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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 £10.00 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 out- comes. 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). © Policy Exchange 2007 Published by Policy Exchange, Clutha House, 10 Storey’s Gate, London SW1P 3AY www.policyexchange.org.uk ISBN 10: 1-906097-0-1 ISBN 13: 978-1-906097-01-1 Printed by Heron, Dawson and Sawyer Designed by 7A, [email protected] 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 sys- tem 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.

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