Wednesday, 20 February 2013

The Land! The Land!

This will come as no news to older Liberals, but the main factor hobbling Britain’s economic prosperity is land. That is the argument of Simon Tilford, chief economist at the Centre for European Reform think tank:
The UK’s essentially rigged market for land and its restrictive planning system are as big an obstacle to economic growth as restrictive labour markets and protected professions are in Southern Europe.
The number of new homes built each year in Britain has lagged far behind demand from a growing population for 30 years. Despite faster population growth, house construction is currently running at half the level of the 1960s. At the same time the average size of homes built in Britain is now the smallest in the EU. The result of these two trends has been a steady fall in the amount of living space per head. Property prices relative to average household incomes have come down a bit since 2007, but remain very high. Moreover, the problem is not just restricted to the residential sector: Britain has the highest office rents in the EU. Firms in cities such as Manchester pay more than in Frankfurt or Milan. And transport infrastructure is very expensive to build in Britain, which is one reason why there is too little of it.
Most of us might baulk at one of Tilford’s proposed remedies, which is to build on the green belt. Also, he fails to acknowledge the profligate use of land in British cities (where people prefer to live in a detached or semi-detached house with a garden rather than a flat or town house as in continental cities).

Nevertheless, his basic analysis is sound and the proposed move to a land tax is the single best policy that could be adopted.


  1. I hesitate to question the statistics used by a leading economist, but I'd like to know where he got the information that there has been a steady fall in living space per head. I was under the impression that since household size was dropping, living space per head was actually increasing. This was certainly the trend between 1991 and 2001 when living space increased from an average 38 squ m to 44, an increase of 15% in a decade:

    I'm unable to find more up to date figures accessible on the internet, but if personal space is now steadily declining, is it now worse than in 1991 or still above 38 sq m? Building smaller homes does not necessarily reduce living space if households are also smaller.

    I'm torn on this issue, recognising the need to solve the housing crisis with new building but also a member of the CPRE and concerned to preserve our rural landscapes. I know from my personal experience of living in a Canadian city for the last six years, that providing space to build, without planning restrictions, does not necessarily solve a housing crisis. The city I live in has sprawling suburbs of space-wasting houses (our own "two bedroom bungalow" is 2400 sq ft). There is ugly ribbon development, a sea of one storey commercial buildings, in fact everything that the CPRE in the UK campaigned against from the 1930s.

    The result is that city taxes have to be high to maintain the huge infrastructure needed for such a sprawl, and yet the roads still have potholes, public transport is inadequate, services are on poles above ground because there isn't the money to bury them, and, most importantly, in a city of less than 1 million, there are more than 2,000 homeless.

    I certainly don't agree that opening up the greenbelt will solve the problem. Moreover Tilford's belief that a land tax would encourage councils to convert agricultural sites to commercial in order to increase the tax revenue ignores the fact that making change of use easy would in itself put up the value of agricultural land at city edges, and, by making commercial land more freely available, would also reduce the value of commercial land, so the incentive for councils to do something much of the electorate will oppose may be much less than Tilford hopes.

    Jane Leaper

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  2. Dear Jane,
    You are correct that LVT would reduce land values both of commercial and housing properties, since they would incur an annual charge which would be reflected in their price.

    However in the scale of things, this will be very small in comparison to the huge difference in price between farmland and land with residential planning permission. Where I live (Berkshire) farmland sells at about £7000 per acre, land with residential planning permission at about £700K per acre: a hundredfold difference. No realistic level of LVT is going to greatly impact this differential.

    LVT will help in a number of ways. First, part of the uplift in land value will be recovered for the community, reducing the existing distortion in the market that makes it far more profitable to concrete over greenfield sites than to re-use brownfield sites. Second, it will provide an incentive for the local community to build where this does not degrade the surrounding land values. Last, it will provide the opposite incentive where appropriate; to keep green spaces in existence where this supports surrounding land values, or even create new green spaces where appropriate. New York's Central Park is a historic example of this, having been created on previous built up city blocks and financed by the increased property tax take in the adjoining city blocks.

    Property taxes, especially LVT, can had have guided local administrations to make the right decisions.


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