Urban Planning in the absence of a Land Value Tax

In the rarefied atmosphere of the Institute of Economic Affairs (IEA), “planning” is generally considered to be a rude word. The patron saint of the IEA wrote his most famous book attacking economic planning and the IEA has generally adopted a libertarian position on most things since then.

Yet few would argue that towns could exist without planning. So Wednesday’s panel debate on Urban Planning was an unusual affair in which the speakers generally accepted that planning was necessary, but sought to root it in market principles and so enable it to work more successfully.

The problem cannot be denied. The UK is building tens of thousands few houses than we need each year; Council’s see little gain and significant costs (both financial and political) in allowing increased urbanisation; the quality of the homes we are building are poor by European standards.

As Dr. Oliver Marc Hartwich noted, in every other walk of life our increasing prosperity has led to our being able to afford more and better, but in housing we have seen regress: houses are getting smaller even as we get richer. Real house price inflation has averaged 4.1 per cent since 1971; if only wages had done the same! Yet planning alone was not the problem: Germany is so regulated that it drove Dr. Hartwich to move to England (had he heard of Gordon Brown?!), yet German cities manage to plan successfully. The reasons are simple (and go beyond urban planning): fiscal federalism and tax competition between authorities led them to compete for citizens, increasing their tax bases so as to reduce individual tax rates. Germans cry out for more housing so that more shoulders will bear the tax burden.

Dr. Hartwich’s comments about shrinking homes echoed two of the four false beliefs about Britain that Professor Alan Evans highlighted:
1) Britain is not overdeveloped – only 10 per cent of the UK is urbanised (less than, say, The Netherlands);
2) “Brownfield” land in the UK is not former industrial land but any land that has previously served an urban purpose, meaning that in many cases regulation to build on “brownfield” land actually means building on gardens, allotments and sports fields;
3) High density housing does not – as commonly believed – reduce fuel consumption; and
4) People do not want to live in flats – despite the planners’ desire to cram us all into flats, around 60 per cent of the population wants to live in a dethatched house with a garden.
In this respect, Urban Planners are like economic planners: they seek to tell us what we should want, rather than give us what we do want.

Dr. Richard Barkham alone focussed on something other than housing. He noted that while industrial and agricultural rents have fallen over the past 30 years (as supply has outstripped demand) residential and retail rents have risen because of supply constraints. This had forced retailers to be more productive – which in itself is no bad thing – but that had driven small, marginal retailers out of business and fuelled the rise of the out-of-town shopping centre and the Clone Towns. Those who would like to “Save our town centres” and preserve independent retailers may wish to take note: the only solution other than harmful subsidies may be to free up retail development.

The problem, noted Professor Stephen Nickell, was the Derek Hatton effect: for a quarter of a century, central government has not trusted local authorities to raise or spend their own money. This was unlikely to change, an the result was that we would continue with a Stalinist approach of top-down solutions to planning.

Which is a shame, for Dr. Timothy Leunig had a perfectly good solution to the problem. This is in fact already Liberal Democrat policy, appearing in two separate policy papers. However, the policy paper that addressed it specifically (rather than instituting it as part of another policy) was referred back to the Federal Policy Committee by the September conference – a sign, noted Dr. Leunig, of the confusion and illogic that characterises the policy making process of the party to which both he and I belong. Dr. Leunig’s plan is to capture planning gain (the unearned wealth that accrues to land purely as a result of its being re-classified by local authorities from, say, agricultural to domestic). Local authorities would be given a monopsony on buying land for development, and would then sell that land on to developers. By using sealed auctions by both sellers and buyers, the local authorities could buy land cheaply (for, say, five times its current value) and then sell it expensively (for a large part of its new value after the council had granted planning permission). The result would be more land available for development, local authorities with an incentive to build (because they would make a LOT of money) and Nimbies turned into Imbies because of the benefits local people would gain from seeing tens of millions pouring into their local authorities’ coffers (such as a six year moratorium on Council Tax or an enormous urban renewal programme). One could even literally bribe the electorate to accept development: build a million homes around Cambridge and one could probably give each existing household hundreds of thousands if not of pounds compensation.

As Dr. Mark Pennington noted, this is a far more effective way of measuring people’s priorities than simply asking them. Ask anybody if they’d like to see fields or flats outside their window and they will say fields; “preserving the greenbelt” is an easy sell when there is no opportunity cost. But offer them thousands if not tens of thousands of pounds in return for agreeing to develop green-field sites that are not in direct line of sight and they will probably jump at the chance – and if they don’t, if they really want to protect the green spaces so much that they will forego wealth to do so, then they would remain free to do so. Dr. Pennington also argued in favour of private property rights, noting that private landlords (such as at Bluewater, the Grosvenor Estate and other planned communities) could attach conditions to the sale of property to regulate planning without the need of government.

There was one gaping hole in all this, however (or two, if you count the empty chair from which the Rt. Hon John Gummer MP was supposed to speak): not one of the speakers mentioned Land Value Taxation. Unable to believe my empty ears, I raised this with the panel. It received almost no response except for the repetition of two common criticisms, both expressed in one sentence: “It doesn’t work in practice” said Dr. Barkham (who has clearly not been to Denmark, Australia, New Zealand, the Baltic States, Jamaica or Hong Kong); “It is not politically possible” said Prof. Evans (which is probably what they said about denationalisation or controlling inflation 30 years ago).

Not satisfied with these answers I took this up again in the reception afterwards. I am not a committed Land Value Taxer: I consider it to be an interesting and intriguing idea that appears to have merit, and I have yet to hear a truly killer argument against it (despite Dr. Hartwich’s best efforts), but I remain open minded. However, within the halls of the IEA the idea was universally reviled (proving, if ever there was doubt, that the IEA really does not have a corporate view on anything). Whether or not Henry George was right about other issues of Land Value Taxation, in one respect he was clearly correct: the ranks of the economic establishment are clearly lined up against it.