Britain today faces a housing crisis of unprecedented proportions. Since 1970 alone, real house prices have increased a staggering 450 per cent. The reason for this is clear to see: Britain has one of the most restrictive planning systems in the world and an incredibly centralised tax system.

Both of these top-down systems need a radical overhaul, as laid in Jacob Rees-Mogg’s latest IEA report, Raising the Roof, written with Radomir Tylecote. Only by significantly liberalising the planning system and decentralising taxation can this crisis be solved.

The tax system is a perfect demonstration of how centralisation has failed the county and distorted incentive structures against development, pushing up house prices to the historic highs that we see today.

Currently tax revenue does not follow the individual – indeed 95 per cent of tax in the UK is raised centrally, and as a result funding increases do not closely follow increased levels of development. Local communities then quite reasonably object that services administered by local councils, such as schools and hospitals, are being overstretched. Nimbyism is the natural outcome.

District councillors have little option other than to respond to these views, typically blocking further development from occurring to maintain their seats at the next election. One only has to consider the situation in mid Sussex in the recent local elections in which the pro-development Conservatives were wiped out in Burgess Hill after a period of expansive home building. The initial nimbyism of local residents is then reinforced by the resultant climbing of house prices, as the spectre of falling property valuations begins to haunt communities.

The rising cost of homes makes them a bigger part of the average person’s financial portfolio, and in more advanced cases even transforms the housing market of a local community into an investment market. A vicious cycle is created.

Predictably, the incentive structure has become even further rigged against development. Since 2000 house prices have increased by 64 per cent and since 1952 the increase has been 306 per cent. If this trend continues, nimbyism will only grow stronger still.

These economic effects also have a profound impact on the aesthetic nature of development. As a result of high land prices and an extremely bureaucratic planning system, only large developers can afford to put forward large development proposals. The price of building land has increased by 1500 per cent since 1995, excluding many small developers from the market. Profit margins are squeezed hugely as landowners seek to extract the best possible price, and since so little land is allowed for development there is hardly any competition in this area.

This lack of competition allows big developers to shape the architectural design of new houses, as opposed to the demands of consumers in the market. With consumer demand for aesthetic beauty sidelined, there is no incentive to “build beautiful”.

Developers then roll out identikit housing which makes no effort to blend in with or complement the existing built environment, and since demand is so high relative to supply they know they can get away with it. And, to come full circle, the proliferation of ugly and soulless buildings serves to further promote nimbyist tendencies.

Yet there is light at the end of the tunnel, and as happens so often, that light is provided by neoliberalism. As outlined in Raising the Roof, these issues can be effectively solved via decentralisation and increased use of private initiative combined with localism within the planning system.

The most innovative of their proposals is the reverse compulsory purchase order. This new right to buy would in effect allow developers to demand the sale of public land, increasing the supply of land for housing.

At present, six per cent of all land in the UK is in public ownership, and this figure increases to 15 per cent in urban local authorities, precisely where there is most demand for new homes. By increasing the supply of land, this measure would certainly lead to a fall in prices.

There is also the proposal for greater use of permitted development rights on an individual street or village level. This proposal is of the utmost importance since it effectively bypasses the political process and therefore avoids the extremely anti-development incentive structure that has been described.

This is because it would empower, for example, the households on a single street to decide among themselves to award each house on that street permission to build an additional storey. As the benefits of providing the permission would be felt by all, fewer residents would object. This would be direct democracy in action. As a result, urban density could increase and inner city prices could be brought down.

When combined with locally-approved style guides (which have been hugely effective in places such as Bath), any aesthetic objections should be minimal. Due to the limited size of such developments, smaller developers would be encouraged to rejoin the housing market, creating competition. As Ludwig von Mises said in his book A Critique of Interventionism: “The sharper the competition the better it serves its social function.”

The IEA’s planning reforms present several innovative proposals, all of which might help make housing more affordable to middle and low income families. Combined with proposed fiscal decentralisation, the paper presents a sound, exciting, and very readable intellectual case for deregulation of the planning system.

Written by Charles Amos

Charles Amos is a councillor for East Grinstead Town Council, where he is a member of the planning committee, and Sussex coordinator for the Taxpayer's Alliance.