Abolition of Regional Spatial Strategies: a planning vacuum? - Communities and Local Government Committee Contents

Written evidence from Dr Leunig, London School of Economics (ARSS 01)



  • The abolition of RSS house building targets is welcome if accompanied by sufficient incentives…
  • But the proposed incentives are manifestly insufficient.
  • If nothing changes, house building rates will fall, house prices and rents will rise, the numbers in poor quality housing will increase, inequality will increase, and the housing benefit bill will rise further.
  • Much better alternatives are available, that would give local councils big incentives to support new development, particularly in areas and periods of greatest need, and without any cost to central government.


1.  The replacement of "top-down" RSS based housing targets is to be welcomed, provided that it is accompanied by incentives sufficient to increase total house building.

2.  The proposed incentives are far too small, and house building will fall dramatically.

(a)  Some significant housing plans have already been withdrawn or rejected.

(b)  MPs generally see the changes as meaning fewer houses in their area (in my area Zac Goldsmith has been jubilant about cuts in house building that he expects locally) rather than seeing new incentives that will lead to more houses being built.

(c)  No academic or independent expert I know believes that the incentives are large enough to maintain let alone raise house building rates. Glen Bramley (Herriot Watt University) estimates that London house prices will double in real terms by 2025, to an average of £500,000 in today's money as a result of falling levels of house building. Does anyone think that is what we need?

3.  Good incentives would have three characteristics:

(a)  Large enough to induce councils to support house building.

(b)  Larger in areas in which additional housing is most needed (ie areas with high house prices)

(c)  Larger in periods in which additional housing is most needed (ie periods in which prices are rising)

4.  Ideas such a community infrastructure levy and 6x council tax do not meet these criteria.

5.  In order to make new housing electorally popular, incentives have to be large. It seems plausible that the necessary profit for the council, over and above the cost of providing new infrastructure (ie not just the roads on which the new houses are built, but also additional school and hospital places, etc), will be in the tens of thousands of pounds per property, and self-evidently that money must be received immediately if agreeing to new housing is to be electorally advantageous to councillors. Both CIL and 6x council tax fail this test— CIL on size, 6x council tax on size and that it arrives long after the development— the political party that allowed the development could easily not be in office by the time the money arrives.

6.  House prices can be high for two reasons: because an area is intrinsically attractive, or because it is an economically attractive place to live. In general, high house price areas in Britain are because they are economically attractive places to live. Surbiton, where I live, has high prices primarily because of proximity to London, a major employment centre, not because it is beautiful.

7.  Given this, expanding housing in high house price areas, such as most of the south east, is economically much more sensible than expanding housing in other areas with lower house prices, since the high house prices indicate a well-functioning economy that is good at creating jobs and wealth. This is where people want to live, and it is where Britain plc should want people to live.

8.  We therefore want incentives to be greater for councils in high house price areas. The 6x council tax idea fails this criteria, and the CIL is not necessarily bigger in such areas either. There is a danger that even if we get some houses, we will not get them in the optimal locations.

9.  House price booms and busts are unhelpful to individuals, who cannot plan ahead, and who may get "caught out", buying at the top, and for society, since busts can lead to negative equity, restrictions on labour mobility and so on. For that reason we need greater incentives to build when prices are rising, and smaller incentives to build when prices are falling. To some extent developers have those incentives already, but the extent is clearly insufficient, given the observed cyclicality of house prices. We therefore need an automatic incentive to councils to support more development when prices are rising. Neither the CIL nor the 6x council tax idea meet that objective.

10.  A better solution is that set out in my pamphlet "In my back yard" [see bibliography]. This shows how the highly successful 3G mobile phone spectrum auction mechanism can be applied to extract most of the rise in land values when planning permission is given for local communities. (Note that this is not a tax on development, and does not require funding from central government). Councils would have a very large incentive to support development (c. £100k per property over and above section 106 levels in high value parts of the south east), the incentive would be greatest in places where house prices are highest, and greatest in periods when prices are highest. Thus all of the desirable criteria for planning incentives are met. The Town and Country Planning Association say that the idea is workable and compatible with good planning objectives, the Barker Review said that it should be piloted, Michael Gove endorsed it as Conservative Policy when he was Tory shadow Housing Spokesperson, as did Edward Davey when he shadowed the ODPM empire on behalf of the LibDems.

11.  The failure to adopt this scheme, or another scheme that would achieve the same objectives, will lead to falls in house building rates. This increases the number of people who are inadequately housed. This has bad effects on them in the short run, but also in the medium term—we know, for example, that children growing up in overcrowded conditions find it harder to do homework, reducing educational attainment. It also means rising house prices and rising rents. Although this is good for some people (usually the older and wealthier), that is at the expense of others (usually the younger and poorer). Rising rents will also increase housing benefit bills, raising the tax burden on all of us. Finally, higher costs for non-residential land increase the cost of everything produced in Britain, raising living costs and make the UK economy less competitive internationally.


1.  Tim Leunig In My Back Yard: Unlocking the Planning System Centre Forum, March 2007

2.  Tim Leunig and Henry Overman "Spatial Patterns of Development and the British Housing Market" Oxford Review of Economic Policy 2008 24(1):59-78, special issue on Housing Markets and the Economy.

August 2010

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Prepared 31 March 2011