HC 1526 Communities and Local Government CommitteeWritten evidence from Professor Paul C Cheshire

“...This ridiculous figure...The same applies to the thesis that planning in London is twice the cost in Paris and 10 times that in Brussels. If this were true, it is odd that London has become the financial centre of Europe....Brownfield sites are estimated to have room for a further 3m houses...” Simon Jenkins, The Guardian, 13 September 2011

1. Introduction

1.1 The outcry caused by the publication of the draft NPPF is extraordinary. Its balanced nature and logical, altruistic and evidence-based arguments recall the more extreme elements of the Tea Party movement in the USA. The outpourings of Simon Jenkins in The Guardian, appearing to represent the 3.5 million members of the National Trust, exemplify this moderate tone. In the quote above there is not one single element of fact. Offices prices are higher in New York than they are in Wichita, Kansas but New York is rather more important as a centre of financial services; there is no source for the assertion that three million houses could be accommodated on Brownfield land. There nearest I can find is the 2008 Green Paper which put forward a target of building three million houses by 2020 of which 60% would—by definition have been on Brownfield land.

1.2 In fact the case that the planning system has been imposing severe constraints on the supply of space for housing and commercial activities should not need rehearsing again here. It has been established with increasingly persuasive evidence now since the mid 1980s. The problem is that the annual additions to the stock of buildings are so small relative to the total existing stock that the impact of the 1947 Act and its subsequent reinforcements on urban containment took many years to creep up on us. In Appendix A, I attach a figure on the real price of housing land from 1892 to 2008 and the real price of housing from 1931 to 2008. It is apparent that the constraint imposed on the supply of land by the 1947 Act only had a price impact which became progressively more obvious and made the markets more volatile from the mid-1950s. But since then the real price of housing has increased by a factor of 4.5 while the real price of housing land has increased by a factor of 12.3. The planning system has intentionally constrained the supply of urban land (not houses themselves) and the long run pattern is very clear. Houses have become ever less affordable although, of course, the economic cycle leads to changes in the short term. We have created a long term problem of affordability: and at the same time a succession of short term problems of market crises.

1.3 The constraint on land supply for urban development has not only caused house prices to rise in real terms over the longer run but has caused destabilising housing market volatility; this contributed to the financial crisis post 2007 and makes the problem of managing monetary policy more difficult. The rise in real prices and prices relative to incomes has been documented in numerous publications by the former NHPAU as has the effect this has had on redistributing real wealth from the young to the old and to the housing haves (older; in the more prosperous regions) and away from the housing have-nots. It also impedes inter-regional labour market mobility and adjustment.

1.4 Recent research, moreover, shows that our system has imposed substantial extra costs on office occupiers compared to comparable cities in Europe or to New York (possibly the ultimate source that Simon Jenkins denies exists) and has had a highly damaging impact on total factor productivity in the supermarket sector (estimated as a loss of at least 20%).

1.5 Finally it has become increasingly evident that the sheer complexity of the planning system, especially as it operates in England, and the use of development control as compared to Master Planning or Zoning mechanisms to enforce land use regulation, imposes very substantial compliances costs that increasingly make sites unviable for development. This has been reinforced by the policy of requiring 60% of development to be on “Brownfield” sites. The largest and those with the lowest remediation costs/in the highest demand locations have got developed first so that the policy has driven developers onto ever higher cost sites (smaller/higher reclamation costs) in locations in lower demand. The result is that Brownfield sites have become ever more economically marginal and capable of sustaining less in the way of planning gain or CIL.

