The easiest way to fix our current eye-watering, immoral and socially destructive shortage of housing is to get the market working again, but that probably doesn’t mean what you think.
Life is full of give and take in a community. You are welcome to borrow my screwdriver, and you might keep an eye on my home when I’m away. I can live with your music if you will tolerate my occasional visitor’s bike in the hallway for a few hours.
The deepest thinkers among economists, political scientists and lawyers studying the link between property rights and housing are agreed on the fundamental problem: people and communities are basically banned from negotiating in exchange for agreeing to new homes.
Brilliant academics like William Fischel, Robert Nelson, Robert Ellickson and Mark Pennington all argue that people and communities should be able to bargain about land use. In that way, much more housing will get built where developers provide enough benefits – including infrastructure and beauty – to make the community happy with the development. That allows economic benefits to be weighed against what people see as the costs to them.
The potential profits from allowing much more housing are just as eye-watering as the scale of the current problem. There will be no shortage of communities happy to share in those benefits.
Even under the stifling constraints of the existing system, some communities do try to make that happen. In the Fitzroofs project in London’s Primrose Hill, ten neighbours in two facing rows of Victorian terraces got together to add another floor to each of their houses, creating a prettier, more uniform roofline and adding more badly needed bedrooms.
Various parishes have sought to allow new homes next to the village. Many get blocked by a higher planning authority, but some succeed and one was even praised by the Campaign to Protect Rural England.
For eighty years we have built derisory numbers of homes in the right places. Since the 1970s, the late Sir Peter Hall and many others have called for urgent action to address the needless housing crisis. But in those eighty years, homeowners have grown to expect that almost no more homes will be built near them.
Thwarting those expectations, when homeowners are two-thirds of voters and very focused on their house price, has proved politically almost impossible. That is why housing campaigners have been failing for fifty years, as the problem has got steadily worse. And, of course, there are also economic arguments against arbitrarily abolishing investment-backed expectations.
Luckily we do not need to battle against homeowners’ expectations. There is a cleverer, easier and faster way to win.
The work of British Nobel laureate Ronald Coase tells us that in order to get plentiful homes again, we do not need to expropriate homeowner expectations. If we can minimize the transaction costs of negotiating about those expectations, allowing communities to get benefits in return, we should get much more housing. That chimes with the work of another Nobel winner, Elinor Ostrom, who showed the incredible things that communities can do when they are allowed to.
By contrast, for centuries under common law, neighbours quite happily negotiated about their private rights to control uses of land – nuisance, rights to light, and trespass. Countless buildings were built, rights of way and temporary licenses were granted, and easements of support were relied upon.
Libertarian dreams of private cities relying entirely on property rights and private contract to control land use have analogues in homeowners’ associations in the United States and indeed in Bloomsbury and other English great estates in prior centuries, but you cannot easily turn back the clock to get there from here.
Since the 1947 planning system created a new requirement of discretionary official permission before you can do almost anything with a piece of land, a big problem is that it isn’t clear who owns the effective rights it created to block housing, and no one has any real ability to negotiate about them.
No wonder we have gridlock. Nearly all of our most loved heritage was built before 1947. And since then, we have never even grown the housing stock at the net percentage rate of the 1820s, let alone the far higher rate of the 1930s. That is why we have a colossal shortage.
In some ways, we are back to a feudal system, when your land rights were granted by a higher power, and you had limited power to bargain with them as you wanted.
You have very little ability to negotiate about the protections that the current planning system gives you, even when it has no effect on anyone else. Economists and lawyers would call your rights “inalienable”. That may be the right legal option to stop you selling yourself into slavery, but does the government really need to protect you from the risk that you might consent to your neighbour’s extension?
The details of how to enable negotiation again are tricky, especially in cities, with many people subject to several overlapping and differing effects. That is why neighbourhood planning, which was designed to make such bargaining easier, works much better in villages than in urban settings.
We will probably have to let people decide about new homes by vote, perhaps by a two-thirds majority, because some just want no change at any price and will block everything if given a veto.
Robert Nelson suggested delegating land use powers to neighbourhoods, but where does your neighbourhood start and finish? Wherever you want to put the boundary, your neighbour living there probably thinks their neighbourhood centres on them. And even if you can define your neighbourhood, good luck getting five thousand people to agree on anything, let alone more homes. That’s hardly “minimising transaction costs”.
The great Yale law professor Robert Ellickson suggested letting single stretches of street decide on land use, just like the Fitzroofs project above. Obviously there would need to be rules to protect the neighbours, especially those on other streets.
Ask the owners of suburban semi-detached homes if they would like the permission – an option, not an obligation – to replace them with five or six-storey terraced homes or mansion blocks like in Bloomsbury, and watch many of them bite your hand off, especially when you explain that just getting that permission will double the value of their existing property.
We have found three strong ideas in that vein, one of them partly adopted by the government already, and we should try all of them and many others to see what works. Obviously such trials should supplement regular ways of getting permission. We must not risk the current supply, paltry as it is.
We also need a new innovation unit for housing and planning because the housing ministry has not conducted a single scientific controlled trial in planning in its entire history. Housing ministers change too often, and the next election is always too close and distracting. The NHS and the education system are now world leaders in relying on scientific trials. Time for the planning ministry to catch up.
Economics and political science can help us solve this needless housing shortage. One thing is certain: continuing to scream, as campaigners have for fifty years, for the same old politically impractical solutions will not work. As Einstein said, to expect otherwise is madness.