Memorandum-to-the-Prime-Minister-on-Unaffordable-Housing

For this reason, economists from Adam Smith onwards have recognised that increases in land value are a natural
source of public revenue. At present, agreements under Section 106 of <strong>the</strong> Planning Act (which is replaced by
Section 46 of <strong>the</strong> new Act this year) are used <strong>to</strong> capture some of <strong>the</strong> ‘betterment’ created by <strong>the</strong> granting of
planning permission, by forcing developers <strong>to</strong> make a cash or in kind contribution <strong>to</strong> <strong>the</strong> local authority.
Planning consent for housing developments is generally granted on condition that a certain proportion of <strong>the</strong>
houses built are ‘affordable’ - in London <strong>the</strong> Mayor’s target is 50%.
But both planning consent and Section 106 are extremely blunt instruments for guiding land use, because <strong>the</strong>y
focus entirely on <strong>the</strong> moment of development. Recent reforms of <strong>the</strong> planning system (Planning and
Compulsory Purchase Act 2004) do little <strong>to</strong> change this. Although forward planning is now based on wider
spatial strategies, <strong>the</strong> system is still incapable of dealing adequately with <strong>the</strong> dynamic nature of land markets.
Similarly, <strong>the</strong> Planning Gain Supplement (PGS) proposed by <strong>the</strong> Barker Review will operate only at <strong>the</strong> moment
planning permission is granted. Ultimately <strong>the</strong>se approaches add <strong>to</strong> building costs and deter development, and
<strong>the</strong>refore increase <strong>the</strong> cost of both new build and existing housing. On three separate occasions since <strong>the</strong> second
world war Labour governments have attempted <strong>to</strong> capture planning gain through one-off taxes: each has failed
and been repealed by <strong>the</strong> next Conservative government.
Ano<strong>the</strong>r limitation is that most property - and especially housing - does not get redeveloped very often, and so
<strong>the</strong> planning system can only influence <strong>the</strong> housing market at <strong>the</strong> margin.Whatever contributions developers
are forced <strong>to</strong> make are one-off events that have no lasting impact on affordability. Once houses have been built
<strong>the</strong>y will continue <strong>to</strong> exist for decades and it is not easy <strong>to</strong> put in place mechanisms for controlling <strong>the</strong>ir future
prices or for capturing future socially-created increases in land values.This is a serious omission, and a major
cause of <strong>the</strong> affordability crisis. Ironically, this problem is worsened by sustained economic growth - <strong>the</strong> extra
value created by growth is channelled in<strong>to</strong> an unconstrained housing market, meaning that housing costs rise
faster than wages and <strong>the</strong> benefits of growth accrue disproportionately <strong>to</strong> land owners.
The 1947 Act has conditioned all subsequent planning acts. Its development control powers, and <strong>the</strong> ‘greenbelt’
legislation, have proved very successful in keeping <strong>the</strong> urban and rural landscapes looking better than <strong>the</strong>y
o<strong>the</strong>rwise would. But it has been very weak in positively bringing about a preferred pattern of development, <strong>to</strong>
a required timescale and in influencing <strong>the</strong> price and rent at which housing becomes available.
O<strong>the</strong>r public policy effects on land development
Public policy directly influences <strong>the</strong> flow of development land most obviously through <strong>the</strong> planning system, but
also through government sale or purchase of land (including compulsory purchase); <strong>the</strong> development (or not) of
publicly owned land; <strong>the</strong> location of public agencies; investment in all types of public infrastructure and
services; and <strong>the</strong> taxation system. More subtly, economic policies that effect growth, interest rates, employment
and <strong>the</strong> environment will all effect people’s motivation <strong>to</strong> develop land or buy property, as will social policies
that influence <strong>the</strong> quality of neighbourhoods.
Modern land use policy has generally failed <strong>to</strong> consider <strong>the</strong>se multiple influences in <strong>the</strong> round, leading <strong>to</strong>
adverse selection and unintended consequences.
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Zacchaeus 2000 Trust - <strong>Memorandum</strong> <strong>to</strong> <strong>the</strong> <strong>Prime</strong> <strong>Minister</strong> - May 2005