’, a ten- urbanised, and the proportion of southern Hartwich, Bigger Better Faster More - Why some countries plan dency famously debunked by one of the England which is urbanised is still lower better than others, Policy most distinguished members of the profes- since the South West and East Anglia are Exchange, London 2005 sion, John Maynard Keynes, who pointed two of the least urbanised areas of the 21. www.sustainable-development.gov.uk/regional/documents/l out that ‘In the long run we are all dead’. In country. ondon_factsheet.pdf

www.policyexchange.org.uk • 17 The best laid plans

Clearly, in areas where unemployment The result has been, if the price of land is has been high, there has always been polit- used as evidence, that in the South there ical pressure to permit industrial develop- has been a high level of constraint for all ment on the grounds that it would create uses, although the level has varied between jobs. But in areas of more or less continu- the uses over the years. Only in the last few ous full employment in southern England years has the constraint on housing land no such pressure has existed. Furthermore, become significantly greater than the con- unlike countries with a strong element of straint on land for other uses. local business taxation like Germany or The economic consequences of this con- Switzerland, there are not enough fiscal tinuing policy of constraint are implicit in 22. www.kingsturge.com/ incentives for local planners and politicians the economic theory of trade we set out resources/library/0/research/2006/ 01Aug/160820063317_pdf.pdf to engage in a pro-development policy. earlier. Activities which use land extensively will become uneconomic and unable to compete with similar activities based else- Figure 2: Total occupation cost of prime industrial where where land is cheaper. If labour is 22 space also cheaper there the economic pressure to relocate activities is doubled. Most obvi- 050100 150 200 250 ously, single storey factories on large sites London, Heathrow Dublin are the most likely to be driven out. Office New York Moscow Birmingham, UK blocks become the most economic com- Tokyo Bristol mercial use of the land which is available. Glasgow Edinburgh Manchester With an explicit policy that as much Leeds Barcelona Stockholm housing as possible should be put on Geneva Zagreb brown field sites the bias against manufac- Vienna W ashington Cardiff turing is reinforced. After all, if a factory is Zurich Hong Kong closed down, then the site becomes a Luxembourg Copenhagen Phoenix brown field site occupied by a derelict fac- Belfast Frankfurt Munich tory, perceived in current policy terms as Bucharest San Diego eminently suitable for redevelopment for Canberra Sydney Vancouver housing. So while a reluctance, in the past, Paris Orange County Berlin to allow such redevelopment might dis- Athens Budapest courage owners from closing down a facto- Prague Toronto Madrid ry, current policies of encouraging the Amsterdam Rotterdam Singapore redevelopment of ‘brown field sites’ for San Francisco Milan housing also positively and explicitly Auckland San Jose Belgrade encourage such behaviour. Furthermore, Memphis Chicago Las Vegas local authorities are encouraged to use this Brussels Vilnius land due to government targets for brown Adelaide W arsaw Lyon field development. Kuala Lumpur Marseille/Aix-en-Provence Antwerp Thus the planning system and its policy Houston Gold Coast of constraint distorts the development of Portland Denver Minneapolis the economy, biasing it against manufac- Nicosia Brisbane Perth turing and other extensive uses, and in Melbourne Charlotte favour of land intensive uses such as offices Wellington Valencia Shanghai and high density housing. What appears to Kansas City Jakarta Mexico City be a benign policy based on re-using exist- 050100 150 200 250 ing derelict sites becomes a malign policy encouraging the closure of factories to

18 Control and constraint

make a profit selling the land for housing. one sixth in the case of Germany. At the same time the production is moved Moreover. this trend continues. Recent elsewhere, sometimes directly, by the com- data indicates that industrial production in pany itself, more usually by the cessation of the European Union increased by 9 per production in the UK being covered by cent between 2000 and 2005. In the same imports from abroad. All this is based on period, in the UK, it dropped by nearly 5 the myth of scarce land which, as we have per cent.25 While the growth in the rest of seen, is simply not true. Europe might be because of improving This of course can be seen to be happen- economic conditions, the fall in produc- ing in the UK, where manufacturing has tion in the UK occurs at time of apparent declined at an alarming rate and faster than economic prosperity. But then, as Ivor in many other developed countries.23 Tiefenbrun recently commented in the Why this would occur is evidenced Journal of the Royal Society of Arts, “the Figure 2. This shows the occupation cost sad truth is that nobody in Britain has of industrial floor space in a number of built a major manufacturing company cities across the world. That London is top from scratch since the time of the Attlee of the list is perhaps less surprising than the government of 1945. . . No other country fact that the other major provincial cities has such a pathetic track record of manu- 23. Dirk Pilat, Agnès Cimper, Karsten Olsen & Colin Webb, in the UK are placed high in the list so facturing business creation. All our major 'The changing nature of manufacturing in OECD countries', STI that, for example, the cost of space in manufacturers pre-date the Second World working paper, OECD, Paris almost all British cities is higher than in War”.26 Or, as he might have put it, pre- 2006, p.6. Paris. Clearly the high cost of industrial date the Town and Country Planning Act 24. United Kingdom Balance of Payments: The Pink Book 2005, floor space puts the UK at a disadvantage; of 1947. www.statistics.gov.uk; Germany: other things being equal it is cheaper to While it is of course possible that other German Balance of Payments in 2004 and Balance of Payments locate production elsewhere. factors such as a potential lack of skills by Region, Deutsche The structure of the UK economy, contributed to this lack of development, it Bundesbank, August 2005, www.bundesbank.de; 2004 which is indicated in Table 2, shows the is reasonable to expect that high land prices Rapport Annuel, La Balance des character of the exports of the UK, France, have much to do with this phenomenon. Paiements et la Position Extérieure de la France, and Germany. Income from investments Take Germany as an example: The average www.banque-france.fr abroad is much higher for the UK, but price of building land there (residential 25. Eurostat, Industrial Production Index, 2006 leaving that aside, the value of UK exports and industrial) is about £400,000 per 26. Ivor Tiefenbrun, RSA Journal, 27 of services is just over half the value of hectare – far below English land prices August 2006, manufacturing exports, while for the other (see Table 1). For a company that consid- www.rsa.org.uk/journal two countries service exports are a small ers building a new large factory, such huge 27. http://www.statistik.baden- wuerttemberg.de/Statistik- fraction of the value of goods exported, differences in land prices may be an impor- Portal/en/en_jb21_jahrtabp1.asp

Table 2: Composition of exports in European economies24

UK Germany France €bn % €bn % €bn %

Goods 281 43 732 76 339 63 Services 146 22 114 12 89 17 Receipts of Income 205 32 107 11 87 16 Transfers 19 3 16 1 21 4 Totals 650 100 969 100 536 100

www.policyexchange.org.uk • 19 The best laid plans

tant factor to consider. Apart from the 1980s. Nicholas Ridley, then Secretary of mere land price difference, the attitude of State for the Environment, wrote in planners and local communities is differ- March 1987 that “because we and local ent. As they can feel the effects of a success- planning authorities are maintaining ful pro-development policy in their pock- tighter planning controls in the South ets (through a higher degree of local taxa- East . . . development land prices in the tion), they are much more likely to support South East have risen to very high levels. companies wishing to locate in their areas. Industry and commerce not only face high prices if they want to build and develop on A reader interrupts! land; they also face high prices and a If I can get a word in. You go on and on shortage of labour as housing costs are about 'the reader will realise', 'the reader high and housing is in short supply. So will have seen' and so on. This reader there is already a strong cost incentive for wishes to point out that you cannot just businesses to look outside the prosperous look at things at the national level. points of the South East to locate else- 30 Planning policy is also a regional policy. where”. A few months later, the Prime That's why the price of land is high in Minister, Mrs Thatcher said in a television the South and low in the North. We interview “you will find differences in want the jobs to move north. house prices between North and South will be the thing which persuades more companies to move North”.31 A regional policy? Whatever may have been said earlier, Thank you for your contribution. As you however, in November 1987 the then 28. Kate Barker, Review of Land Use Planning - Interim Report, have realised, we do like to keep the read- Secretary of State for Trade and Industry, footnote, p.152, 2006 er’s ideas to the fore. Certainly the idea Lord Young, denied there was any such 29. Harrow Council, that planning constraint in the South was policy. Since then, to the best of our Development Control Committee Agenda, 5 October 2006 a regional policy to help the North was a knowledge, no government spokesman, 30. The Guardian, 20 March 198 view held at the highest level of govern- whether Labour or Conservative, has 31. BBC, 24 July 1987 ment as land and house prices rose in the argued that tight planning controls in

"Currently in London and to some extent the South East, developers are tending to buy up old houses, factories or disused warehouses, paying the market price for the buildings, and secure change of use to develop new houses".28 Office blocks too may be redeveloped for housing. To cite an example, planning permission was recently given to redevelop Raebarn House, a seven storey office block on a main road in South Harrow, and replace it with an eight storey block with 150 dwellings of which 41 are 'affordable', plus 834 square metres of commercial floor space on the ground and first floors. The 'applicant statement' which accompanied the application argued that much of the property was vacant and that offices in South Harrow were difficult to let. This economic argument that the loss of the office space did not matter was accepted by London Borough of Harrow.29 From a wider economic view point, of course, one might note that the office space could have been filled more easily if lower rents had been asked. Also that demolishing the building displaces office uses into other properties and this helps to maintain and raise office rents elsewhere. The conversion of offices also occurs, even on the fringe of London's central area where rents are considerably higher than in Harrow. Thus in the Pimlico area it is now economically profitable to convert smaller, older office properties into housing, often 'period' properties which had been converted from housing in the past. Because these are small properties there is no planning requirement to provide 'affordable' housing. It is less profitable to convert larger office blocks because of the requirement that a high proportion of new flats should be 'affordable'. (So the requirement that affordable homes should be built means that neither affordable not any other homes get built. So house prices stay higher but, the other side of the coin, office rents remain lower.)

20 Control and constraint

southern England are an instrument of cheaper, and economic development will regional policy. What economic advice be welcomed. might have been tendered within govern- No doubt other politicians, since 1992, ment which led to the idea of planning have thought of advancing the argument controls being used to forward regional that planning policy is a kind of regional policy airbrushed out of history, we do not policy, and no doubt the economic advis- know. After all, if such a policy never exist- ers at the Treasury and elsewhere in gov- ed, there is no reason why any government ernment persuaded them, as Lord Young spokesman should put forward any reasons was presumably persuaded, that as a policy why it ceased to exist! it is economically flawed. Nevertheless, one may guess as to the arguments which might have been put to A reader interjects ministers. One we have already men- Maybe I should not have mentioned tioned. At that time it was believed with- jobs. You do take things so literally. in the Department of the Environment What I meant to say is that all the (DoE) that constraints on the availability development was taking place in the of land did not affect land prices. So South. What is needed is ‘urban regen- Ridley’s statement that land prices had eration’. It’s about getting these old and risen in the South East because of the derelict sites redeveloped. Creating tight planning controls did not coincide towns and cities people want to live in. with the departmental line. Only some You economists do not think about years later, in 1992, did the DoE change things like that. this view. But even if it is accepted that tight planning controls cause land prices to be higher, there is still one very impor- Urban regeneration tant reason why the policy, as a regional Well some economists do not, we agree, policy, should be disowned. There is, after but it is difficult to be an urban econo- all, no reason to presume that economic mist without caring about cities. But car- activity diverted from southern England ing about cities is not everything. What by high land and house prices would go all economists do is try and work out the to areas of high unemployment and low consequences and the hidden costs of land prices elsewhere in the United actions. But in this case the question is Kingdom. The UK was then, in 1987, a whether the costs exceed the benefits. part of a European Community in which The problem is that the policies of barriers to the movement of capital and urban regeneration are, in many respects, labour, goods and services, were as a mat- a kind of regional policy even if they are ter of policy, being reduced to the lowest not described as such. Such a regional level possible. Twenty years later the argu- policy is implicit in the policies with ments are still stronger. What was a respect to the primacy of the development Community of fifteen nations is now a of brown field sites put forward in the Union of twenty five. Furthermore, in the Rogers Report and subsequently accepted era of globalisation the barriers to trade by the government. are even lower than they were then. Thus Lord Rogers and his team argued, Activities diverted from southern England as we have said, that a high proportion of by higher land prices may move across the new housing should be built on brown English Channel or the Irish Sea, indeed field sites. What was not spelled out was across the world, to any number of other the spatial mismatch, i.e. that the demand locations where land, and labour, will be for housing was highest in the South

