As a general musing, there is a school of (libertarian) thought that says that planning restrictions push up land values, because they restrict the supply of land.
This is clearly true at the very edge of a town - the NIMBYs vehemently oppose anything that might encroach upon The Hallowed Greenbelt, because they will lose the view, so farm land on one side of the invisible line is worth £5,000 - £10,000 an acre, but residential land on the other is worth £1,000,000 per acre*, but in the grander scheme of things, it is not true.
Imagine, if you will, two railway stations on a railway line, or different junctions on a motorway, which goes from the centre of town (where everybody wants to work, shop, relax etc) into the distant countryside, a few miles apart (but only a few minutes apart in rail or car terms, and hence equidistant from the town centre for these purposes).
The local council at Station or Junction A caves in to the NIMBYs, who happen to own a cluster of houses near the station or junction, and all new construction, property extensions, alterations to fabric of anything is banned.
However, the local council round Station or Junction B goes on the other tack (maybe all the councillors are in the construction industry, but don't yet own any of the land, let's say) and scraps all planning regulations, apart from zoning the areas on the map crudely into the town centre, where you can do what you want within reason; a residential area on one side of the town centre (extending outwards as far as people want to build) and a commercial/industrial bit between the town centre and the station or junction (but otherwise extending outwards as far as people want to build).
We then sit back and wait for a couple of decades to see how things develop.
Now answer me this: in which area will land values (i.e. total property values minus construction costs) be higher? In Hamlet A or in thriving commuter-belt town B?**
* This sounds like a lot, but imagine ten houses worth £200,000 each on one acre. The houses each cost £100,000 to build (including builder's profit margin, connection to utilities etc), so that tenth of an acre must be worth £100,000; £100,000 x 10 = £1,000,000.
** Yes of course the land values at the very outer edge of Town B will never be much more than their value as farmland, because if the value of houses or commercial premises on the very edge ever exceeds their construction costs by any significant margin, the farmer or landowner will simply build some more and the town will expand a bit; there will be a natural outer limit to how far Town B can expand set by 'the markets'. I mean the overall total land values in the whole conurbation.
Grand theft Labour
28 minutes ago
12 comments:
I prefer to be out of town myself, for aesthetic reasons.
JH, I didn't ask "Where would you most like to live?" as everybody has their own answer to that, each of which is by definition correct.
A couple of points:
1) Current land values for sites with planning permission for houses are running at c. £500K/acre not £1m. It was £1m+ at the height of the boom, prices have dropped considerably since then.
2) The whole planning restrictions debate is intimately tied in with Land Value Tax IMO. If all land is free to be used as the owner sees fit, I find little problem with taxing its value, because the value will be in its current usage, not its potential usage.
Thus at the moment a person with a big garden 'could' get planning permission for an extra house. The value of their garden would therefore be (if they sold it) considerably higher, even pro rata, than a smaller garden. So their LVT would be high, based on the potential for development. But if all land was equally able to be developed then their garden would have no extra value, and they could leave it as garden if they preferred so.
As under the current system planning is granted by a body exterior to the owner, I see no reason why the landowner should have to pay extra tax on the basis of someone else's decisions. Remember it is entirely possible to make a planning application on someone else's land, even without their permission. As long as you inform them you are make the application, they cannot stop you.
So you could own a piece on land, a developer could make an application and get permission. You might not want to sell your land for development, but would still be liable for the extra LVT without having done a thing to merit it, or have the wherewithall to pay it.
Do away with planning rules, and this unfairness disappears.
S,
1) Agreed, I was trying to make the maths simple.
2) Liberalising planning laws is a good thing in and of itself; LVT is a good thing in and of itself. Both together would be even better.
But turning to the topic in hand, however liberal you were with planning permission, let's say in Town B, it must be clear that there will be areas with higher values (near the park, the bus stop, a good local school) and with lower values (near the railway line or motorway, near the gasworks or the sewage works).
