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Home / Tim Worstall /They’re still not understanding the economics of planning reform

They’re still not understanding the economics of planning reform

Summary:
Well, yes, this is rather the point:In one fell swoop, the entire system that has governed land use in England for more than 70 years has been set ablaze.Who knew that progressive liberals were such conservatives that something should be kept just because it has existed? As with Polly Toynbee yesterday though they’re still not grasping the economics of the matter:Luckily however, in 2018 the government commissioned an independent review to identify the drivers of slow construction rates in England. The so-called Letwin review found that the main bottleneck on housing supply isn’t the planning system, but the “market absorption rate” – the rate at which newly constructed homes can be sold on the local market without materially disturbing the existing market price. In a system where

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Well, yes, this is rather the point:

In one fell swoop, the entire system that has governed land use in England for more than 70 years has been set ablaze.

Who knew that progressive liberals were such conservatives that something should be kept just because it has existed?

As with Polly Toynbee yesterday though they’re still not grasping the economics of the matter:

Luckily however, in 2018 the government commissioned an independent review to identify the drivers of slow construction rates in England. The so-called Letwin review found that the main bottleneck on housing supply isn’t the planning system, but the “market absorption rate” – the rate at which newly constructed homes can be sold on the local market without materially disturbing the existing market price.

In a system where development is left in the hands of profit-maximising firms, there is a strong incentive to build strategic land banks and drip-feed new homes on to the market at a slow rate. The reason for this is simple: releasing too many homes at once would reduce house prices in the area, which in turn would reduce profits.

By handing over even more power to private developers, the government’s reforms will make this problem even worse.

Let’s imagine that everything up until the last sentence is in fact correct. So, how do we solve this? Producers can only control the total amount of whatever it is that is placed upon the market if there is some monopoly or powerful oligopoly in the system. In a free market you cannot restrict supply in order to maintain price. For if you do the other folks in the market won’t.

So, if a third or a half of the country can now be built upon how can anyone restrict housebuilding so as to maintain prices? They can’t - which is one of the points of the reform itself. And if they try then others won’t thereby defeating the tactic anyway.

Once again we’ve people complaining about their specific worry being solved. Perhaps it would help if those who wished to do economic planning understood some economics?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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