www.policyexchange.org.uk • 21 The best laid plans

while the majority of the existing brown when land prices are extremely high, and field sites were in areas of low demand in the effects of such a policy – for first-time North England and elsewhere. By ignor- buyers and for the economy as a whole – ing the location factor, the report are profoundly negative. The demand for assumed an indifference to where the new space which is choked off can and does housing was to be provided. By this indif- result in the diversion of activities else- ference they ignored the economic mech- where in the world. It is fortunate that it anisms, the market forces, which might has been applied during a long period of lead to new housing being built on these sustained growth. Of course it has one brown field sites. major advantage as far as the government For, if this were to occur without any is concerned. It apparently costs nothing other form of government intervention, to the Exchequer. There are no subsidies the price of land and the price of housing to pay out to encourage redevelopment. would have to rise in the South to a level From the point of view of the whole econ- at which migration from North to South omy of course the costs are high, but they was curtailed, if not reversed, so that are borne by the population as a whole. demand was diverted to the regions where there were existing brown field sites. As prices rose outside the South it would A reader asks become economically feasible to redevel- Well, what are these costs? The only op these sites, and an urban renaissance things you’ve mentioned so far are that could then be proclaimed. the manufacturing industry may be The same arguments apply to such an driven out, activities move abroad, urban policy as to the same ideas put for- and firms, and people, face higher land ward as a regional policy, as well as some and house prices. But manufacturing other arguments. It is a policy of restrict- would have declined anyway, we’ve ing supply. It involves high house and had pretty near full employment for land prices everywhere to ensure that it is many years, and the economy has been 32. CB Richard Ellis, Global Market Rents, May 2006, profitable to develop every existing brown growing steadily for the last fourteen or www.cbre.com/USA/Research/M field site. Let us reiterate for clarity. The fifteen years. arket+Reports/Global+Market+R ents/ ‘brown fields first’ policy is only feasible

200 Figure 3: Office space occupation costs in world cities32 180

160

140

120

100

Occupation cost US$/square foot per annum 20

s y l ) y ) ) l n g d d e a ia d y d n d n d y a i s ia y o a n e d d a in d m D n D na D ce z re na es nd t nd n c n nd al t e n u n n i d i t pan p n t t urg an a B a a tal i h B e h a an la a ore land a lan la lan o d la B I h pain ra wan ral a a Ko t rlan ,I a p lgi m , C C po an Ric C ira , India gl K g gl g h b S g Brazi C gl r (C C ( B Russia ot n i, Ind e n we , n e , , o , ,J y) Irel h h n co z a cot n zerl , i) Gre ga erl m l), J l) , FranceEmir , c , Fra t En En l E il t o Be a a, S o h rt g a id En r da ( Ge d g), x l in i, Tai , Norwae a , Engla ong in u , , ,S , i l,E om n u s, u , Aust in b ,S r, E se s De l wit M ,S wi , German e s, a , a o S y o u ij H o o dr y l o h R l , DC n a pe ity) ntra a te n d m, n in lm n n n P n e , i e e ubl a e ,S a a o ic a don P a Paris s ,S e w st ,S , Luxem o a i ( o h , Net n Osl ,P B oscow, e l e ri e a M h sse n u rce a T n Bomba D urgh éfe gow, S y v Ma erse rp h u Le gh B s ch d own Mt k e u h gt At ão m yd a r Centr r Ce M n N r i e J e J ru n pore a ed Ar i e dt o, C iv M Ba g S a S ed Arab E on (C te ai ( inb nc eo uri i C n oc B t ry, C n hi d Ju t ne d b am t L a ai (P g r i a S m Gla Z o d a e n ir Ab M rg Ge t S i g in n (In Ed s La D - r R ron gh h as a U (Ou M i B u al S S st Lon r fu n W S i, on (Westo End), Englando a rk To C a d y Mum k P o n h Am ab ky Y mbo a S ubai, Unit e h Tok D Lon To w x Fr D Lu u Ne Ab

22 Control and constraint

The ‘hidden’ economic costs So, in principle, the cost of space will be That may be true, but the rate of econom- correlated with size which will in turn be ic growth over the past fifty years has been correlated with the available agglomeration slow relative to countries at a similar level economies. But what is evident from the fig- of development, such as Germany, France, ure is the cost of operating in British cities is or Italy.33 The one thing that distinguishes higher than one would expect, given their the UK from the others is the tight control size. Most noticeably the occupation costs of of the planning system. Given that the sys- space in central London are at least as high tem is explicitly meant to control and limit as in Tokyo, and about 50 per cent higher physical development, might it not also than in Paris, while the occupation costs of limit and restrict economic development? space in Paris are not that much higher than Might the light control exercised over eco- the cost of space in Edinburgh or nomic development in Italy be related to Manchester. What this means is that eco- what Italians call ‘Il Sorpasso’, the overtak- nomic activities located in British cities are ing of the British economy by the Italian paying a higher price for the available economy? There are costs, apart from the economies than they would have to do else- ones, we have talked about, and if you will where in the world. In an era of globalisation allow we will set them out in three basic it is, in our view, questionable as to how long groups. this can continue. Presumably the UK currently must have some sort of comparative advantage (language, historical connections) High land prices and costs which justifies these rents. If it did not more If the cost of land is high then the cost of companies would have moved abroad and using the space built on that land will also rents would have fallen. Perhaps UK plc is be high. That is the rent of space for offices trading off the huge advantages wrought by and shops and other uses. All the evidence the Big Bang on the competitiveness of the confirms that the cost of occupying space City of London, which has established itself is high in the UK. Figure 3, for example, as the global centre for financial services. But indicates the total occupation costs in US$ can we take this comparative advantage for per square foot per annum for a number of granted, and what happens if it disappears? cities in the UK, Europe and elsewhere in Commenting on a draft of this report, the world. Hugh Pavletich, co-author of the It can be seen that to some extent the Demographia International Housing cost is related to size. One would expect Affordability Survey, asked how long this this. Urban size brings benefits in terms of “premium” for British space had gone on what urban economists call ‘agglomeration and whether it had increased markedly economies’, the sheer size of the market recently. He argued that bearing in mind allows for economies of scale in the divi- that “lags” can be expected in market sion of labour, so that services of various responses, but once the response occurs kinds are available at a lower cost than in and the momentum gets underway, such a other, smaller, cities, if indeed they are development could be “lethal” and available at all in these smaller cities. But extremely difficult to reverse. We would increased size also brings costs. The sheer agree that Britain is running a huge risk, physical size of the larger city means that especially considering that services are even high rents have to be paid for a location at easier to relocate than manufacturing. or near the centre where travel costs are The high cost of space affects not only 33. McKinsey Global Institute, office space. It also affects other commercial Driving Productivity Growth in minimised and the availability of these the UK Economy, 'Chapter 2: The services maximised. activities. Hotels and restaurants are both in Productivity Problem', 1998

www.policyexchange.org.uk • 23 The best laid plans

the business of temporarily leasing space to High land prices and crowding customers. Both these activities are expen- An activity such as a shop, which has to pay sive in the UK compared to elsewhere. In a a higher rent than a shop somewhere else, comparative study of the cost of a weekend can attain the higher income necessary to in a number of cities around the world, in pay this higher rent in different ways. As we checking costs of hotels, eating, etc., London have just said, one way is to charge higher came out as the most expensive.34 But any- prices. But it can also achieve this higher one who has travelled both abroad and in turnover by serving more customers, by the UK will know for themselves that the using the space more intensively. The restau- cost of hotels and restaurants is higher in the rant or hotel in the UK can both charge 34. UBS, Prices and Earnings Survey, 2006 UK than in other parts of the world. higher prices than elsewhere but also has to

London: The Most Expensive City in the World

Every few years UBS carries out a standardised Prices and Of course in large part this is because the high cost of space is Earnings Survey. The most recent survey was conducted an important determinant of the cost of a hotel room and a hotel between February and July 2006, in 71 cities throughout the meal. Since UBS separately costed out the price of a restaurant world. Because of the wide geographical spread only the statis- meal and of stays in a four star and three star hotel, it is no sur- tics on prices and earnings for one British city, London, are col- prise to discover most of the same cities in the list of the most lected, but these are revealing. expensive. The table below lists the ten cities where eating out A number of price comparisons are made – food, services, costs the most, together with the hotel prices for those cities. and so on – but, from our point of view, one of the most interesting comparisons made is of the price of a city break. The Restaurant 4* 3* researchers put together a basket of ten goods and services comprising an overnight stay for two in a first class hotel, two Tokyo 77 510 270 dinners with a bottle of the house red wine, one taxi ride, a 100 London 64 500 190 kilometres in a rental car, two outings to the theatre by public Oslo 54 340 200 transport, and various small expenditures such as a paperback Dublin 53 350 170 novel or a phone call. The package is most expensive in London, Copenhagen 51 280 150 where the total cost is estimated as being $1180 (£672). Helsinki 51 320 150 The figures for the ten cities where the cost of a two day Milan 50 450 190 break are highest are shown below: New York 50 450 250 Sydney 48 310 110 US$ Zurich 47 390 170

London 1,180 Although space is an important factor affecting the cost of Tokyo 1,090 restaurants and hotels, it affects the cost of other goods and Geneva 940 services. The UBS researchers calculated ‘the cost of a weight- New York 920 ed basket of goods geared to Western European consumer Oslo 920 habits, containing 122 goods and services’. The figures are given Zurich 900 in the form of an index where New York is the base 100. They are Helsinki 870 also given in two forms, one including rent, the other excluding Paris 870 rent. When rent is excluded London is the second most expen- Milan 860 sive city, when housing costs are included it causes no surprise Copenhagen 850 to find that London is the most expensive city in the world.

24 Control and constraint

Living Cost Price Index (inc rent) (exc rent) Here the first column gives wage levels gross, and the second column gives wage levels net of taxes and social security. The next cal- London 105.5 110.6 culation which is possible is, given the wage and price levels, to cal- New York 100.0 100.0 culate from these figures an estimate of the domestic purchasing Oslo 94.6 121.5 power of the salaries and wages paid. UBS give these figures for Tokyo 93.4 106.8 gross pay, for hourly net pay and annual net income, but using an Zurich 87.3 107.4 index of prices which excludes rents. On these calculations London Copenhagen 86.3 109.2 ranks 23rd , (in terms of the purchasing power of gross hourly pay), Geneva 85.8 102.9 20th (net hourly pay), and 17th (annual net income). Unfortunately Dublin 84.3 98.3 UBS do not make similar calculations using an index of prices which Chicago 82.2 92.2 includes rents. Given that London housing costs are substantially higher than in almost all other cities, it is clear that in any such cal- Of course if living in London is expensive then high salaries and culation London would drop substantially still lower in the rankings, wages have to be paid to compensate, so it is also no surprise to 30th or 40th, well down the list, and probably near the bottom of to find that London wage levels are also high, but London the list of cities in developed countries. wage levels rank somewhat lower than London price levels. Two conclusions can be drawn. One, which is not our concern Once again these are given as an index where New York is the in this report, is that Londoners who rent or have only recently base. bought their homes are much worse off than they might be in almost any city in any developed economy, especially given the Wage level indices (gross) (net) nature of the London property market with high levels of renting.. The second, which is our concern here, is that London employers Copenhagen 118.2 95.7 have to pay wages which are high relative to the rest of the world Oslo 117.0 110.8 because of the high cost of living, a high cost in large part because Zurich 115.1 124.2 of the constraints on land supply imposed by the UK land use plan- Geneva 111.0 115.4 ning system. Thus the cost is high to employers but the benefit to New York 100.0 100.0 employees is low – the worst of outcomes. Indeed, given the lop- London 89.2 96.0 sided nature of London’s economy and it’s over-reliance on financial Chicago 88.3 94.7 services – which offer very high wages to a relatively small number Dublin 88.3 104.6 of workers – the real situation for the average London worker is like- Frankfurt 87.6 85.5 ly to be even worse, with the miserable combination of high costs Brussels 86.8 78.2 and low wages leading to a low quality of life. operate closer to full capacity. Sometimes two hours does not. It is ‘just an externality’. this ‘crowding’ may be relatively unimpor- But it is still a cost, the kind of thing which tant. There may be fewer petrol stations makes people think of emigrating, one of available than there might be in other coun- those things that affects the quality of life. tries, but provided you do not run out of petrol, then the fact that the number of cars passing through is high is unimportant to Lack of choice the consumer. In other cases it matters. As the high cost of space impacts on the Shops and other facilities are more crowded. consumer in the form of higher prices and A case in point is the attempt by many, if not more crowded facilities, so it also has an most, London restaurants to try to achieve impact in influencing what it is profitable two, if not more sittings, in an evening. The to supply. To achieve a high turnover it cost of the meal appears in the National may also be profitable to limit what is sup- Income Statistics. The fact that one may be plied. So a shop limits the range of choice required to arrive earlier or later than one in its stock. Stocking a large number of would wish, and to vacate the table within products occupies space and space is valu-

www.policyexchange.org.uk • 25 The best laid plans

More Britons consider move abroad More British people than ever before want to turn dreams of a foreign life into reality, a poll for the BBC suggests. About 1,000 people were questioned for the survey and a majority said they had considered emigrating, little change from a similar 2003 poll.

