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Unintended consequences of restrictions on housing Paul Cheshire considers one of the many unintended consequences of restrictive local planning

RIGHT: Green belt land around Heathrow

Paul Cheshire is Professor of Economic Geography at London School of Economics


Planning in London

Planning is very valuable from both an economic and a social viewpoint. Land markets have endemic problems of ‘market failure’ meaning that unregulated they would serve neither the economy nor society well. The value of every parcel of land depends on the uses on all neighbouring plots of land: the spatial extent of these interactions can be very extensive. I will suffer if a lead smelter sets up business next door; and I gain if job prospects in central London improve: even if I live in Taplow or Shenfield. An important reason London is so liveable is its abundance of beautiful green open spaces or areas of accessible natural beauty on its doorstep such as the North Downs. So as a society we benefit from not allowing land owners to build anything, anywhere. We need rules to govern where and how building is allowed and co-ordinate public investment with urban development. Which brings us to our first problem: we do not have rules. We do have building regulations. These are rules. I can read them and if my design conforms to them I can go ahead more or less automatically. Not so with planning: this – in London as in Britain as a whole – is subject to the uncertain and gameable mechanism of ‘development control’: decision by a local political committee subject to lobbying and political expediency. The proposal may conform to the local plan – if there is one – but it is in the constituency of the committee chair: so no luck. Or even worse, a member lives across the road and does not want it.

Other planning systems work according to rules – think the Master Planning system of Denmark or Germany. The result is less uncertainty. The developer reads the (democratically adopted) plan relevant for the plot and asks for what is allowed. Permission is all but automatic. Development everywhere is a risky business: there are costs in the planning and construction process and then an expected flow of revenues from the finished development. More uncertainty increases the development risk so there must be an additional risk premium. This means less development appears to be viable and fewer projects get built. This has the paradoxical effect that the main mechanism for building ‘affordable’ housing – S106 – reduces the number of houses built – fewer projects are viable because of the extra risk imposed by S106 conditions unknowable in advance. This is a particular problem for smaller developers who have less access to planners and to finance. So by injecting risk our attempt to build affordable houses makes all houses less affordable because fewer get built. Successful planning systems inevitably impose local restrictions on building and land use. Otherwise they could not fulfil their basic function of, for example protecting beautiful countryside, sensitive wildlife sites or historic townscapes. But we should distinguish between purely local restriction of development and policies that restrict development in aggregate compared to what is demanded. Our British planning system has an inbuilt restrictive effect

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PLANNING IN LONDON 105 April 2018  


PLANNING IN LONDON 105 April 2018