Tuesday 22 November 2011

The economics of planning

Posted by Dr Max Nathan, SERC and LSE

Yesterday's launch of the Government's Housing Strategy - and some of the reaction to it - have turned the spotlight back on to the planning system. As Henry Overman points out here, planning factors are one of the three factors influencing levels of housebuilding.

Here [pdf] and here [pdf] are two new papers on the economics of planning, written by Henry and I. Versions were also submitted to the National Planning Policy Framework (NPPF) consultation last month. (For those outside the UK, the NPPF, subject of furious public debate during the summer, is part of Ministers' attempt to speed up the English planning system.)

The papers pull together SERC research on planning (paper 1) and assess the Government's proposals for planning reform (paper 2). Henry and I don't agree on all of this - I'm certainly more pro-brownfield than he is - but we both felt that important pieces have been missing from the recent public conversation.


The key messages are:

1) The job of planning is to balance environmental, social and economic welfare. This means tradeoffs, so all planning systems have costs and benefits.

2) Planning's economic effects, especially the costs of the status quo, have been underplayed in recent debates. We summarise evidence strongly showing current rules increase house prices and volatility, increase office rents, probably lower retail productivity and lower employment in small independent shops.

3) Paradoxically, land restrictions in the most popular areas have led to some truly unsustainable development - such as selling off school playing fields for housing. Similarly, brownfield-first policies have delivered some positive benefits for cities like Manchester, but aren't a panacea.

4) The draft NPPF needs to be much clearer about sustainable development, potential tradeoffs and how practical decisions might be made (for example, using the National Ecosystem Assessment).

5) We agree with the National Trust and others that there's a basic tension between Government's desire for localism and some important national objectives. Ministers need to be clearer about what trumps what, or (more in keeping with localism) provide stronger incentives to align interests.

6) The presumption in favour of sustainable development that is consistent with the plan should be retained. But local authorities need time to adjust to the new rules, and the Government should introduce the change gradually.

7) Current incentives to ramp up housebuilding, such as the New Homes Bonus, are probably too weak and need to be strengthened. And one-size land restriction policies (such as town centre and brownfield first) don't work well in practice. Rather, we suggest Whitehall sets the appropriate framework to try to encourage particular patterns of development but then allows local authorities to develop their own land use restriction policies.

This piece was originally posted on the squareglasses blog on 6 November 2011.