However, the number hoping to move in the near future has almost doubled.

The BBC is appealing for information on Britons abroad as part of a major project to count expats accurately.

According to the national poll, more than half of British people have considered emigrating in their life time.

But when asked about whether they would actually ever go, 13% said they were hoping to in the near future, almost twice the number asked the question in 2003.

Young people were the most likely to want to leave, with a quarter saying they were hoping to live abroad.

When asked why they would go, the most important reasons were a better quality of life, better weather and a feeling that the UK is too expensive.35

able. Lines which are sold less frequently This has a number of consequences. It cer- are therefore not stocked. The range of tainly encourages the existence of chains of products may be deliberately limited to stores which, through advertising their those which it is known will sell well. In brands and keeping a tight control on prod- this way the space occupied by the stock uct range, can achieve a high turnover with a 35. http://news.bbc.co.uk./1/hi/uk/ 523723.stm, 2 August 2006 can be kept low relative to turnover. limited range of products. Thus the range of

IKEA – Product pricing round the world £1144, but this would ignore the fact that the European coun- The Swedish firm IKEA sells its products round Europe, indeed tries charge VAT, which is not charged in the US. On the other throughout the world. The products are standardised, as are the hand, as every visitor to the US knows, a sales tax is levied at stores, and as are the catalogues, which can be viewed online. the time of purchase but not included in the quoted price, and Given this standardisation of product we thought that it might be this tax varies from state to state. of interest to find out whether IKEA’s prices were higher in the Of course, the rates of VAT also vary between European UK than elsewhere. An initial search for the prices of three items countries. It is worth noting that the UK’s rate of 17.5 per cent (Poang armchair, Tylosand sofa, and Sultan bed) in IKEA’s cata- is in fact lower than that of the two next most expensive coun- logues confirmed that all three were more expensive in the UK tries, France (19.6 per cent) and Italy (20 per cent). than in the rest of Europe. However, there was otherwise no clear ordering of prices by country. We encouraged our research £ assistant to add another three items to the list, and to search on a world wide basis. He added a Varde sideboard, a Leksvik UK 1483 wardrobe, and a Forsby table to the list. The table below gives France 1453 the total cost of the six items for the pre-enlargement European Italy 1450 Union countries where all six were available (which curiously Norway 1380 includes Denmark but not Sweden). It can be seen that the UK Spain/Portugal 1358 still heads the list of European countries, though the items Austria 1338 added to the list were cheaper in some other countries than in Finland 1328 the UK. Denmark 1316 We limited the list to these countries because differences in Belgium 1290 tax rates and tax policies can make comparisons difficult. For Holland 1249 example the US would be cheapest of all, with a total cost of Germany 1229

26 Control and constraint

products available to the consumer is limited ferent cities and fuel use in those cities once but through ‘mass marketing’ rather than differences in the price of fuel are taken into ‘mass production’. It also encourages a trend account. From this one has to conclude that towards what has been called the ‘clone city’ if you want to reduce the use of fuel then where the shops and stores are the same in raise its price, through taxation if necessary, each town, stock the same products, and sell to what is regarded as the optimal level and the same services.36 It also discourages the then let urban densities adjust to that. There small entrepreneur, in two ways. First, the is, indeed, some evidence from Holland and initial investment in an activity is high Norway that at high densities people wish to because a high rent has to be paid. Second, a get away at weekends so that whatever sav- high turnover has to be achieved quickly in ings there might be from higher densities are order to pay this rent. wiped out as by people driving or flying to Obviously these features will be evident in second homes or weekend breaks.38 any large city anywhere in the world, because Leaving aside the question of fuel use, the the cost of space is higher in every large city. other problem with the idea that higher den- But commercial rents in British cities are sities are necessary to save the planet is that high relative to their size. So the ‘clone city’ higher densities cost more to build; they may phenomenon is more widespread in the UK save land but they use more of other than it is likely to be in other countries with resources. The evidence on office blocks sug- lower rents and looser planning controls. gests that the construction cost per square metre of a high rise office block is between A reader intervenes 20% and 35% higher than for a medium Well, I’ve listened to what you have to height block. Because more space is taken by say about these costs – I hear what you the structure the high rise building is about 39 say. But what you have not mentioned 10% less efficient. Higher density buildings is the most important reason for these can also cost more to run. For example, any controls. The fact is they are necessary two storey building open to the public, will, to ensure the survival of the planet. We since the Disability Discrimination Act, have to save land and try to make sure have to have a lift. Lifts are expensive, and that cities are as dense as possible so they have to be maintained and run. Besides, some manufacturing activities are uneco- that people do not have to travel far so 36. New Economics Foundation, that we use as little fossil fuel as possi- nomical other than in a single storey build- Clone Town Britain: The loss of ing. So manufacturing may simply be driven local identity on the nation's high ble. We have to do our bit to save the streets, 2004 elsewhere, with, of course, an increased cost planet from global warming. 37. Kate Barker, Review of Land of transporting the goods produced to the Use Planning - Interim Report, pp.156-9, 2006 British consumer or producer. 38. Erling Holden and Ingrid Sustainability A senior planner once remarked that he Norland, 'Three Challenges for We take your point, and we would wish that was entirely in favour of multi-storey car the Compact City as a Sustainable Urban Form', Urban the planning policies being pursued actually parks because they saved land. But in the case Studies, November 2005 did help to do this. But it is extremely doubt- of car parks it is even more evident that sav- 39. Kate Barker, Review of Land Use Planning - Interim Report, ful that they actually do, and quite probable ing land does not necessarily save the planet. 2006, p.162 that they make things worse. The cost of providing parking spaces on the 40. See, for example, Gardiner & For example, the argument that higher ground is about £1,000 per space, while the Theobald, Office Business Parks - A benchmarking analyis, June density development results in less carbon cost of providing parking spaces in a multi- 2001, which estimates that decked fuel being used is fairly thoroughly dealt with storey car park many times higher.40 Land parking will cost between £3,200 and £10,000 per space - the more in Kate Barker’s Interim Report on the plan- may be saved, but steel, concrete, and fuel are storeys, the more expensive 37 (http://www.construction-cost-con- ning system. It does not seem as if there is used to provide substitute space in the air. sultancy.com/Economics/images/O any relationship between the density of dif- Sustainability is reduced by multi-storey car fficeBusParks.pdf).

www.policyexchange.org.uk • 27 The best laid plans

parks, but this is not evident if the only meas- Incomes and Redistribution ure of sustainability is saving land. Well, as you say, there is nothing which Besides, it is not at all clear why it should would persuade you to change your views. be that saving land should have priority. After But as economists we have to point out the all, the land saved is apparently not needed costs of saving land. You are very aware of for agriculture. About 10 per cent of the land the benefits to you, and what we are trying which could be used for agriculture in South to do is to indicate the costs, particularly East England has been ‘set aside’ because the the costs which may be borne by those Common Agricultural Policy encourages who do not benefit in the same way as you overproduction.41 The resulting surpluses do. These costs may not be as obvious as a then have to be sold outside the European building spoiling the view but they should Union. This is detrimental to, some would be taken into account in making policy. say ‘wrecks’, the agricultural systems of many There is also the interrelated question of developing countries, and also prevents them the distribution of those costs and benefits. from exporting to the EU to pay for other It is obvious that when house prices rise goods and services. one group is made better off, that is most Nor is it evident that other countries view existing home owners, but another group saving land as an important policy objective. is made worse off, would-be future home If no other country is taking ‘saving land’ as owners and those existing home owners seriously as the absolute and overriding poli- who will want, in the future, to move into cy objective does in the UK, then maybe the larger properties. The same redistribution British view is wrong and saving land is not occurs when industrial and commercial important. It also follows from this that the land increases in price. Property prices and UK’s contribution to global sustainability rents rise. Products and services cost more. through land saving is of negligible impor- There is more crowding and congestion. tance, at best. That is if it is not actually The whole population is made worse off. counter-productive, since it results in other But of course the owners of commercial resources are used up in the attempt to use as land and property gain. The rents which intensively as possible the land where devel- can be charged are higher, and the proper- opment is actually permitted. One also ties they own are worth more. should not forget that that is less than 10 per Thus the operation of the planning sys- cent of the land area of the UK, 90 per cent tem redistributes wealth, and it redistrib- of which remains undeveloped. utes it in favour of property owners. To state it clearly: our planning system is a system that works against the poor and the A Reader Confesses young while it serves the land and proper- I’m afraid that when it comes down to it ty owners. Of course, some of this proper- there’s nothing you can say which would ty is owned by the firms which use and persuade me. The fact is I just do not like occupy it. But while this was the general the countryside being built over. I pay my pattern up to the second half of the 20th dues to the Campaign to Protect Rural century, it has become much rarer since England (CPRE) and I support their then. As the value of commercial land aim, to stop, or at worst, minimise increased in the 1950s, as the implicit pol- building on green field sites. Frankly I icy of constraint started to bite, many retail live just outside a large town, and I do and manufacturing firms failed to notice 41. The Guardian, 'The EU common agricultural policy', 26 June not want my view spoilt and I do not and react to the increase in the value of 2003, http://www.guardian.co.uk/ want anything built near my home. their properties. A number of firms were theissues/article/0,,975350,00.ht ml taken over, broken up, and ‘asset stripped’.

28 Control and constraint

When commercial firms realised this dan- policy of constraint favours the better off. ger they also realised that one way of avoid- It also favours those in possession of land, ing the danger was to lease their properties while the cost of starting a business is rather than own them. Many such compa- raised. Thus it favours wealth rather than nies therefore sold the properties they then enterprise. So that any relaxation in the occupied and leased them back. The result policy of constraint would be more wel- is that in the UK most commercial proper- come to the less well off and the young, the ty is owned by financial institutions of one two being often synonymous! kind or another. Some may be property However, one conclusion may need to companies, some may be in life assurance, be restated to make the position clear. and much is in the hands of pension funds. Because some people lose and some people Of course, some may be in private hands, gain from rising land and property prices, as with the Grosvenor Estate which man- the net effect on the UK’s national income ages the properties in Belgravia and is less than it might appear. Certainly less Mayfair owned by the Duke of than it might be perceived by, say, a young Westminster. As a matter of fact, directly couple renting their home, without invest- or indirectly a proportion is foreign ments and without any significant accrued owned. For example, the recent takeover of pension contributions. What they face are BAA plc means that the most important the increases in the cost of living without UK airports are now owned by a Spanish compensating increases in their wealth. company, Ferrovial, and the takeover of Nevertheless, there is an efficiency effect, P&O means that a number of British ports quite apart from the distributional effect. are owned by a company based in Dubai. The British economy is less efficient than it So working out exactly who owns and might be because a productive asset, land, who loses is difficult, though it is certain is deliberately, as a matter of policy, left that the overall effect is regressive, that the idle.

