Planning Inflates house prices

Planning artificially restricts the supply of land and so increases the cost of building new houses.  The price of a new house has two components: the cost of the site on which it stands, and the construction cost.  In most residential areas of Britain, the cost of the site should be quite low in relation to the construction cost.  Agricultural land prices vary greatly from place to place but seldom exceed £10,000 per acre.  You can build at least ten houses on an acre of land. So even for a large house with a big garden, the site cost of a house shouldn’t usually much exceed £1000.

But once land has planning permission for building, it becomes far more valuable. A favourable planning decision can raise the value of a building plot by many thousands of pounds. Land with permission can cost up to £1m per acre, or £100,000 per plot.  This may equal or exceed the construction cost, doubling the price of the finished house.

Of course these figures are approximate and it’s not quite as simple as that. If all planning restrictions were removed, land suitable for building in locations where there is a demand for houses would still, by virtue of normal market forces, command a higher price.  But in most parts of the country, notably on the outskirts of towns, the supply of land would normally exceed the demand, whereas at present, demand exceeds supply, because supply is artificially restricted.

Although it is not possible to quantify exactly how much the removal of planning restrictions would reduce the average price of new houses, it would be surprising if it did not amount to a one third reduction in most places. And since more people would be able to afford houses, far more houses would be built.

The price of new houses influences the price of older houses which compete with them in the market. The higher the price of new houses, the higher the price of all houses.  Planning inflates all house prices.

Planning stifles originality

Planning forces everybody into a standardised straightjacket and prevents the exercise of individual initiative. Examples:

A young couple can’t afford to buy a home.  They wish to buy a piece of land and live in a static caravan while they build a house.

An enterprising couple start a business from home and do well.  They now need a small office in which to employ staff.  They find an office building which is currently bigger than needed, but there is space to live upstairs.  They plan to sell their house, put a bathroom in the office, live in it, and invest any surplus capital in the business.

An affluent couple with imagination, admiring the diversity of Edwardian houses, find an imaginative architect and a good builder and wish to build a house to their own taste.

All these people will encounter quite unnecessary bureaucratic obstacles and will probably abandon their plans entirely.  If they persist, they will either embark on a long struggle involving much wasted money and many compromises, or (if they are willing to take the chance) go ahead anyhow and hope no one will notice.

These are particularly clear examples. But anyone who undertakes a building project is subject to all kinds of petty interference at all stages.

Planning prohibits alternative homes

At a time when house prices are very high and many people can’t afford to buy a house, it scarcely seems credible that it can be easier to get planning permission for a holiday home than it is for a first home.  Yet this is so. If a landowner has a parcel of land on which planning permission for houses has been refused, he may still, if in the right location, get permission to develop the same land for holiday chalets, “log cabins” or static caravans.

These holiday homes are small but they nowadays include at least two bedrooms, a bathroom, a fitted kitchen, a heating system and all the necessities of modern life. No doubt they are well insulated for the winter; if they are not, the extra cost of construction using modern insulating materials would not be great. But although (in the right locations and with some modifications) they might make good first homes for young couples and are much more affordable than a house, nobody is supposed to live in them full-time because they are not houses.

Some people nevertheless do.  By doing so and keeping quiet about it, they may also avoid paying council tax.  This is an issue in some parts of the country.

Planning corrupts

Planning encourages corruption in local government.  A favourable planning decision can add many thousands of pounds to the value of a piece of land. That favourable decision is worth paying for.  There is too much corruption in local government and the planning system encourages it.

What Action is needed?

Our present planning system may or may not be well-intentioned, but it does more harm than good.  Do we need to sack all the planners and repeal all the planning legislation – or might it still be possible to reform the system?

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