1.6 The irony of the restrictiveness of the system is that it actually generates incentives to build on some parcels of land which have the strongest amenity and environmental reasons for being protected. The very high value of land caused directly by the policy-imposed restrictions on its supply means that Local Authorities have been increasingly tempted to build on land they own including recreation grounds, playing fields and allotments. In contrast to the effectively limitless supply of intensively farmed land, which has no public access but is protected from development by Greenbelt and other planning designations, many of these smaller parcels of previously public land had high amenity and environmental value. The social and environmental case for not building on school playing fields or allotments is very strong. One of the primary functions of the planning system should be to protect such areas from development. But by causing land in desirable locations to be in such short supply the system has created strong incentives—sadly often too alluring to resist—which result in development going onto exactly the most socially and environmentally valuable land. Ironically the system too frequently runs against the very purposes it was designed originally to serve. If Private Eye (Issue No 1297 16 September 2011) is to be believed even the National Trust has fallen prey to this, allowing housing developments on one of its properties—Cliveden.

2. Provisions of Draft NPPF

2.1 Despite the almost hysterical opposition it has create—presenting it as a plan to “concrete over England” or “grab our countryside”—the draft NPPF is, against this background, to be welcomed even though it is only a modest improvement. It is to be welcomed for two main reasons:

(i)It goes some way to simplifying a system which has become ridiculously complex; so that just its complexity imposes serious deadweight losses of compliance costs; and

(ii)It removes or moderates some of the most serious constraints on useful urban land supply. It thus should, if implemented, increase the supply of economically viable land and increase the volume of construction; and, by increasing supply, in the medium term make housing and commercial space somewhat less expensive than would otherwise have been the case. This is not just a socially valuable outcome but vital to economic efficiency in the medium term.

2.2 The single most important and welcome provision is the removal of the target for 60% of development to be on Brownfield sites. Potentially equally valuable, although needing clarification, is the proposed introduction of market signals (paragraph 19):

“…planning policies and decisions should take into account local circumstances and market signals such as land prices, commercial rents and housing affordability.”

2.3 The most important reason why the planning system has introduced the massive price distortions that it has is because up to now it has not taken any price or market information into account in determining land supply for different purposes. This has produced huge price discontinuities between land designated in one use class compared to another just within a few yards. These price discontinuities signal that land in the relatively more expensive use category is in shorter supply; so the supply should—other things being equal—be increased.

2.4 The question is what are those “other things”? It is clear that in land markets there are endemic problems of so-called “market failure”. Unregulated land markets will typically not generate socially optimal outcomes or patterns of use. Land has amenity values for recreation, for example, and environmental values (as habitat, for example, or water catchment) which will not be reflected in market values. So market signals should inform planning decisions to minimise damaging price distortions but the wording here should be amended to make it clear that in determining the supply land for a particular use on the basis of market signals, the environmental and amenity values of land are properly taken into account. What should matter is not the designation of the land as, for example, Greenbelt or not (which the present draft unfortunately appears to retain). What should matter is the environmental and amenity value of land in its present use not reflected in its market value for an alternative use. So I would argue that the provision should be redrafted along these lines:

“If the market price of a parcel of land in some alternative use exceeds its value in its currently designated use (by say £350 000 per ha)—that is would command a price premium in the alternative use—then there should be a presumption that its use category should be changed and development permitted unless it can be shown that the environmental and amenity value it generates in its existing use exceeds that price premium.”

2.5 In other words it is important that decisions should not be made on the grounds of market signals in isolation but should continue to reflect—indeed reflect much more explicitly—environmental and amenity values. These ideas are set out in more detail in Cheshire and Sheppard, 2005.

2.6 The contingent presumption in favour of sustainable development expressed in the draft NPPF is simply common sense. It would seem obvious that—provided environmental and amenity dimensions are properly safeguarded—there should be a presumption in favour of development. However there is a serious danger that the implied purpose—to favour development when there are no offsetting environmental and/or amenity arguments against it—will be frustrated by its interpretation. It is possible that “sustainable development” will be interpreted in a purely mechanistic way: that development which is permitted in Local Plans is “sustainable”; that which is not mentioned is definitionaly “unsustainable”. This would, of course, be circular nonsense frustrating what I take to be the purpose of the phrase. The draft NPPF should be amended therefore and make it explicit what the meaning of “sustainable development” is.