It would not make any difference whether you or somebody else applied for planning for your big garden - you would have it automatically! (But don't forget the much older legal concept of mutually binding restrictive covenants as between neighbours, a sort of development ceasefire - but even here, you would only do it if it enhanced your land value ab initio and didn't depress it!!)
This differential will always persist, despite the fact that land values at the very margin are always £nil by definition, see **footnote.
1) Current land values for sites with planning permission for houses are running at c. £500K/acre not £1m. It was £1m+ at the height of the boom, prices have dropped considerably since then.
So with LVT we have automatic tax reductions during recessions? Cool. Of course government will have to budget accordingly, ideally by aiming to break even in the worst years and running a huge surplus to pay off past debts in the boom years.
As an aside, another benefit of a CBI that I hadn't considered before is that the cost is fixed (to first approximation), i.e. unlike the current benefit schemes it doesn't suddenly get a lot more expensive in a recession.
So you could own a piece on land, a developer could make an application and get permission. You might not want to sell your land for development, but would still be liable for the extra LVT without having done a thing to merit it, or have the wherewithall to pay it.
I may not be happy with this developer forcing me in effect to sell my land, but the ~£490k per acre I have just pocketed for no effort would certainly help me feel better. I could always use it to buy almost 100x as much farmland/countryside elsewhere.
Plus, there is no law that requires me to sell to this particular developer. I could instead sell it to one of his rivals. :-)
"So you could own a piece on land, a developer could make an application and get permission. You might not want to sell your land for development, but would still be liable for the extra LVT without having done a thing to merit it, or have the wherewithall to pay it."
If the developer had to pay a 95% planning permission fee/windfall tax on the increase in value on land he didn't even own (see earlier fiscal suggestion), that would soon put paid to this sort of behaviour.
Mark, in your example I would definitely expect land values in Town A to be lower than they would otherwise be, because of the liberal planning restrictions in Town B. (More people would move to Town B, thus reducing demand for land in Town A.) So liberal planning in Town B would reduce land values in Town A!
Land values in Town B would certainly be lower initially, because of simple supply and demand. Once it became a thriving metropolis, the land values might rise - but that would be because of the economic growth, not because of the planning restrictions.
I guess ultimately land supply is physically fixed, so eventually that would constrain supply. But at the moment, planning restrictions make the supply much lower than it would be without them.
Ed:
"So with LVT we have automatic tax reductions during recessions?" In a perfect world, yes.
"another benefit of a CBI that I hadn't considered before is that the cost is fixed". I did mention that a while back - with a flat rate benefit and a flat rate income tax, if the economy dived by 3% then tax receipts would dive by 3%.
In the UK, marginal tax/benefit withdrawal rates are so high that although the economy only shrank 5%, govt. deficits (less taxes more welfare) are up by about 5% of GDP (even in the absence of 'fiscal stimulus', whatever that is).
B, the UK has tried these development taxes, and in practice they never worked - they failed to raise any money AND they stifled development.
AC: "Once it became a thriving metropolis, the land values might rise - but that would be because of the economic growth, not because of the planning restrictions."
Correct! Which takes us back to the issue of who or what creates land values; whether you call it 'economic growth' or 'society in general' is semantics. Clearly, those people who work harder or bettr create more land values than those who don't; despite being forced to pay more in income tax.
"- they failed to raise any money AND they stifled development."
I can't see how they failed to raise any money, beyond the fact that it is ridiculously easy for the government to fail at anything. As for stifling development (or speculation, as it should really be called), well of course, if you are not going to make any money from bribing a council official to change the class use of a piece of land, you are not going to do it, are you? There were no windfall gains to be made from planning permission in the C19th, but you can't say that there was any lack of "development" - just look at the size of London in 1851 compared to its size 50 years later.
B, I don't know the ins and outs, but take it from me, the taxes were tried three or four times since 1945, were a failure and were scrapped after a couple of years.
Designed to fail? Wouldn't be surprised.
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