It will surprise no one to hear that the UK, particularly London and southern England, is experiencing a housing crisis – one that appears to be getting worse. According to the LSE’s Paul Cheshire, since the 1980s we have systematically under-built between 1.6m and 2.3m homes. House prices are now extremely high after a long period of growth, and they may continue to rise for the foreseeable future.
A new paper published today by the Adam Smith Institute reviews the evidence around England’s housing shortage, with particular focus on the Green Belt. It concludes that the Green Belt is restricting the supply of housing in a way that has a significant impact on prices – and doing so in a way that effectively redistributes wealth from poor to rich. To solve the housing crisis, we argue that we must scrap or, at a minimum, roll back the Green Belt.
Developable land, and hence the supply of housing, is constrained by the Green Belt. As a result, houses have become an investment good whose cost reflects expected future increases in demand, not just the cost of supplying a house at a given quality point.
That raises the barriers to home ownership significantly for anyone who does not have money to invest, and reduces the quality and size of housing across the board. Prices rose by 350 per cent in real terms in the period from 1955 to 2002 period. Today, housing costs per square meter in England are double what they are in the Netherlands, one of the most densely populated countries on earth.
In other words, the Green Belt is giving us smaller, more expensive homes whose cost is more akin to that of a risky investment good than a place to live. The biggest losers here are people on low incomes – though the general upward pressure on land prices means that businesses also face punishingly high rents in some cities.
The scale of the housing crisis is significant, but minimal reforms to ease it would barely affect the composition of England’s landscape at all. Ninety per cent of land in England remains undeveloped, and just 0.5 per cent would be required to fulfil this decade’s housing needs. Around London, we favour previous proposals to remove restrictions on land within a ten minute walk of existing railway stations to allow the construction of 1 million new homes. That would use up around 3.7 per cent of the capital’s Green Belt.
But these policies only defer the problem, and in fact the Green Belt as it is currently comprised is much less valuable by any objective metric than is commonly believed. More than a third of protected Green Belt land is intensively farmed agricultural land, which generates net environmental costs – in other words, it is worse than doing nothing with the land at all. This contrasts unfavourably with gardens and parks, both of which are relatively biodiverse and deliver net environmental benefits.
What’s more, because it drives up the price of inner city land, there is a trade-off between Green Belt green space, and urban green space like gardens and parks. This represents an enormous welfare loss. Each hectare of city park is estimated to be of £54,000 total benefit per year to residents, compared to a mere £889 per hectare for Green Belt land on the fringe of an urban area. The question should not be if we want green space, but where.
Houston, Texas, is often used by both supporters and opponents of planning liberalisation. The city is one of the least planned in the world, and is enormously sprawling and sparsely populated for its size. Commuting times in Houston are some of the highest in the United States, which is a major cost. But the donut-like nature of London’s existing commuter belt means that a more naturally sprawling capital may actually reduce commuter times here: commuters who currently live in towns far from the city would be able to live in new homes at its edge.
What’s more, in Houston, housing and living costs in general are extremely low. It’s arguable that because house prices were almost wholly a function of supply and demand that this is why Houston’s housing market escaped the house price collapse almost unscathed.
Some will point out that the shortfall in house construction since the 1980s has to a significant extent been a consequence of almost no social housing being built. This is a fair point, but it misses the fact that social housing development on urban land faces exactly the same land costs as private construction. According to polling by the Joseph Rowntree Foundation almost nobody actually wants to live in social housing compared to owning their own home – but even if you want to ignore this inconvenient fact, you still must increase the supply of developable land by reforming the Green Belt and planning in general.
All public policy entails trade-offs of this sort, and both defenders and opponents of the Green Belt should accept that there will be winners and losers whatever the policy is. The relevant question is who wins and who loses. The overwhelming losers from the Green Belt appear to be city-dwellers on low incomes; the winners appear to be middle-income homeowners. Whether we ditch the Green Belt or gently tinker with it, it is hard to think of a more important policy reform to improving the lives of Engand’s worst off.
Sam Bowman is deputy director of the Adam Smith Institute.