Land Values and the Absence of Radical Solutions
Every year, I pose a simple question to our masters students. I ask: assume that the field above is 1ha in size and located near Oxford. How much is it worth when it’s used for agriculture? We soon establish that its price as arable land is about £9000. I then ask: how much is this same field worth with planning permission for housing? Answers normally start from £20,000, though some intrepid students might guess as high as £100,000.
The same field would actually be worth around £4,000,000. In other words, the value of the field has increased 500 fold.
The difference usually elicits gasps of incredulity. But why are we shocked by this? After all, we live on a small island which has a growing population and an intense demand for housing. I think the answer lies in the moral dimension to the scale of increase: what did the landowner personally do to achieve this rise in value? This question leads to some thorny issues that lie at the heart of planning: its relationship with markets, the role of state intervention in the management of land, who owns land, and the question of what, if anything, we do about the unequal distributions of wealth in society.
These are not new issues. This ‘unearned increment’ as John Stuart Mill termed it, has been a source of anger for some time. Sometimes, concern has been expressed in unexpected quarters – for example, in a 1909 speech, Winston Churchill argued:
Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains — and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.
In the twentieth century, British planning has repeatedly tried – and failed – to tackle this problem. Three times have Labour governments introduced a tax on the unearned increment – or betterment (in 1947, 1967 and 1976), only to see it repealed by a Conservative government[i] viewing it as an interference in a private land market. Since the 1980s, questions of betterment have largely been off the mainstream political agenda.
One might think that the current ‘housing crisis’ would have pushed the issue of land ownership and profit up the political and academic agenda. Our housing costs have markedly increased ahead of wages, and it is estimated that land value accounts for up to 80% of the price of a house[ii].
Instead, the blame for rising house prices is firmly laid at the door of planners and NIMBYs halting the supply of new housing. This shapes our response – we propose such things as the need to bring back national and regional plans[iii], or merely speed up the planning system. However, this only looks at one side of the problem – it isn’t only the planning system that restricts supply.
One consequence of this is that researchers and government haven’t truly got on top of the nature of land ownership in this country – who owns what, what motivates them to sell. Furthermore, what has been missing are radical proposals for changing the ways in which land for development is owned and managed in the public interest. We need to have a debate about whether the state would make a better landowner, whether we should tax or nationalise land ripe for development, and whether we might make better places as a result. The draft manifesto from the Planners Network UK makes a good start but as planners we must sustain this debate.
[i] Ironically, it was Winston Churchill’s government of 1951 that repealed betterment tax
[iii] http://www.addleshawgoddard.com/cdc/asset_store/document/9473_planning_manifesto_report_163747.pdf – I won’t comment here on the irony of a document produced by a corporate law firm as being ‘too radical for any political party’: http://planninglawblog.blogspot.co.uk/2014_08_01_archive.html