It really is planning that is the problem with housing and house prices


We know, we go on about this almost ad nauseam. But it really is true that the basic problem with housing and house prices is the planning system. An interesting paper from the CEPR allows us, once again and via a different route, to prove this:

How have house prices evolved over the long‐run? This paper presents annual house prices for 14 advanced economies since 1870. Based on extensive data collection, we show that real house prices stayed constant from the 19th to the mid‐20th century, but rose strongly during the second half of the 20th century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Higher land values have pushed up wealth‐to‐income ratios in recent decades.

It is not that houses have become more expensive to build. The standard 3 bedder suburban semi can be put up, from scratch, for £120k and a little less than that in volume. What has become more expensive is that land. And, no, it's not that we're running out of land nor even that land itself has become more expensive. Even prime agricultural land in he SE tops out at £10k a hectare.

It is that land upon which you are allowed to build a house has become more expensive. And that of course is an entirely artificial shortage caused by the planning system itself.

So, if we want to deal with the "housing crisis" what we need to do is reform the planning system. Probably to the one we had before it caused this particular problem which was, essentially, to have no planning system at all.