Tradable Planning Permits
Instead of giving away permits for construction, giving away tens of billions of pounds a year in free building rights, we should sell these permits to fund tax cuts, support public services and pay down government debt
Since the 1980’s there has been a surge in economic productivity across manufacturing and services alike, following the liberalisation of product and services markets. In stark contrast, productivity in both construction and agriculture has been far weaker over the last three decades, held back by excessive regulation and protectionism respectively. Excessive planning restrictions have led to a chronic shortage of housing in the UK, pushing up rents and house prices relentlessly. As discussed in the prior chapter, generous subsidies have distracted farmers from improving agricultural productivity, and have instead diverted their focus onto exploiting Common Agricultural Policy (CAP) subsidies, which makes up 38% of UK farm income. We must relax excessive planning regulations to allow the construction industry to finally blossom and to wean the farming industry off of its subsidy addiction.
Subsidy reform is conceptually simple, however without a well-planned policy program for the transitional pain, this will be impossible to achieve without causing excessive hardship to the farming community. Correspondingly, deregulation of planning permission needs to be carefully designed so that we do not ruin the “Areas of Outstanding Natural Beauty” and vital wildlife reserves, which preserve the special natural diversity we have in this country. These two policy objectives may initially seem incompatible, yet farmers have one simple asset, which could help solve this dual problem: farmland.
69% of the UK is farmland — wide open spaces dedicated to the growing of crops and rearing of livestock for the UK and global market. It is dominated by monoculture and has severely limited biodiversity. So what if we allowed developers to build on this monoculture “greenbelt” land and allow farmers to cover the cost of the subsidy cuts with profits from small land sales to developers? If just 1% of UK land was converted from agricultural to residential land, we could build 12.1mn new homes (at the average UK density of 48 homes per hectare), the relentless increase in rents and house prices could be halted, and we could begin to build the houses people actually want to live in.
Let us empower farmers to build these houses. We can allocate permits to farmers to convert a small share of their agricultural land into residential land, compensating them for their subsidy losses. These permits should be transferrable so that the farmer in the unpopulated Scottish Highlands can sell his Tradeable Planning Permits to a developer occupying land in the under-housed south east. This will ensure that houses are built where there is the highest demand for them; it will also maximise the farmers’ incomes. Providing 11,000 TPPs a year to farmers should raise around £3.6bn a year — due to the strong price growth in developable land — enough to cover the loss of all CAP subsidies (whose abolition would save the UK government £3bn).
There will be protests, objections and legal challenges, as NIMBYs and environmentalists decry the destruction of “greenbelt” land, even if in reality it is dull monoculture land. They will moan about “profiteering” developers earning millions from the destruction of our natural landscape. Therefore, it is vital we compensate the “losers” from this decision through council tax cuts, investments in local infrastructure and investments in nature reserves. So we need to design a system which raises the revenue to at least cover the cost of compensating the NIMBYs and environmentalists, while further encouraging construction in the areas people want to live.
This revenue could easily be raised by the government selling additional TPPs to developers looking to convert agricultural to residential land. Selling 160,000 TPPs a year would raise approximately £53bn a year in direct revenue and far more in increased tax take from the increased economic activity. This would be enough to finance the abolition of air passenger duty, compensate NIMBYs, raise the national insurance threshold to £12,500 (aligning it with income tax cuts), 2 more Crossrail lines, build a new 4 runway Thames Estuary airport and a new underground system for Birmingham, Leeds and Manchester by 2025.
The greatest benefit of these reforms and the construction boom that would follow may be to stabilise rents. According to the Shelter report “Building the Homes We Need”, raising housebuilding levels to around 250,000 homes a year should lead to price stabilization, putting an end to inflation busting house price and rental increases. Slower house price and rental increases near to economic hubs in Cambridge, London, Leeds or Manchester will encourage internal migration to these booming areas. Finally, there would be a boost to UK productivity, as workers shift from low wage periphery areas to these high wage centres of economic growth. This construction program could become a pillar of the new industrial strategy to boost productivity and allow the government to finally deliver housing that people want to live in.
Why Can’t We Just Build on Brownfield?
So, if we need more housing, why can’t we just build on Brownfield land? That neglected industrial wasteland, blighting the inner parts of our cities and now just stands there derelict. The reality is we already do, yet Brownfield land suitable for housing only makes up 0.1% of UK land. Even if every inch of Brownfield land was used for additional housing, we could only build 1.5mn new homes in total. In fact, the previous Labour government’s target of using 60% of brownfield land for construction “encouraged houses with large gardens” to be “replaced with denser housing or blocks of flats”, as private gardens were defined as brownfield sites. Why not be more imaginative with this brownfield land and focus on beautifying the centres of our towns? Instead of building at a high cost on brownfield sites, brownfield sites could be reclaimed for central parks and green spaces in the centre of our cities.
Paying Off Opponents?
It can be concluded that farmers will be better off, housing will be more affordable, and the government could raise around £53bn from TPP sales. But these reforms could anger a vast number of homeowners on the border with the greenbelt, as well as anti-construction environmentalists. So how do we overcome this local resistance?
Earmarking £3.2bn of funds raised for council tax breaks in areas around development could grant 10 households around each new home a £2000 tax break and £1.8bn could be earmarked for reclaiming derelict land for public parks; wildlife reserves could appease the environmentalist objections. Even after these earmarks, the government would be left with around £46bn a year to spend on tax cuts, infrastructure improvements or paying government debt down.
The UK’s economic potential has been limited by ludicrously tight planning laws, which have punished the young and poor by driving up residential rents; high commercial rents have rendered manufacturing in large parts of the country uncompetitive. For too long developers have exploited the planning system, making large windfall gains every time a development is approved. It is time that those windfall gains are shared among all taxpayers, not just the few developers with lawyers expensive enough to obtain planning permission.
Imagine a policy, which boosted economic growth, improved agricultural productivity, raised tens of billions in tax revenues, pushed down rents and left the country more beautiful than when we started. Isn’t that exactly what a cash starved new One Nationist government should be looking for?