Coventry Airport Terminal In 2003 Coventry Airport was bought by TUI AG, a German company which owns Monarch Airline, Thompson Travel and Thomsonfly. Thomsonfly began flights out of Coventry in March 2004. The airport is actually located a few miles south of Coventry so that Warwick District Council is its local planning authority. In 2003 an interim flight terminal was built and there followed an argument between Warwick DC and TUI as to whether planning permission should have been obtained to build it. The Council took TUI to court to get the building demolished but the case was thrown out in June 2004. The judge described the Council’s action as “draconian”, an “abuse” of the court process, and “wholly inappropri- ate”. The cost to the Council of the court action was £300,000. The Council then issued an enforcement order to get the building demolished on the grounds that it did not have planning permission. Unsurprisingly, TUI appealed against the order and an inquiry was held which lasted nearly six months, the longest such inquiry on record, from February to July 2005. The inspector reported to the Secretary of State who upheld the appeal, some eight months later in April 2006. All this was for an interim building which will exist for only a few years before it is replaced by a permanent building. TUI put in an application for this permanent building in October 2004. They appealed a year later, in September 2005, because the Council had not made a decision, one way or the other. The appeal was held between January and July 2006. The inspector will deliver his report and recommendation to the Secretaries of State in early 2007, a decision from them is expected by the autumn, nearly three years after the original application for the permanent building. It is said that TUI regrets having bought the airport. We are not surprised. In Germany an airport improvement would be regarded with favour by any local authority, not, as would seem to be the case here, something to be fought against tooth and nail.

Sources; www.warwickdc.gov.uk, www.leamingtonspatoday.co.uk, www.newsvote.bbc.co.uk

www.policyexchange.org.uk • 29 3

Economic growth, delay and the level of detail

Summary but with the caveat, provided the system The efficiency of the British economy is were economically rational.42 If it were reduced by the planning system in other rational, then the assessment of whether or ways. We have concentrated on the effects not a proposed development should be of constraint because these effects seemed permitted involved a balancing of the to us to be important, but less obvious social benefits and social costs. Where the than other factors. In this chapter we turn costs greatly exceeded the benefits, or the from the economic impact of the policy of benefits greatly exceeded the cost, the deci- constraint to look at the implications of sion would be obvious and could be made the planning system itself for the econom- quickly. Only where the costs and benefits ic growth of the UK economy. The other were closely balanced would the decision main problem is the system’s complexity. It be more difficult to make, and the process is complex, legalistic and results in delay. would take longer. But then if the costs This delay means that investment takes and benefits were closely balanced the place later than it should, with a conse- social cost of delay would be small because quent loss of efficiency. A further problem the net benefit of the development would is the level of detail which the British plan- be small. ning system tries to control, a factor which, The trouble is that this argument of itself, builds in delays. In a final section depends on an acceptance of the idea that we note the findings of the McKinsey the UK planning system is economically Report on the British economy which rational. Yet there is very little reason to indicated that the planning system could suppose that it is. After all, the attitude of protect local monopolies, hinder develop- planners to economics and economists has ment, and prevent clusters of firms grow- been generally hostile. The founding father ing up to take advantage of the economies of planning Abercrombie described an resulting from spatial proximity. economist as “A muddler talking about the liberty of the individual and the laws of supply and demand”.43 In the 1970s an 42. Alan W. Evans & Geoffrey Keogh, 'The private and social Delay and inefficiency inquiry into the Greater London costs of planning delay', Urban The problem of delay is the most obvious Development Plan remarked that the real Studies, June 1992 systemic problem, a problem recently income of the people of London was not 43. Sir Patrick Abercrombie, Town and Country Planning, ed. analysed in Barker’s Interim Report on the their concern – in other words they were Rigby Childs, 1959 planning system. Some years ago it was concerned only with land use, not with 44. Chris Foster & Christine 44 Whitehead, 'The Layfield Report argued that it was possible that the delays anything else. Similar views were on the Greater London inherent in the British planning system expressed only recently in a survey of local Development Plan', Economica, 1973 might, in fact, impose small social costs, authority planners, namely that it was up

30 Economic growth, delay and the level of detail

to the planners to plan and the market to persuade anyone that the system is not eco- adjust to the plan.45 Comments such as nomically rational. It should not take these do not suggest that the process of eighteen years for a decision to be made as decision-making is based on a balancing of to the construction of a building, particu- social costs and social benefits. Instead the larly when it was accepted years before that system seems to be based on the views of a fifth terminal was necessary. To rub salt planners as to the best pattern of land use, in to the wound, during the period the even though the best land use plan might British were coming to a decision, in Hong make people worse off, on balance, than a Kong an entire new airport had been built plan which was better for the whole popu- on a newly created artificial island. lation but resulted in a land use pattern which was not perceived to be as good. Indeed this presumption is at the core of “ The amount of time, effort and other resources which the argument regarding the policy of con- can be put into making planning decisions is extraordinary straint which we have set out earlier. No when compared to the time, effort and resources put into one seeks to deny that people prefer development not to take place on green field making other government decisions ” sites. But few people realise that basing a policy on this preference makes them worse off in other ways. The amount of time, effort and other The fact that the people responsible for resources which can be put into making the system are, if not planners, politicians, planning decisions is extraordinary when means that there is built in to the system a compared to the time, effort and resources responsiveness to the most vocal, to those put into making other government deci- who shout loudest and longest. Part of this sions. In all other areas of the economy responsiveness is to ensure that if a deci- decisions are generally made quickly, after sion has to be taken then the objectors a brief review of the evidence. Indeed deci- should be given every opportunity to have sions as to possible changes in the planning their say. In this way the politicians can system itself are taken with less input than then say to the objectors that their views might go into a planning inquiry into the have been heard and where possible taken construction of a single building. For into account. Objectors can feel that they example, the inquiry in 2005 into the have, at least, delayed the development. interim terminal at Coventry Airport cost Thus delay is, for political reasons, built Warwick District Council some £300,000, into the system. and the formal inquiry alone took 322 At the very lowest level we know of cases hours.46 On the other hand Kate Barker’s where planning committees have required Review of the planning system, which has two site visits before deciding fairly simple just reported, will have taken less than a applications, in one case a small rear exten- year from the date of its announcement to sion. In each of these cases there has been the publication of its report, and will have intense vocal opposition from one objec- cost considerably less. So a report on the tor. Although the eventual decision was system can be carried out far more quickly obvious from the start, the operation of the and informally than an inquiry within the system resulted in delays ranging from a system. Ms Barker’s inquiry has not 45. Helen Jarvis & Wendy few months to over a year. required barristers and lawyers and the for- Russell, The use of prices in At the other extreme, of course, we have mal examination of witnesses. Laws and planning for housing, Department of Land Economy, the example of Terminal 5 at Heathrow taxes can be changed with a similar lack of University of Cambridge, 1999 Airport. That alone should be enough to formal inquiry. Only permission for the 46. www.leamingtonspatoday.co.uk

www.policyexchange.org.uk • 31 The best laid plans

construction of a building apparently war- air hub should be take for granted at our rants such a degree of inquiry and investi- peril. gation. Certainly since then steps have been This problem of delay is a sore point taken to try to speed things up. But sys- with some of us regional scientists. It may tems of regulation have their own dynam- be a few years ago now, but we remember ic; regulation becomes an activity for its an international conference and the deri- own sake. Politicians are always unwilling sion with which the Dutch regional scien- to take decisions which might result in lost tists regarded the Terminal 5 imbroglio; votes. So a proposal that major applica- Amsterdam’s Schiphol, London’s rival as a tions such as Terminal 5 might be dealt European hub, having been extended with in the same way as was the Channel while the British Terminal 5 inquiry Tunnel, through an approval in principle ground lethargically towards its inevitable in Parliament, did not find favour with conclusion. It is not just that Heathrow is MPs and was dropped. But the process can falling behind its European competitors and must be speeded up, after all the because of its antiquated and over-crowded French high speed rail link was completed terminals. While other major European by the time the tunnel was opened, while airports have now built or are building new the British link is only just reaching com- runways, it is not clear if and when pletion. One wonders what the British rail- Heathrow will eventually get its third runway promoters of the early 19th century way, which is needed to increase its capac- would have been able to achieve in similar ity and the number of destinations (Table circumstances. But no doubt the British 3). This means that Heathrow will slip planning system would have ensured that down European airport rankings. Clearly, the Industrial Revolution would have in terms of routes and passenger comfort occurred elsewhere. Clearly delays of this Frankfurt, Paris and Amsterdam are magnitude have a significant economic already playing in a different league. cost, reduce economic efficiency, and make Britain – in fact London – lost its status as almost everyone worse off. Europe’s shipping hub to Rotterdam as a result of the kind of delays and political 47. Future Heathrow press indecision that characterise our current Efficiency and the regulation of detail releases, 5 February 2006 and 20 March 2006, www.future- attitude towards major infrastructure proj- One of the things that the McKinsey heathrow.org ects. Heathrow’s pre-eminence as Europe’s report on the competitiveness of the UK

Table 3: Major European airports47

Runways Scheduled non-stop routes Max flights per hr (March 06) (August 06) Growth (%)

Frankfurt 3* 233 262 13 100/120 Paris CDG 4 220 223 25 120 Amsterdam 5 203 222 8 120 Munich 2** 179 204 52 n/a Heathrow 2 178 180 3 85

* excludes new runway due by 2009, ** excludes new runway due by 2010

32 Economic growth, delay and the level of detail

Bekonscot - Believe it or not! Bekonscot model village, in Beaconsfield, Bucks, is the world’s oldest model village. It was started in 1929 as the hobby of one man, Richard Callingham, and has developed since then into a one and a half acre miniature landscape of villages, castles, railways, churches and lakes. All profits go to charity. The models and the landscape are intended to represent the England of the 1930s. There is one aspect of the landscape which is not of the period, however. In the 1930s you did not require planning permission to put up a house. Yet in 21st century England a planning application has to be made before any new model building can be constructed, even though it may be a one-fifteenth scale model! The application is duly considered by the local authority for six to eight weeks, and then approved. So far as anyone can remember no application has ever been refused, and it is difficult, if not impossible, to see on what grounds permission might be refused. Visitors walking round the village do sometimes see an area boarded up with a notice saying that planning permission has been applied for, and they tend to assume that this is part of the make-believe, a joke. It is not. This is pre-war England transported into a post-war world.48 economy noted as a negative factor was the general provided what is proposed is in line level of regulation. This regulation, it was with what the zoning ordinance for the argued, descended to a level of detail which area then it is permitted. But the British was not evident elsewhere. In the case with system requires that a detailed planning which they were most concerned, the hotel application be submitted for which per- industry, the degree of regulation largely mission be given. Sometimes the process derived from building regulation rather can be nonsensical. A former colleague at than town planning controls, with some- Reading drew our attention to a proposal times a difficulty in deciding which is for a factory in Reading which was to be which. It was a planning regulation, we blue in colour and on these grounds the believe, which used to require that there application was refused. But if the factory should always be two doors between toilet had been built in any other colour it could, facilities and a dining area. So that when without permission being required, be one of the authors built an extension the painted blue. builder advised him to put the second door In part, of course, this level of regulation in the plan, and then remove it after the is one of the factors leading to delays. In building had been inspected. It is UK the case above a factory was, of course, building regulations that require that ordi- built, but somewhat later, since a new nary light switches are not permitted in application had to be submitted and bath rooms. Nor are ordinary power sock- approved. From our own experience we ets. Yet travelling round the world we note know of a student dormitory building that the UK seems to be unique in this. If which was delayed for a year in order to other countries find that a bathroom is the allow the local residents to vote on the best location for a washing machine and kind of brick that they would prefer. In that such a location carries little risk why another case a building was delayed in should the UK maintain such a regulation? order that a tree could be moved at the The truth is that the British are used to optimal time – November – only to find a level of regulation which is greater, and out later that the tree, on removal, could concerned with a greater level of detail, not be replanted so that the delay was than is true elsewhere. For example, pointless. French, Italian, or American planning sys- It is a problem with any discussion of tems require only that the proposed build- the regulation of detail that the examples 48. Alan W. Evans, visit to ing conform to certain requirements – in which have to be given are so, well, Bekonscot

www.policyexchange.org.uk • 33 The best laid plans

detailed. But that is the point of the argu- Foster or a Rogers building may get ment. Because the level of control deals approved. But someone unknown at the with such matters of detail it is possible to beginning of their career may have much refuse applications on matters of detail. greater difficulty. Even though it must be quite clear to an unbiased observer that the delay outweighs any possible gain from the small alteration Planning and economic growth: in the overall plan which will occur. the McKinsey Report Moreover the degree of control can be, Over the past forty or fifty years a indeed almost certainly is, counter produc- favoured topic of research and comment tive. The planning officers and the politi- by British, and other, economists has been cians on the development control commit- the reasons for the slow rate of growth of tee have to approve the architectural design the British economy relative to the rate of of the proposed building. Something growth of other industrialised countries. which is too different may cause refusal, The usual suspects have been paraded – leading to increased costs and delay. It is obstructive trade unions, inferior man- safer to go for the anodyne, for uniformity agement, lack of investment, inadequate and blandness - unless, of course, an ‘archi- training and education, failure to follow tectural’ name can be brought in. No com- up innovations, perverse macroeconomic mittee likes to be seen as philistine, so a policies, and so on. Only recently has

