Here’s an infectious music video from when I had just turned 18 and gone up to University. Ah, those were heady days!
Here’s OutKast with ‘Hey Ya!’:
With this post, I celebrate my first century.
No doubt a letter from the Queen is in the post.
A recurring theme in this blog is that I am worried that house prices are very high, and that this is ultimately because there aren’t enough houses being built. In my last post on scarcity, I laid some of the blame on the planning system.
In a free market system, high house prices would have developers piling in to build them. Houses cost much the same to build as ever, so when the price is high there are huge profits to be made building and selling/renting them.
However, we no longer have a free market system in place for housebuilding*. Since developments of all kinds have spillover effects**, we have put in a planning system to give the wider community a say in what gets built and where. This is fair enough. But it has perhaps led to a rise in NIMBYism***, a hostility to new development that focuses too much on the social costs of development at the expense of missed opportunities – the first home that never gets built, the new jobs that never get created.
I suggested in a post long ago that to increase public support for new housebuilding, the system had to recognise these social costs, and help compensate people for them. I also suggested I knew where this compensation would come from. Well, here goes…
The key insight is that planning permission, being scarce, is valuable. When, say, planning permission is given for some farmland to have houses built on it – that land becomes much more valuable**** – sometimes over a hundred times more valuable! It is this money, appearing almost out of thin air, that can be used to deal with compensating people for the social costs of development.
Without going into too much detail, a Community Land Auction is a 2-part auction where the local authority, such as your city or county council:
Because the land is much more valuable when it has planning permission, the local authority can pocket a big profit. It can use this windfall to compensate people.
If this sounds a bit too commercial, remember the local authority represents voters. These auctions would take place around local election time – the first auction taking place before, the second after. Parties would have to say what their plans are for new developments in the area, so voters would get a chance to vote on what plans it prefers.
Parties could also say what they plan to spend the windfall on. It could:
This system still ensures local people have a say over their local area, but it doesn’t neglect the economic aspects of what we choose to build and where. It combines the ballot box and the market place.
I said previously that scarcity is a key fact both of life and economics. We can not achieve, as individuals and societies, all that we want to achieve, or buy all that we want to buy, given our limited means. We want more than we can have – things are scarce. And in economics, things that are scarce are valuable*.
A couple of common observations should illustrate this.
Is scarcity good or bad? I suppose it depends whether you have the scarce thing or hope to obtain it. High oil prices are good if you are selling the oil, bad if you want to buy it.
Well, so far, so bleedin’ obvious. But I wanted to talk about how we as societies create artificial scarcity, often as a by-product of pursuing other aims.
Am I arguing for people being able to build anywhere? Or for any one able to walk in off the street to perform a coronary bypass? Or for people to be able to buy cocaine from a pharmacy? No – the above policies all have their good reasons – although in many cases I think a better balance could be struck, personally in the direction of less restriction.
My point is that these rules, by creating scarcity, are creating value and so making some richer and some poorer. When we create scarcity, we are redistributing money from one person to another just as surely as if we tax one man to pay the wages or benefits of another. As informed citizens, we need to think more carefully about the economic consequences of the rules we lay down.
And finally, what is our scarcest resource? I’d say our time. There will only ever be 24 hours in a day, and so many decades of healthy, active life for us all. Our time is immensely valuable, so stop reading this blog and make the most of it!!!