Three pro-growth reforms for Britain’s broken planning system

The author is an economics professor at Oxford University

Following the spectacular demise of Trussonomics, new thinking on how to resolve the UK financial crisis has become a priority. The new chancellor, Jeremy Hunt, urgently needs marketable solutions that support long-term growth. An important element in a sensible package is to enable far better land valuation. This means that the increase in value resulting from planning permission is shared more fairly between society – the taxpayer – and private landowners. It would be a significant source of new finance and would reduce growth constraints imposed by landowners and the high price of building permit land.

We need three things. First, a planning system which, if there were a change in use, would order that increases in land value be shared between the national or local planning authorities – to meet infrastructure or housing needs – and the current landowner, whose share would be a reasonable reward for selling the property. That Oxford Civil Society supports land valuation with a 50:50 split.

Second, an amendment to the Land Compensation Act 1961 to allow local and central authorities to compulsorily buy at a price close to existing value if necessary. This would eliminate the ‘hopeful value’ – which might arise at a later date if planning permission were granted for a change of use. The forced purchase option reduces the risk of a property owner blocking development by taking an improper holdout profit on a multi-property project.

The enormous prices for residential real estate are due in large part to the exorbitant privileges granted to landowners by the 1961 Act. After a voluntary sale, this entitled the owners to compensation for the subsequent building permit for years. Great Britain is an outlier. In countries like Germany and the Netherlands, a fairer balance has been found between the property rights of landowners and those of society. The UK would do well to learn from outstanding examples of the use of land valuation for housing and infrastructure projects in cities such as Freiburg, Frankfurt and Rotterdam. Improving LVC would be a major step forward in planning cities and communities for the 21st century.

Finally, the government’s fiscal rules should become more growth-friendly, shifting the focus from limiting public debt to gross domestic product. Instead, the aim should be to improve the public sector’s net asset value (assets minus liabilities) when counting the market value of land on the asset side of the balance sheet. In the short term, a debt-financed property purchase for the public sector would then leave the net asset value unchanged. However, planning permission would soon increase the land values ​​owned by the public.

One of the benefits of land appraisal is that it reduces opposition to new housing – this can come from those who fear – sometimes with good reason – that the lack of adequate infrastructure will put an unacceptable strain on local services. A well-functioning LVC system would guarantee properly funded new infrastructure and encourage a welcoming attitude towards new housing. There is a growing acceptance within political parties, and certainly among the general public, that housing and planning markets are not fit for purpose: they do not work for the common good and do not meet the reasonable housing expectations of most young people.

Property owners in the UK have siphoned too much of the profits from investment by others, particularly taxpayers, into infrastructure and other developments. The privileges afforded by the 1961 Act have contributed to the high cost of property in the UK and limited growth. High property costs are one reason for the UK’s housing problems: lack of affordability results in the highest average commute times and the least insulated houses of any of the major northern European economies. All of that has to change. Three pro-growth reforms for Britain’s broken planning system

Adam Bradshaw

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