Growth Italian Style growth is precisely the lack of controls so that economic devel- Over the past twenty-five years, in most years, one of the opment occurs in a way that could not be permitted in the UK. authors has spent his summer holidays in a small Italian town The 1989 guide to the Abruzzo (English Edition – Novara: Istituto on the Adriatic coast in a region called the Abruzzo. Planning Geografico de Agostini, p.202) notes that the town of controls in the area are fairly light and of course in Italy these “Sant’Egidio alla Vibrata is the ‘capital’ of the provinces’ treasure controls are widely ignored. It is estimated that 30 per cent of chest [the Valley of the Vibrata] which led The Times newspaper the dwellings built over the last thirty years or so are abusivi, to write: “Could not some of the more isolated English villages or that is, built without planning permission. The lightness of the those in the grip of the coal mining crisis take example from this degree of control can be seen in the building, which has little known valley in Central Italy?” But as the guide continues “It occurred, houses on the hills, factories in the valleys. From a is a pleasure to surprise the English; but here no one is surprised British planner’s point of view all this scattered development is any more because everyone knows what happened and how. disgraceful, the countryside should be kept neat and tidy. Yet Here, as in [the other towns in the Valley], every house has the British do not seem to mind, those that come to Italy on turned into a factory and the motto ‘small is beautiful’ has made holiday or to buy a second home in Tuscany or Umbria, or, them big”! now, in the Marche, and the Abruzzo. Maybe this development But of course it would be impossible to turn “every house into is not so bad after all. a factory” with the British planning system, and, it also has to be Or maybe it is also that the cost of flats and houses is not that said, with the British as neighbours. The Italian view would seem high, so that the amount of development is seen as a visual price to be that what your neighbours do is their business, not yours. worth paying for the fact that a second home is affordable, You certainly do not report them to the authorities, and then they hotels are not that expensive, and a very good meal can be had will not report you. Whereas in the UK even having an office in at a very reasonable price. your home is likely to have the neighbours protesting, and the Clearly the local view is that development is to be encour- first attempt to turn your home into a factory would be stopped. aged. The Abruzzo is in the Mezzogiorno, the poorer, southern, Development such as occurred in the Val Vibrata and elsewhere part of Italy. But it has also been, over the past thirty years, the would be impossible in the UK. The first shoots would be treat- fastest growing region of Italy. One factor that has assisted this ed as weeds, to be pulled out.

34 Economic growth, delay and the level of detail

town planning been added to the list of because they were looking, like the drunk suspects, in the McKinsey Report of who had lost his keys, over where the light 1998.49 It might be thought that this neg- was better! Fortunately this neglect, follow- lect would indicate that it has not been ing the McKinsey Report and the Barker seen as a prime suspect, but this may say Review, is now at an end. Though most more about the detectives than it does mainstream economists may continue to about the crime or the criminal. The look where, for them, the light is better, studies have been written by ‘mainstream’ town planning has at last been dragged economists, and, particularly in the UK, into the policy limelight. Indeed the such economists are trained to regard McKinsey Report did not merely regard national economies as aspatial points, and the planning system as a possible factor to ignore space, distance, location and slowing economic growth but one of the land as unimportant. two main factors. The Report stated that For this neglect is otherwise inexplica- “the most pervasive explanation [for the ble. After all, concern over the slow rate of failure to adopt global best practices] lies in growth of the UK economy only began to the effect of regulations governing product be expressed after the planning system had markets and land use on competitive been put in place, in the 1947 Act. behaviour, investment and pricing” Moreover, while other suspects would deny (Introduction, p.2). In recent years, the any intention of slowing economic growth, OECD has also highlighted planning as the planning system in the UK has been one of the obstacles to economic growth in intended to constrain and restrict physical the UK.50 development. At the same time planners, But in what ways may it be responsible? as we have said earlier, have declared them- Some we have already discussed. The econ- selves uninterested in economics and in omy has been slowed by the policy of con- economic welfare. Indeed, it is sometimes straint. This policy has led to a bias against made explicit that the constraint of physi- economic activities which use land exten- cal development may restrict economic sively, and in favour of activities which use development. The revised Oxfordshire land intensively. This leads to more con- Structure Plan of the early 1990s states gested facilities of every kind, and to high- that they “do not intend to restrain undu- er prices for many goods and services ly” the growth of firms in Oxfordshire. which could be obtained more cheaply But, translated out of Orwellian abroad. Newspeak, what this actually means is that Rather than looking at these general they do intend to restrain the growth of influences, as we have done, the format of firms in Oxfordshire, but “not unduly”. the McKinsey Report involved a number But how much is unduly? One percentage of studies of particular industries – food point? Two? But if the system reduced the processing, telecommunications, food rate of growth to 2.5 per cent when it retailing, hotels, and software. They found might have been three or more this would that the last three of these were particular- entirely explain the UK’s slow rate of ly affected by land use regulation, though growth. in different ways. These were, in effect, the

The neglect by the economics profes- protection or creation of local monopolies 49. McKinsey Global Institute, sion of the planning system as a possible in the case of food retailing, the difficulty Driving Productivity and Growth culprit over the years is, in these terms, of constructing new facilities in the case of in the British Economy, 1998 50. OECD, Economic Survey of extraordinary. It is as though they ignored hotels, and the difficulty of obtaining the United Kingdom 2005, the figure in the shadows with the smoking economies of scale through agglomeration http://www.oecd.org/docu- ment/43/0,2340,en_2649_34569 gun muttering ‘I didn’t mean to do it’ in the case of software. _35456619_1_1_1_1,00.html

www.policyexchange.org.uk • 35 The best laid plans

Local monopolies allows, safe in the knowledge that the plan- With respect to food retailing it was argued ning system will ensure that no competing that “the complex, locally driven planning supermarket would be permitted. regime … made it difficult, time consum- Industrial economics makes much of the ing and expensive for food retailers to find concept of ‘contestability’– a monopoly new sites and expand” (Food Retailing, has to bear in mind that a market may be p.2). Bluntly, having gained planning per- contested by a new entrant. The harder it mission for an out of town superstore is for a new competitor to enter the mar- Sainsbury, Tesco, or any other supermarket ket, the greater the monopoly power which chain, could then relax safe in the knowl- can be exercised by the monopolist. edge that no other competitor would be Clearly the planning system makes local able to enter the local market. Indeed the markets harder to enter for larger retailers system may be manipulated by obtaining but especially for smaller, independent permission for other sites, but then not ones.

51. Financial Times, 'Rivals call carrying out the development. Local plan- The then President of the Royal Town for brakes on Tesco juggernaut', ning committees will then be even more Planning Institute responded that the crit- 21 October 2006 reluctant to grant permission for another, icisms levelled at the planning system 52. Daily Telegraph, 'Supermarkets feel a nip of nos- competing, store. Put at its worst, a could be ignored because the system was talgia in the air', 13 February monopoly position means that a period of generally supported by industry. What this 2006, www.telegraph.co.uk/ money/main.jhtml?xml=/money/2 price cutting to drive the local small shops response revealed was a failure to under- 006/02/13/cnshop13.xml&menuI out of business can then be followed by stand the argument. What he was saying d=242&sSheet=/portal/2006/02/13/ixportal.html higher prices which its local monopoly was that industry, in this case retailers,

The Competition Commission is currently carrying out an inquiry of assessing the viability of commercial activity, that is trying to into the grocery market. The submissions by the supermarkets second guess the market. Clearly the aim is to limit competition can be read on the Commission’s website. Tesco, the dominant by controlling entry. chain, argues that the planning regime does not significantly We would not wish to forecast the Commission’s findings. affect the growth opportunities of retail businesses or deter We merely note, without comment, that we observed that in the entry. The other major chains take a different view. ASDA argues 2006 Party Conference season Tesco organised joint fringe that the current planning regime is anti-competitive, and both events with the Campaign for the Protection of Rural England. Morrisons and Sainsbury’s take a similar stance. Four planning We also note that, in the USA, where Tesco is expanding, it has tests apply to new stores outside town centres: praised the absence of planning regulations which hamper development.52 This apparent contradiction illustrates the plan- 1 Quantitative need: the proposed shop must be judged to ning paradox perfectly. In the UK market, where it is the domi- help meet a shortfall in existing capacity. nant ‘insider’, it makes sense for Tesco to favour a policy that 2 Qualitative need: takes into account questions such as keeps out the competition where possible. In the US, where it is whether existing shops have problems with long queues, an ‘outsider’, trying to gain a foothold in a new market dominat- car park congestion, old facilities and so on. ed by larger established players, it will obviously favour a plan- 3 The sequential test: according to which it has to be shown ning policy that allows it a foothold. To highlight this paradox is that the proposed store could not be located in or nearer to not to condemn Tesco’s behaviour or suggest it alone acts like the town centre. this. It makes perfect commercial sense for companies in such 4 A retail impact assessment: which analyses the impact of a position to behave in this way. But the key point is that the the proposed shop on existing town centre stores.51 planning system should not be there to protect existing dominant industries, but should aim to drive competition and eco- Whatever may be the view of the Commission, it is evident that nomic growth while taking account of social and environmental these tests put town planners and councillors into the position factors. The UK planning system fails spectacularly in this regard

36 Economic growth, delay and the level of detail

were, in his view, happy with a system Regulation which restricted competition. We have With respect to the hotel industry the found a similar response in our own report points out that planning and listing inquiries. Those firms and developers regulations “impose higher cost design and already operating in the market are happy construction methods. In some cases plan- with it because their interests are protect- ning restrictions actually prevent new ed. This is in line with what is called the hotels being built … Depending on the ‘capture theory of regulation’. In the end, it specific situation, experts indicate that is argued, regulators and regulatory sys- planning and listing regulations account tems are ‘captured’ by those who are sup- for between 15 and 50 per cent of the dif- posed to be being regulated because they ference between UK and US construction have more of an interest in what happens costs” (Hotels, p.7). They specifically drew than anyone else. The regulation then is attention to one apparent consequence. In done in their interest rather than anyone the UK 75 per cent of the stock of hotel else’s. This entrenchment of local monop- rooms was over forty years old and nearly oly can be seen elsewhere in the operation half were over a hundred years old. For of the system. For example the developers comparison the proportions in France were appearing at an Enquiry in Public into a 35 per cent and 14 per cent.54 Thus the local development plan may want their constraints on the availability of land and land designated as suitable for develop- on construction mean that hotel rooms are ment for housing, but that does not mean more expensive in the UK than elsewhere. that they want every other developer’s land so designated. Their land but no other developer’s land would be the answer to Constraint their silent prayer. The less of everybody The third industry which the Institute else’s land that is designated the higher will regarded as affected by the land use plan- be their profits. This entrenchment of local ning system was the software industry. The monopoly also occurs with respect to the report drew attention to the benefits in current system of ‘sequential develop- terms of economic development when “a ment’. The brown field sites nearer the critical mass of successful companies are centre of the town are supposed to be built located together”, and noted that “the on before development is allowed further most successful clusters form naturally out, thus of course allowing the owners of through market forces” (Software, p.11) those preferred sites to charge more for but pointed out that “planning regulations, their land. particularly in the Cambridge area, have The President of the RTPI also restricted the expansion of high tech clus- responded that similar criticisms had ters” (p.14). A similar argument has also been made before, at the end of the been heard recently, also with respect to 1980s. The implication was that they had the Cambridge area, regarding clustering been made, but then answered and refut- in the biotech industry. ed. But in the Institute of Economic The land use planning problem can be Affairs report, No Room! No Room!,53 to exemplified by the exception which proves which he was presumably referring, the the rule, the building of a new head office criticisms were not made in such detail for Vodafone. A major player at a world 53. Alan W. Evans, No Room! No Room!, Institute of Economic and they were neither answered nor level in the mobile phone industry, Affairs, 1988 refuted, just ignored, as the more trench- Vodafone’s rapid growth in the 1980s and 54. McKinsey Global Institute, ant criticisms in the McKinsey Report 1990s was not and could not have been Driving Productivity and Growth in the British Economy, Hotels, were also ignored at the time. foreseen. Its head offices are located in the p.7, 1998

