Tuesday, 7 January 2014

The Ultimate Regulation Tax

Economists keep banging on how planning regulations are the main cause of high house prices. They say, if we scrapped regulations, prices would dramatically fall.

We tend to disagree with this simplistic analysis, but no matter. Even if they were right, is it still the correct policy?

Good urban planning goes a long way to making a location desirable. Not just amenities, but making sure development enhances the shared environment.

High rental value of land is a sign not just of a good economy but good planning too.

The problems in regard to affordability all start when high rental values(good) get capitalised into selling prices(bad).

The reason for this is landowners do not create location values. Locations has value, but no cost of production. In other words, this is the Mother of all subsidies/free lunches.

Naturally, this also creates the Mother of deadweight losses too. Huge transfers of wealth from poor/young to rich/old and land inefficiency and mis-allocation. Those looking to get on the housing ladder are therefore most disadvantaged by this.

Therefore, the correct policy for the most net welfare gain cannot be to just "relax" planning, but to stop the gains from it being monopolised.

Anything else is akin to throwing the baby out with the bath water.

LVT is the perfect mechanism for internalising all the externalities regarding the issues surrounding planning vs demand.

If local authorities were incentivised by receiving a share of any uplift in rental values, planning would take care of itself.

Greenbelt laws not required.

Or we could always get rid of the ultimate "Regulation Tax": law and freehold property rights.

Without those "regulations" we can absolutely guarantee lower "house prices".

Not doubt we would be accused of being silly and "throwing the baby out with the bath water", but then why not take this "Regulation Tax" idea to its logical conclusion?


Bayard said...

I'll have to remember that one: property law is just more planning regulations, i.e restrictions on free land use.

Mark Wadsworth said...

My comment was too long for a comment so i did a separate post.