2.7 A final but important criticism relates to the retention of the Town Centres First policies (TCF) for retailing including the retention of the “needs” and “sequential tests”. This has been shown to generate a significant barrier to entry and to have reduced total factor productivity in the supermarket sector by at least 16% (see Cheshire et al, 2011). Previous work by Sadun (2008) had shown that Town Centre First policies had directly caused a reduction in town centre retail employment—mainly because the big supermarkets had developed their in town “express” and “local” formats and squeezed out more traditional and varied shops.

2.8 Moreover, far from retaining the viability of town centres it is likely that TCF policies have not only reduced employment in them but, by driving up town centre rents and the costs of operation, they have promoted the homogenisation of high streets. Moreover they have had a perverse impact on real incomes since it has been shown they have reduced productivity in the supermarket sector and poorer families spend larger proportions of their incomes in stores—particularly supermarkets—than do richer ones. So the TCF policies have adversely hit the living standards of poorer families. Finally—although introduced to facilitate the use of public transport and promote sustainability—there is no evidence that they have had this effect. Indeed it seems far more plausible that they have increased the carbon footprint of the retail sector because by keeping supermarkets smaller on average they have promoted more shopping trips; they have crowded shopping trips into more congested areas; and above all they have forced re-stocking trips to be over longer distances (warehouses remain located in relation to the motorway system), to be more frequent because smaller lorries are used in more congested areas; and re-stocking trips are concentrated in more congested areas increasing fuel use and contributing to urban air pollution. In addition by slowing the rate of new build they have had the effect of aging the stock of retail buildings and older buildings are on average less energy efficient. Thus the probability is that the TCF policies introduced in their full force from 1996 actively work against all their declared goals and have both adverse environmental and distributional net effects.

2.9 It is a missed opportunity, therefore, not to have struck out the “needs” and “sequential” tests and to have moved to a planning position which assessed the case for retail development as any other form of commercial development. I would urge that the draft NPPF is amended accordingly.

References

Barker, K (2003). Review of Housing Supply: Securing our Future Housing Needs: Interim Report—Analysis, London: HMSO.

Barker, K (2006). Barker Review of Land Use Planning; Interim Report—Analysis, London: HMSO.

Cheshire, P C (2008). “Reflections on the Nature and Policy Implications of Planning Restrictions on Housing Supply” Oxford Review of Economic Policy, 24, 1, 50-58.

Cheshire, P C (2009). Urban Containment, Housing Affordability and Price Stability—Irreconcilable Goals, SERC Policy Paper No 4, 16 pages, Sept. 2009.

Cheshire, P C and C A L Hilber (2008). “Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge”, Economic Journal, 118, 529, F185-F221.

Cheshire, P, C Hilber and I Kaplanis (2011). “Evaluating the effects of planning policies on the retail sector: or do town centre first policies deliver the goods?”, SERC Discussion Paper No. 66, London School of Economics, January.

Cheshire, P C and S Sheppard (1989). “British Planning Policy and Access to the Housing Market: some empirical estimates”, Urban Studies, 26, 5, 469-85.

Cheshire, P C, and S Sheppard (2002). “Welfare Economics of Land Use Regulation”, Journal of Urban Economics, 52, 242-69

Cheshire, P C. and S Sheppard (2005). “The Introduction of Price Signals into Land Use Planning Decision-making: a proposal”, Urban Studies, 42 (4), 647-663.

Evans, A W and O M Hartwich (2006). Bigger, Better, Faster, More: Why some countries plan better than others, Policy Exchange.

Haskel, J and R Sadun (2009). “Regulation and UK Retail Productivity: evidence from microdata”, IZA Discussion Paper No. 4028, February.

Hilber, C A L and W Vermerlen (2010). The Impact of Restricting Housing Supply on House Prices and Affordability, Final Report for DCLG, November.

Sadun, R (2008). “Does Planning Regulation protect independent retailers?”, CEP Discussion Paper N.888, August.

September 2011