www.policyexchange.org.uk • 37 The best laid plans

small town of Newbury located in south- ity to the others. In this situation it is evi- ern England about half way between dent that proposals to allow development London and Bristol. Vodafone’s rapid to take place would not have been permit- expansion meant that its head office func- ted because each of the small firms would tions became spread throughout the town have had less political clout, and because and it applied to build a new head office the costs of refusal would not have been so just outside the town. The proposal was obvious. So the agglomeration economies rejected by the local authority’s planning would have been dissipated as firms were committee. It was argued that the pro- forced to locate further afield, or prevented posed development was not provided for from expanding, or prevented from com- in Newbury’s five year plan and that it ing into existence in the first place. But should therefore move elsewhere. Since large companies are also affected. For Vodafone was, and is, by far the largest example, it recently became known pub- employer in the town this would have licly that Pfizer decided to locate its meant that most of the employees would European headquarters in Germany and lose their jobs or have to commute sub- not in the UK, and the main reason for stantial distances. It was argued, however, this was the UK planning system.55 on the other side, that new firms would The final, general, point that the report move in to fill the vacated space and so makes with respect to the UK planning sys- new jobs would soon be found. tem is one that has been made by others, including ourselves in our earlier discussion of housing.56 The way in which the system “ The way in which the system operates means that operates means that economic growth economic growth comes low in the order of priorities comes low in the order of priorities. This is ” because, first, strategic planning and building consent decisions are made at the lowest level of local government. Second, It is, as we have already said, difficult to although routine decisions may be made by see how Vodafone’s rapid growth could planning officers, that is by professional have been foreseen and therefore difficult planners, any decisions which are in any to see how a five year plan could have way controversial will be made by locally allowed for it. But that is the point of elected politicians. The public choice course. Does the plan adapt to the market approach to policy making takes as its basic or does the market adjust to the plan? In assumption that politicians wish to be re- the event, common sense prevailed and the elected and will therefore respond to the proposal was approved by the full Council. wishes of those who have elected them. The relevance of this case to the argu- Thus they will tend to give more weight to ment regarding clustering is this. The pro- the views, usually negative, of local resi- posal was approved because it related to a dents rather than taking any national view- single development by single large firm point. In areas of unemployment these res- wishing to bring its cluster of head office idents may favour development which functions together in one place. The effects might bring jobs, but in areas of high

55. The Observer, 'Pfizer shuns of refusal were obvious, but the proposal employment the residents will see no rea- UK for Germany to escape plan- was nearly rejected. But suppose the son why new development should spoil ning shambles', 25 June 2006, http://observer.guardian.co.uk/bu mobile phone industry in Newbury had their local environment. Third, the UK sys- siness/story/0,,1805084,00.html not been represented by a single large firm tem of financing local government gives lit- 56. Alan W. Evans & Oliver Marc but by a cluster of firms, each gaining tle or no incentive to a local authority to Hartwich, Better Homes, Greener Cities, 2005 agglomeration economies from its proxim- allow development. In the case of a new

38 Economic growth, delay and the level of detail

commercial or industrial development the and heritage protection”, where the local property tax paid goes to central govern- community “see little direct benefit from ment. In the case of new housing the prop- economic development”. The report does erty taxes are paid to local government but not make the point that this is much more are then netted off against the grant true of southern England than in areas of received from central government. the UK where unemployment is higher. The local planning authorities, the But as we indicated earlier, the South is report concludes are therefore more likely where the demand is and, therefore, where to see their role as that of ”environmental development is constrained and prevented.

www.policyexchange.org.uk • 39 4

The effect of planning on interest rates

The connection between the planning sys- France.57 That is, a 1 per cent increase in tem and economic stability is less direct house prices is associated with a 1 per cent than that between planning and economic increase in housing construction in the lat- growth, or the lack of it, but it exists nev- ter countries, but with hardly any increase ertheless. As we pointed out in our earlier in housing supply in the UK. The econom- publications for Policy Exchange, the UK ic effect of this disconnection of housing system of planning for the provision of production from the price system is that housing is a Soviet style system of central when house prices start to rise they rise planning. Targets (production norms) are more steeply than they otherwise would set for the local authority areas. There is no do, and more steeply than they would in political or financial incentive for a local other countries. The rise is not damped authority to allow more to be built. The down after a year or so by an increase in result is that the supply of housing is very the number of new homes being built. unresponsive to changes in house prices. Conversely price falls are likely to be steep- The price elasticity of housing supply in er and deeper than they would have been if 57. Kate Barker, Review of the UK is not that much above zero where- prices had not risen so far and so fast in the Housing Supply: Interim Report - Analysis, 2003 as it is above one in the US, Germany, and first place.

Figure 4: Central bank discount rates in England and Euroland

7,00

6,00

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4,00 ECB 3,00

2,00

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9 2 2 3 3 4 5 5 6 6 9 01 01 01 02 0 0 03 0 0 04 05 0 05 0 06 0 r 00 t 00 l l l p ul 00 ct 01 ul 02 n ul ct 0 ul 04 n pr 06 Jan 99Apr Jul 99Oct 99Jan 00A J Oc Jan Apr Ju O Jan Apr J Oct Ja Apr 03J O Jan 04Apr J Oct Ja Apr Ju Oct Jan 0A Ju Oct

40 The effect of planning on interest rates

The potentially destabilising and infla- Because of the latent inflationary pressure tionary effects of price increases in the from rising house prices in the UK, interest housing market mean that those con- rates in the UK tend to be higher than in the cerned with setting interest rates have to Euro zone (see Figure 4). Indeed, an argu- keep at least half an eye on the situation ment which has been used for joining is that in the housing market. Thus newspaper the cost of borrowing would be lower. comment on the interest rate decisions of However, in joining the Euro we would be the Monetary Policy Committee of the more than likely to find ourselves in Ireland’s Bank of England tends to be concerned situation, where low interest rates and hous- with two things. Beforehand, will the ing supply that is not meeting needs have led Committee have to increase interest rates to relatively high levels of inflation. But the because it is felt that house prices are ris- main reason why UK interest rates are high, ing too fast or reduce them because prices despite the low overall rate of inflation in the are starting to fall? After any change, what UK, is the wish not to add fuel to the infla- will the effect of the change be on the tionary flames by stimulating the demand housing market? When interest rates are for housing, an increased demand which raised to choke off demand for housing in cannot be met by an increased supply with one part of the country because of its per- the current planning system, and which will ceived inflationary impact, then there is therefore result in higher prices. likely to be critical comment as to the This interaction between the housing negative impact of the change, on market and interest rates was a major fac- employment and industry, in other parts tor leading to Kate Barker, a member of of the country where house prices are not the Bank of England’s Monetary Policy rising at the same rate. The UK currently Committee, being invited to review the finds itself in such a position with ram- supply of housing, and then, given the per- pant house price inflation in the South ceived effect of the planning system on its East and London driving higher interest supply, the later invitation to her to review rates, despite the negative economic the planning system itself, as it affected effects for other regions. other activities.

www.policyexchange.org.uk • 41 5

The Barker Review of Land Use Planning

In 2005 Kate Barker, a member of the believe this. The vast majority, more than Monetary Policy Committee of the Bank seventy per cent, believe more than a quar- of England was commissioned by the ter of the land area to be urban; one in ten Chancellor and the Deputy Prime believes that more than three quarters of Minister to review the economic effects of the land area is built up.58 the land use planning system. Her first The second aspect is one that we have report, an analysis of the situation, was dealt with extensively in this and our earli- published in July 2006. Her second report, er publications, namely that the price of which included her recommendations, was land is too high and becoming higher, and published in December 2006. Both she that this has consequences for the housing and her research team must be congratulat- industry and for the structure of commerce ed on the evidence which is put together and industry in this country. Third, she and analysed in the two reports. Some of it alludes to the argument that the main rea- we have used in this report, since it serves son for constraining the use of land is to to demonstrate the effects of the planning increase density and so further global sus- system on commerce and industry, the tainability. But she also draws attention to subject of our publication. Kate Barker had the flaws in this argument, that high build- a wider brief, however, in that she was con- ings in themselves are less efficient than cerned with the planning system as a lower buildings, and that constraining whole, taking into account its impact on cities leads to excessive commuting as peo- both commerce and on housing. Indeed ple travel daily from places they can afford the stimulus for these reports on the plan- to live in to cities where there are well pay- ning system arose out of her earlier reports ing jobs. We have considerable admiration on the supply of housing, where she found for the effort which has been put into this that the main reason for the shortage of analysis. Our problem lies with the recom- housing was the planning system. mendations, which are milder than we believe is justified by the analysis.

An admirable analysis … Drawn together the evidence demonstrates … but timid recommendations. the nature of the problem which has to be Nevertheless we understand the nature of dealt with. The first aspect is one we men- her problem. After all, much of the media tioned in the introduction to this publica- reaction to Barker’s recommendations sug- tion - the British believe that their country gested that she had proposed a complete

58. HM Treasury, Barker Review is far more urbanised than it actually is. shake-up of the planning system, the abo- of Land Use Planning, Final While only about ten per cent of the land lition of green belts and a full, unplanned Report - Recommendations, p. 44, December 2006 in England is developed, few people concreting over of England. Indeed in one

42 The Barker Review of Land Use Planning

paper she was described as the most evil introduction. Last but not least, Barker is woman in England. also sceptical about the possibility of But such a title is thoroughly unjusti- keeping plans up-to-date, which would be fied. Her recommendations are very cir- vital if they were not meant to block eco- cumspect and she clearly seeks to create the nomic development.61 minimum of confrontational argument. But then she goes on to say that “there Imagine what she might have been called if is, however, a real issue about whether she had sought a more radical approach, within the plan-led system there can be indeed the sort of approach which we have greater certainty in those instances when sought in this and our previous publica- the plan is not up-to-date or determinate. tions! It is clearly right that where the development plan is up-to-date and the relevant policies point in the same direction that Plan-led development this should provide a strong basis for deci- We argue that development should no sion-making. In this context it would be longer be plan led. But she argues that the useful if it were made more explicit that system should be retained. She writes: where an application for development is in “While it might be thought that a system accordance with the relevant up-to-date based on a presumption in favour of devel- development plan it should be approved opment would support economic growth unless material considerations indicate better than one based on plans, this plan- otherwise. But in many instances planning led development is to be supported as it policies may pull in different directions provides an effective balance between cer- (and in theory in some cases the plan could tainty and flexibility”.59 Plan-led, according be silent). There may also be instances to Barker, means “effective place-shaping”, when the plans are not up-to-date, despite development in a “co-ordinated manner” the recent reforms.”62 and “efficiency” in planning as fundamen- And this leads her to recommend that tal decisions are made once and for all “where development plan provisions are without having to be done anew for every indeterminate or where they are not up- single planning application.60 to-date, the application should be But at some level she is in agreement approved unless there is a significant with the criticisms which we and others probability that the likely environmental, have made. She acknowledges that ‘plan- social and economic costs of the develop- led’ can mean that plans become a tight ment will outweigh the respective bene- corset, binding planners and developers fits.”63 to plans which should have become obso- But since plans can always be argued, lete in the light of economic and social within a few months of their coming into development. It is also possible that larg- force, to be out of date it follows that the er companies are able to influence plan- way would be open for developers, most of making in their favour to a much greater the time, to be able to appeal on the extent than their smaller competitors. grounds that the plan was out of date. And she accepts that the introduction of plan-led development has not significantly reduced the number of planning appli- Town centres first 59. Ibid, p.18 cations that go to appeal. This could be A similar criticism can be made of the way 60. Ibid, p.18 interpreted as an indication that plan-led in which Barker deals with the town cen- 61. Ibid, p.19 does not actually improve certainty, one tres first policy, which she thinks is impor- 62. Ibid, p.19 of the main arguments used to justify its tant to “promote the vitality and viability 63. Ibid, p.20

