Community Land Auctions

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…

My inspiration here is a pamphlet called Community Land Auctions’(←Click to read a PDF of it) written by Tim Leunig for the CentreForum think-tank.

Community Land Auctions Cover

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:

  1. gets landowners to bid on how much they’d sell land for development.
  2. sells the land it chooses, now with planning permission, to developers to build homes and shops.

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:

  • meet with specific objections to developments – spending money on easing traffic or on improving local natural areas.
  • spend money on local services, like schools and care for the elderly.
  • cut council taxes or parking fees.
  • send a cheque to every household near developments.

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.

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* I’ll leave it to you decide which system is better. I suspect that the homes, towns and cities built in the pre-planning-permission pre-WW2 era look rather nicer than those built after. Whether that’s due to the planning system or just changes in architectural style and craftsmanship, I’m not sure.

Either way, I think people underestimate the way beauty and order can emerge unplanned – and are too quick to underestimate the benefits and overestimate the costs of greater freedom.

** These are the externalities I have spoken so much about. The deal between the landowner and developer does not necessarily consider those positive spillovers – new places to live, work and shop – and negative ones – increased traffic, spoiled views.

*** An Americanism, NIMBY is an acronym meaning Not In My Back Yard.

The idea being that while people recognise in a general way that houses, roads, power stations, shops, offices etc. need to be built if our living standards are to improve, people don’t want them specifically near them. And when everyone feels that way…

Some have rather rudely suggested that the NIMBY has turned into the BANANABuild Absolutely Nothing Anywhere Near Anything.

**** The example given in the pamphlet is that agricultural land would be worth £15,000 a hectare, while residential land in a place like Oxford would be £4 million. That’s over 250 times as much!

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