www.policyexchange.org.uk • 43 The best laid plans

of town centres”.64 It is difficult to disagree, effects. We would agree with this analysis. for who would argue for town centres to Higher occupation costs for offices, raising decay? But while vital town centres may the costs of entry for new firms, reducing indeed be desirable, the town centre first labour mobility and hampering the devel- approach may not always have the intend- opment of innovation clusters can all be ed effects. On the contrary, we have logically linked to an often clumsy, central- observed in recent years a wave of concen- istic and national green belt policy. Kate tration in the British retail sector, some- Barker’s analysis correctly highlights these thing which others have summed up by the problems. phrase “clone town Britain”.65 The real rea- But again, when it comes to solutions son behind the clone town phenomenon, and recommendations, the impression one we believe, can be found in high land gets is that she shies away from spelling out prices due to restricted land supply. This what would logically follow from her own makes it very expensive for entrepreneurs arguments. While she makes clear that to open shops, favours big retail chains demographic pressures, especially the with good access to capital and works expected formation of some four million towards a standardised range of products, new households over the next twenty years, as we have explained earlier in this report. make it unavoidable to discuss the issue of Therefore a policy focus on town centres land supply seriously – and this includes combined with high land prices will only discussing the status of designated areas exacerbate the town cloning process. such as green belts – she does not spell out that this is incompatible with sticking to the current national policy. Thus her rec- Green belts ommendation does not go nearly far We have argued in this and our earlier enough. She states that “regional planning publications that the main problem is the bodies and local planning authorities policy of constraint. Barker’s analysis in her should review green belt boundaries as part first report on the planning system goes of their Regional Spatial Strategy/Local some way to demonstrate the way in which Development Framework processes to the system sends the wrong price signals, ensure that they remain relevant and something we have tried to analyse further appropriate, given the need to ensure that in this publication. But the sole recom- any planned development takes place in mendation which relates directly to the the most sustainable location”.66 policy of constraint is that relating to green But experience of politics and politi- belts cians’ caving in to pressure from local home owners, the Campaign to Protect Rural England, and others suggests that in “ When it comes to solutions and recommendations, the most cases the various authorities will impression one gets is that she shies away from spelling out review the boundaries and find that they need, if any, little adjustment. what would logically follow from her own arguments ” Given that any recommendation is likely to be treated as an opening gambit in a bargaining session, it would have been bet- 64. Ibid, p.29 Kate Barker sums up nicely the major ter to state clearly that the national green 65. New Economics Foundation, Clone Town Britain, 2005 arguments for and against green belts. In belt policy should be abolished and deci-

66. HM Treasury, Barker Review particular, she mentions that a green belt sions over the use of current green belt of Land Use Planning, Final policy comes at the cost of undesirable land should be handed down to local Report - Recommendations, p. 67, December 2006 environmental, social and economic side authorities. Possibly it should have been

44 The Barker Review of Land Use Planning

made more explicit that this would not finance under Sir Michael Lyons was car- mean at all that much of the green belt ried out, but publication of this report would need to be developed, but maybe became delayed and is now expected no only a small fraction of it. After all, and sooner than February 2007. And so according to Barker’s own figures, green Barker’s recommendation goes no further belts currently account for thirteen per than suggesting that “the Government cent of all land in England – an area larger considers, in the context of the Lyons than that used for urban development.67 Inquiry into Local Government, further The additional housing needs of the popu- fiscal options to ensure that local authori- lation could therefore be satisfied by only ties have the right fiscal incentives to pro- giving up a tiny share of this, and maybe mote local economic growth.”68 even that would be unnecessary if one first We agree, but we would have wished a used the land that was set aside under agri- clearer indication as to what Barker would cultural policies (around 5 per cent of the consider appropriate in this context. For total land). Certainly we would have example, it would have been helpful to wished that Barker had been more forceful. explore in greater detail how the Planning But we can also sympathise with her posi- Gain Supplement, a tax to capture some tion – the public reaction to her very cir- portion of the land value uplift when plan- cumspect recommendation would seem to ning permission is granted, could be linked have held her back from an even more out- directly to local communities. While we spoken recommendation concerning this have argued for a somewhat similar Social issue. Cost Tariff, there is a decisive difference: under our scheme, all revenue of this tariff would go to local government. The Local authorities and development Planning Gain Supplement, on the other In the chapter on creating incentives for hand, will as it seems only go the Treasury local authorities to permit development and therefore its incentive quality for local her reasons for holding back are even more communities will be significantly dimin- transparent. Here again, we welcome her ished. basic analysis which coincides with our previous research on this subject. She recognises that in order to lead local deci- Dissenting from Barker sion makers to a more pro-development There are two areas, in which we are hesi- approach, incentives have to play a key tant to follow Barker’s arguments and even role. At the moment the system of local more hesitant to accept her conclusions. government finance effectively punishes The first relates to design. She recom- local communities for allowing develop- mends that “decision makers should give a ment. Not only do they have to provide high priority to ensuring that new develop- additional infrastructure, but there is also a ment has high design standards” and that lack of extra revenue from such growth. local authorities “should be encouraged to She also points to the fact that this can lead turn down poorly designed proposals”.69 to a situation in which the long-term eco- There are a couple of problems with this nomic prospects of a community are neg- recommendation. The first is that people lected because of a lack of current incen- are liable to disagree as to what is regarded tives. as good design: de gustibus non disputan-

The problem here is that at the same dum est. And committees are certainly not 67. Ibid, p.185 time that Barker was preparing her review, to be trusted as arbiters of good design; as 68. Ibid, p.154 a separate review into local government the saying goes, ‘a camel is a horse designed 69. Ibid, p.134

www.policyexchange.org.uk • 45 The best laid plans

by a committee’. The second is that, pre- their planning decisions. Besides, it is local cisely because good design is difficult to communities that have the local knowl- define, it is likely that ‘poor design’ will be edge necessary to decide in an informed cited as a reason for rejection where there way. This kind of local knowledge cannot vociferous objectors, but no other justifi- be replicated in a centralised planning able reason. Certainly we know of exam- commission. So for these reasons, we are ples of this even under the current regime. critical of the idea of a planning commis- Thus the proposal, if accepted, is likely to sion. It would basically stand for more of lead to delays and appeals. Its effect would the present system when a departure from be precisely the opposite of our recommen- it is actually needed. dation that less detail should be considered But there is another problem with an in planning applications. Independent Planning Commission. It The second concerns her proposal for the could lead to some bizarre situations creation of an Independent Planning whereby large and important development Commission.70 We can understand why she projects such as nuclear power stations and should propose this: in the past, large infra- airports would be decided by unelected structure and energy projects have often commissioners, while smaller, yet still sig- been delayed due to the planning system. nificant projects such as large housing Making the planning process faster is thus developments or out-of-town shopping something that we would also like to see. centres would still be within the compe- But we have doubts about Kate Barker’s pro- tence of the elected Secretary of State. posed solution, which would involve a fur- We await with interest the government’s ther centralisation of planning. In our previ- response to the Report and its recommen- ous publications we have stressed that we dations over the next few years. But do not would like to bring about a better planning expect that it will have any effect in the system by taking a different route. We think near future. And this is unfortunate. The that what we need is more localised and one recommendation which might release incentivised planning, which is just about more land for development, that green belt the opposite of what a national Independent boundaries should be reviewed, even if Planning Commission would stand for. accepted is likely to be so long in the We believe that local communities are review that by the time any land might be able to make their own choices about large released either land prices will have gone projects, too, provided that they are con- through the roof or the economy will have 70. Ibid, p.76 fronted with the full costs and benefits of collapsed, and quite possibly both.

46 6

Conclusions and recommendations

What we have tried to show in this publication is the way in which the operation Young people seeking to buy their first house, and then to of the planning system in the United “ pay off the mortgage, are the ones who lose out Kingdom serves to constrain and distort ” the growth of the economy. Planning can no longer be viewed, as it has been for fifty years, as a government activity What we have tried to show is that one which affects only the physical environ- way in which the return to labour is ment and has no impact on the wider reduced is that prices tend to be high in the economy. The interactions and interrela- UK, something which is certainly per- tionships exist and must be understood ceived by most visitors to the country. in order that the negative impacts can be There is also a significant difference ameliorated. between the positions of different age The most obvious effect derives from groups. As we showed in our previous pub- the policy of constraint which has existed, lications on the housing market older first implicitly, then explicitly, for fifty households who own their houses have years or so. The result of this policy is that gained as land owners what they would in the UK land for industry and commerce have lost to landlords as renters. Young is more expensive than it is in other coun- people seeking to buy their first house, and tries. If one of the three factors of produc- then to pay off the mortgage, are the ones tion – land, labour, and capital – is more who lose out. The older households will costly than elsewhere then, in order to also have gained from the increase in prop- compete with other countries where land is erty values because they will be the benefi- cheaper, the returns to labour and capital ciaries of pension funds and may own must be less. Since in the world of today shares in property companies. The young capital is more mobile than ever, then the have not yet built up savings sufficient to return to labour must be less. Either that or benefit from any such investments. Thus the labour force of the UK must have some the analysis of the way in which planning extra skills not transferable abroad. The affects industry and commerce reinforces UK economy’s effectiveness is, in simple the conclusions which we drew from the terms, based on the relatively low wages it analysis in the previous reports – political- pays and on our linguistic advantage. The ly it is the younger households and renters latter is temporary, and a combination of who would have most to gain from any lower future immigration and our gener- relaxation of the system. It is the older, ous welfare system makes lower wages owner occupying households who are most unsustainable too. This is the sand on likely to wish to prevent any such relax- which the edifice is built. ation. It is, of course, the young who are

www.policyexchange.org.uk • 47 The best laid plans

the future and the old who are the past. of the net benefit to society of what is pro- For the sake of the future of this country posed. For this to be possible there has to we hope that it is the voices of the future be some presumption in favour of develop- which will be heard.71 ment, a presumption which existed before What then can be done? It has to be said the 1991 Act. After that date, since every- that our study of planning as it affects thing had to be in accordance with the industry and commerce has not caused us plan, as approved by central government, to vary the conclusions we reached in the presumption was dropped. studying planning as it affects housing, But in considering whether develop- and hence our recommendations for ment should be permitted, and allowing change largely remain the same. for a relaxation of the policy of constraint, An important reason for this is that our how do we take account of people’s wish firm belief is that planning needs to be that green fields should be preserved as far flexible. Any planning system needs to take as possible? We put forward the proposal in into account the fact that conditions Better Homes Greener Cities that undevel- change and that they change in ways which oped land should be subject to what we are difficult to foresee. Earlier in this report called a Social Cost Tariff (SCT). As we we quoted Harold Macmillan, the former put it then “in our view the SCT should be British Prime Minister, on the unpre- paid as a rate based on the highest possible dictability of events. The US President at social cost of the use of the land, i.e. that time, Dwight Eisenhower, was equally £500,000 per hectare for green field devel- forthright on the same theme, “In prepar- opment. This would ensure an adequate ing for battle I have always found that payment for what is regarded as the social plans are useless, but planning is indispen- cost of development – the loss of the green sable”. Put another way, an inflexible plan field site – while ensuring that the develop- is useless, what you have to do is plan for ment is not distorted. It would also be in the possible eventualities. But the UK’s line with the Rogers Report’s suggestion of planning system has steadily become less an Environmental Impact Fee” (p. 45). We and less flexible, reaching the point in went on to state that the same system 1991 that what was enacted was an inflex- should be applied to commercial and ible, Soviet style, central planning system industrial development, since it is the of so called ‘plan led’ development – any social cost of green field development development which was not in the five year which is at issue. plan could be refused permission on those We would not wish to alter this view. grounds alone. Certainly one would have Nevertheless, in discussing commercial thought that an inflexible system, operat- and industrial land it is worth noting that, ing according to norms laid down by cen- over most of the country, the value of com- tral government should be easily perceived mercial land is now lower, often substan- as obsolescent fifteen years after the fall of tially lower, than the value of land for the Berlin Wall and the collapse of the housing. This would seem to be paradoxi- Soviet Union, and in an age when such cal because it implies that, at the margin, plans have even been abandoned by nomi- society prefers land to be used for commer- nally Communist China. cial and industrial use rather than for hous- Once such central control is abandoned, ing. The financial barrier which has to be 71. David Willetts MP, 'Heirs to as it should be, then the system must be leaped is much lower. The implication is the Baby Boomers - Securing equity across generations', in flexible to changing circumstances. Any that there is a lower social cost with com- Roger Gough (ed.), 2056 - What decision as to the award of planning per- mercial uses than with housing. But while future for Maggie's children?, Policy Exchange, 2006 mission should be based on an evaluation industry is less malodorous and environ-

48 Conclusions and recommendations

mentally displeasing than it was, still, it political forces which led to land prices does seem difficult to argue that industrial being what they are now. However, we sug- and commercial uses of land are environ- gested in Better Homes, Greener Cities that mentally preferable, indeed substantially the SCT could be variable downwards preferable, to the use of land for housing. where authorities wanted to go for growth The truth is of course that this is not so. It or – as in economically depressed areas – is just that the forces of supply and where the balance of the social costs to demand have ensured that prices are as social benefits of extra development are they are. lower. We believe that this principle applies There is, first, on the supply or planning as much to commercial as residential devel- side, a presumption that industry and opment commerce represents jobs and incomes and therefore should not be prevented, indeed in some areas may be encouraged by the A system which ensures that all business rates and construction of advance factories. This “ taxes are collected by central government gives no fiscal view has coexisted with a period when the demand for space for industry and com- incentive to local authorities to allow commercial and merce has not risen as fast as the demand industrial development” for space for housing. Local planning authorities may feel that they have some responsibility to allow offices and factories One change which we recommended in to be built where local residents can find our earlier report, Better Homes, Greener jobs, but do not feel themselves under the Cities, related to the tax system. This same pressure to provide land for housing would be a more radical solution than the which may only allow newcomers to move SCT, but given the sensitivities of local into the area to take these jobs. government finance reform it would prob- Thus the paradoxical situation in which ably be much more difficult to implement. we find ourselves with regard to relative We argued there that the British system of land values is the result of a mix of envi- local government finance strives to an ronmental, political, and economic pres- excessive extent to maintain equity sures. Adjustment to a more rational rela- between local authorities; equity here tionship will take a considerable time. It meaning seeking to ensure that, as far as has been put to us that the Social Cost possible, each locality has sufficient funds Tariff for commercial development should to provide the local services that central be lower than it would be for residential government thought should be provided, development, on the grounds that the no less, but also no more. But this striving price of commercial land is now virtually for equity, we would maintain, is at the everywhere lower than the price of residen- expense of efficiency. So, in the context of tial land. But if the SCT truly measures the this report, a system which ensures that all social cost of development on green field business rates and taxes are collected by sites, and that is our intention, then there central government gives no fiscal incen- seems no reason for it to be lower for com- tive to local authorities to allow commer- mercial development. It might be higher cial and industrial development. Of on the grounds that commercial develop- course, a system which only returns a grant ment might be regarded as less environ- to local government which is perceived, by mentally pleasing, but that is all. central government, as strictly that neces- Otherwise we would be conceding ground sary for its needs, seems obsolescent. to precisely that mixture of contradictory Indeed if the British planning system can

www.policyexchange.org.uk • 49 The best laid plans

be described as Soviet style, the British sys- ernment. Certainly this seems to be the tem of local government finance seems to factor which, if reports are correct, is push- come from an even earlier Marxist period, ing the Lyons review of local government indeed from Marx himself – ‘From each finance towards making a similar recom- according to his abilities, to each according mendation.72 to his needs’. The core philosophy here would seem to be that a local authorities should be given greater independence from central govern- “ The way in which, in this country, such proposals can ment, a greater ability to control what goes get bogged down in inquiries for years on end makes the on in its area, together with financial incentives to take responsibility for its actions. But UK a laughing stock and damages the economy by delay- this freedom has its limits, and it is here that ing much-needed investment ” we add two further recommendations to those we made in our earlier work. The first additional proposal relates to Imagine a personal tax system which major projects which have a national or ensured that almost all income went to the regional impact. Usually these are concerned State, and each household received a grant with what might be called ‘infrastructure’ – meant to be sufficient to ensure that every- roads, railways, airports, etc. The way in body had exactly the same standard of liv- which, in this country, such proposals can ing. In this case the effects of such a com- get bogged down in inquiries for years on plete lack of any incentive are self evident. end makes the UK a laughing stock and Only if motivated by external motives such damages the economy by delaying much- as in wartime will households be willing to needed investment. It appears to us that do more than the minimum. But the same since such infrastructure is national in char- lack of incentives affect local government. acter it should be decided at a national level. Some incentives for local government need The procedure adopted with regard to the to be restored. In the context of this Channel Tunnel was to deal with its report’s concern with industry and com- approval by Act of Parliament. It would cer- merce it follows that the additional rate- tainly seem that this would be the best way able income which is collected when new to deal with other proposals of a national buildings are put up should go not to cen- rather than local character. Maybe the tral government but to the local govern- process of inquiry, if conducted within ment, which has to provide the local serv- Parliament, would not be so extended nor so ices necessary for the firm’s efficient func- detailed. But then, as we have pointed out tioning. At the moment local authorities earlier, it is not at all evident why the process have no real incentive to assist local firms of inquiry into the construction of, say, an except to the extent that they employ local airport terminal, should take considerably employees. This disconnection is wrong longer and go into greater detail in consider- and should be corrected. If that means that ation of the proposal than any consideration some local authorities can provide more of a proposed Act of Parliament, including, and better services than others so be it. It is indeed, an Act changing the whole planning clear that restoration to local government system. A similar proposal was made in an of a share in the income from the business earlier White Paper aimed at streamlining 72. Daily Telegraph, 'Reform of rate would not only provide an incentive to the system, but, for whatever reason, noth- rates is not the solution', 19 September 2006 www.tele- local government to allow development. It ing seems to have come of it. Nevertheless, if graph.co.uk/money/main.jhtml?x would also create the basis for a better rela- local proposals should be dealt with at a local ml=/money/2006/09/19/cbrates19 .xml tionship between business and local gov- level because the effects of the development

50 Conclusions and recommendations

are felt locally, then, logically, national pro- ment in areas where it was felt to be needed. posals should be dealt with at a national We are arguing for a more wholesale adop- level. tion of the zoning model; after all most of The second further proposal we would the rest of the world requires far less detail to wish to make with regard to the operation of be considered in their planning controls. It is the planning system relates to the level of the UK which is out of step. Maybe there detail which should be considered in a plan- might be environmental gains. For example, ning application. Planning proposals for maybe British architecture would be more buildings in the UK may be in ‘outline’, but interesting if it did not have to be made plat- any outline application must be followed up itudinous and anodyne in order to make by a detailed application. It is our view that sure of its acceptability by local planners and because planning applications are considered councillors. Certainly delays would be in such detail, this is a factor which leads to reduced. It is said of taxes that a tax delayed delay. To cite cases known to us, a building is a tax unpaid. At present it would often can be delayed for a year while discussion seem that those opposed to a proposal argue takes place over the colour of the bricks to be over questions of detail as a way of delaying used, or whether the location of a building the development they do not want to see but should be one metre further from another regard as inevitable. For them an application on the same site in the same ownership, or delayed is a foundation stone not laid. The whether a gable on a rear extension should reduction in the level of detail would, how- be hipped or not. At the extreme, of course, ever, be an improvement from a national the reductio ad absurdum, there is the model point of view. From that viewpoint a build- village of Bekonscot where the local author- ing not delayed, less epigrammatically, is a ity solemnly considers whether the proposed more efficient building operating sooner four foot high model of, say, a church should than it might be. be permitted to be built, with the implica- The final proposal that we would wish to tion, indeed the presumption (in both sens- make is that the system should be made as es), that they might think that some other simple as possible, and that it should not be model church might be better, if the local used to try to deal with aspects of the econ- planning authority, in its omniscience, omy for which it is not suited. For there is thought so. a sort of unholy alliance with regard to the Of course with some buildings and in planning system, an alliance between plan- some areas questions of detail can be impor- ners, who operate the system, and, for want tant. This is certainly true of Listed of a better term, ‘NIMBYists’ (from the Buildings and Conservation Areas. But in acronym NIMBY = “Not in my back- the case of other developments the consider- yard”). The latter want to stop develop- ation of detail leads to delay and would ments taking place, the former want as appear unnecessary. In most cases outline much control as possible of the develop- permission would appear to be sufficient, ment which might occur. The resulting maybe what is now required for outline per- alliance has a mutual interest in increasing mission should include somewhat more the complexity of the system. Peacock detail, but something which is closer to a pointed out in 1984 that the number of zoning system than currently exists would statutory regulatory instruments available appear beneficial. So called Simplified to planners increased from 98 in 1958 to Planning Zones were experimented with in 386 in 1979.73 More recently Mark the 1980s, but like the Enterprise Zones Pennington, in his thorough analysis of the which were set up in the period they were problem, noted that, for example, between 73. A. Peacock (ed.), The primarily intended to encourage develop- 1962 and 1991 there was a sixfold ‘real’ Regulation Game, 1984

www.policyexchange.org.uk • 51 The best laid plans

increase in local authority expenditure on tackle global warming. This increase in planning.74 If the complexity increases then complexity is pointless on two grounds. planners have more power and control big- The first is that it is ineffective. For exam- ger budgets while development is made ple, the amount of parking space associat- more difficult. The result is an expansion in ed with new housing is promoted as being the powers of planners and the complexity as low as possible. But if some new of the system which easily survived the dwellings are built without parking then Thatcher era (probably because many the probability is that they will be occu- Conservative voters were also pied by people who do not own or want to ‘NIMBYists’). The expansion in complexi- own a car. Those that do will live in ty occurs together with an expansion of dwellings where there is parking. The planning powers into areas of the economy effect on car ownership will be minimal. which the physical system is ill-suited to The second is that any effect the regula- deal with. For example, the competition tions might have will affect fuel consump- between supermarket chains in part occurs tion only in the long run. After all only through attempts to manipulate the plan- about one per cent of the housing stock is ning system. Whether or not the rival built or replaced each year. But if one is supermarkets are correct it is pertinent to serious about global warming then con- note that Tesco’s rivals perceive the system sumption has to be reduced within the as non-neutral, and as being manipulated next twenty years, at most. Thus virtually by Tesco to minimise competition. From everything that is done through the plan- an economist’s point of view we note that ning system in this regard is worthless. It is the criteria which are used do not include complexity for the sake of complexity. whether a competitor would reduce prices Thus we would argue that the system and widen choice. Only whether the cur- should be made less complex, that it should be rent situation is adequate and whether a stripped down, that the accretions of complex- new market might drive some smaller firms ity and regulation which have been added, in town centres out of existence; that is, the layer by layer, over the last fifty years should be competitive situation is not seen from the removed. It has to be said that we make this consumer’s point of view. recommendation without much hope that Then there are the numerous pieces of this will occur. We are too well aware that guidance from central government as to Byzantine systems of this nature fall only after revolutions, and we do not yet see such a rev- 74. Mark Pennington, Planning how fuel consumption could be reduced and the Political Market, 2000 through the planning system in order to olution as occurring in the near future.

The Channel Tunnel Rail Link The Act which permitted the construction of the Channel Tunnel Rail Link (CTRL) was passed by Parliament in 1996. By this Act it was in effect given outline planning permission. The details at the local level, including construction arrangements, had to be set- tled by ‘planning conditions’ agreed by the various local authority. However, local authorities had to agree beforehand that they would act expeditiously and reasonably.Thus there was an agreed timetable, applications with respect to these planning conditions would be dealt with within eight weeks, and the planning inspectorate agreed to deal with appeals within three months. There were eleven hundred such planning conditions, few appeals occurred. One way in which the Parliamentary Bill procedure could be speeded up would be by the House of Commons and the House of Lords acting in concert. In the case of the CTRL each House had its own separate committee to look into petitioner’s concerns, hear witnesses, etc. The proceedings after such an Act is passed could be speeded up by reducing the level of detail for which permission is required could be reduced.

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